Ahead of the 28 October Budget: a £35bn gap, and what is already law for offshore bonds

Update, 29 October 2026. The Budget has now been delivered. Its one measure that reaches offshore bonds is a further two point rise in the savings income rates from 6 April 2027, to 24%, 44% and 49% once enacted. The figures and sources are in the 28 October Budget and offshore bonds. The piece below is our pre-Budget briefing of 19 October, kept as written.

John Healey will deliver his first Budget as Chancellor on Wednesday 28 October, with the Office for Budget Responsibility's Economic and fiscal outlook published alongside it. Not one of its tax measures has been confirmed. The Treasury's public message last week was about tone: "my Budget will protect Britain's resilience," Mr Healey said on 15 October. The independent arithmetic published the same week is less comfortable, and for families with offshore bonds, pensions and trusts it frames what this Budget could change.

A £35bn question

The Institute for Fiscal Studies published its Green Budget on 12 October, produced with Barclays and funded by the Nuffield Foundation. In a plausible scenario, headroom against the binding fiscal rule is about £20 billion in 2029-30, down from £24 billion in the March forecast. Higher interest rates on government debt add roughly £10 billion to borrowing in that year. Debt is above 90% of national income, and £1 in every £13 the government spends goes on interest.

The IFS thinks the fiscal rules can still be met; the strain comes from spending plans. Avoiding cuts to departmental budgets could need a top-up of around £25 billion in 2030-31, and raising defence spending to 3% of GDP by 2030 would cost about £11 billion more. Doing both could require tax rises or benefit cuts of about £35 billion. The figure depends on two spending choices, and the IFS says how far to go is for the Chancellor to decide. Helen Miller, the IFS director, said "a 'steady-as-she-goes' Budget is not an option available to the Chancellor". The institute also notes that Rachel Reeves's two Budgets have already made this the biggest tax-raising parliament on record, and that the design of any tax rises would be key.

The Resolution Foundation, working from its own assumptions, published a starker number a day later: on its figures the buffer has halved from £24 billion to £12 billion. It wants it rebuilt to at least £20 billion, with around £8 billion raised in tax. Two of its ideas go straight to internationally mobile families: ending the capital gains tax exemptions on death and on leaving the UK. ITV, reporting the paper, put the yield from those two changes at £4 billion. They are a think tank's proposals, not government policy.

What is reported, and what has been ruled out

The rest is reporting, not announcement. The government has indicated that it does not intend to raise the main rates of income tax, VAT or National Insurance, as Fidelity International noted in a pre-Budget briefing on 16 October. A Financial Times report, carried by Reuters on 13 October, said Mr Healey had ruled out raising capital gains tax to income tax levels; Fidelity's reading is that a rise "of this scale" is off the table, not every rise. The standard CGT rates for individuals are 18% and 24%, with an annual exempt amount of £3,000.

Savers are already absorbing changes made in earlier Budgets. The cash ISA allowance is due to fall from £20,000 to £12,000 for savers under 65 from April 2027, Fidelity points out, and the higher savings rates described below are already in law.

Inheritance tax: the longer game

On inheritance tax, Fidelity recalls that the Prime Minister, Andy Burnham, has spoken of replacing it with a broader levy on estates. He has also said he will put his plan for an NHS-style care system to voters at a general election, which Fidelity reads as a sign that social care reform may not feature in this Budget. The Chartered Institute of Taxation said in September that related tax changes seemed unlikely this year. On the OBR's March forecast, the IFS has noted, the share of estates paying the tax rises from 4.6% in 2023-24, about one in 22, to 9.5% by 2030-31, about one in 11. The nil-rate band of £325,000 and the residence nil-rate band of £175,000 are frozen until April 2031 under the Finance Act 2026, and the rate above them is 40%.

Some changes are already law. Under the Finance Act 2026, most unused pension funds and pension death benefits will count towards the estate for deaths from 6 April 2027, a point HMRC repeated to agents in its update of 15 October. We cover the detail in pensions and inheritance tax from April 2027. A third technical note, promised for the autumn and expected to cover international issues and the interaction with income tax, had not appeared on GOV.UK by 19 October.

For international families the more important shift happened in April 2025, when inheritance tax moved from domicile to residence. Anyone UK resident for at least 10 of the previous 20 tax years is now a long-term UK resident, and their worldwide estate is in scope. The status does not end on departure: it lasts for at least three tax years after leaving, rising to ten for someone resident for 20 years or more. While the settlor is alive, non-UK assets in a trust are excluded property only when the settlor is not a long-term UK resident, so a trust's position can change as the settlor's residence history changes. Our guide to inheritance tax on an offshore bond and the long-term residence test works through how this applies to a bond.

Why a bond sits apart from a CGT rise

For a UK resident, offshore bond gains are taxed as income, not capital gains, and HMRC's helpsheet notes that gains on foreign policies normally carry no basic rate tax credit. In law they are savings income, taxed at savings rates that apply UK-wide, Scotland included: 20%, 40% and 45% now, rising under the Finance Act 2026 to 22%, 42% and 47% from 6 April 2027. A rise in capital gains tax would leave chargeable event gains untouched, while narrowing the gap with a directly held portfolio. The government's signal on the main rates gives bondholders little comfort: their gains fall under the separate savings rates, already due to rise.

The same Act changes the calculation from 2027-28. The personal allowance and other general reliefs must then go first against income other than savings, dividend or property income, and only then against a bond gain. The personal savings allowance of £1,000 for basic rate taxpayers, £500 for higher rate and nothing for additional rate is unchanged so far, and the £5,000 starting rate band for savings is frozen to 2030-31. The rules for top slicing relief on chargeable event gains are amended to use the new savings basic rate; the relief itself remains, still spreading a gain over the complete years the policy has run so that one encashment does not push the whole gain into a higher band.

Much of a bond's appeal is timing, and that is untouched by anything reported so far. Up to 5% of each premium can be withdrawn each year, cumulatively, for 20 years without an immediate charge, though the 5% withdrawal allowance defers tax rather than removing it. Giving a bond, or some of its segments, to someone else is not itself a chargeable event, because only an assignment for money or money's worth counts. And the rules reward time spent abroad: a gain is generally reduced in proportion to the days the owner was not UK resident, and a gain that arises while the owner is non-resident is not taxed in the UK, unless the absence counts as temporary non-residence, broadly five years or less. That is where the Resolution Foundation's exit idea and a bond diverge. A CGT charge on leaving the UK would reach shares held directly; it would not, on its own, change the income tax rules for a bond. Our note on moving to, returning to or leaving the UK with an offshore policy covers those reliefs.

One limit applies to every UK resident: no one can simply hold a bespoke, privately managed portfolio inside a bond. Under the personal portfolio bond rules, HMRC taxes a deemed gain at the end of each policy year, worked out at 15% of the premiums paid plus earlier years' deemed amounts, less any earlier part surrender gains. That rule has nothing to do with this Budget, but it shapes what a UK resident's policy can sensibly hold.

What to compare after 28 October

Inheritance tax remains the bigger unknown. For a long-term UK resident, a bond held in his or her own name sits in the estate like any other investment, so any change to the tax would reach it. Bonds held in loan trusts and discounted gift trusts depend on rules that a broader estates levy could also touch, if one ever comes.

For a family weighing a surrender, an assignment or a gift into trust, the comparison is now between three sets of rules: those for 2026-27, those already enacted for 2027-28, and whatever Mr Healey announces on 28 October.

This article is general information only and is not tax, legal or financial advice.

Sources

Institute for Fiscal Studies, Green Budget 2026 press release (12 October 2026)
IFS, "The outlook for the public finances" (12 October 2026)
Office for Budget Responsibility, October 2026 forecast timetable
Resolution Foundation, "Hitting the buffers" (13 October 2026)
ITV News on the Resolution Foundation report (13 October 2026)
HM Treasury, Chancellor's statement (15 October 2026)
HM Treasury, Chancellor's letter to the Treasury Committee on the Budget 2026 date (31 July 2026)
Financial Times report on capital gains tax, as reported by Reuters (13 October 2026)
Fidelity International, "What can we expect in the Autumn Budget?" (16 October 2026)
IFS response on inheritance tax (7 October 2026)
Finance Act 2026, sections 3, 5, 6, 9, 71 and 72 and Schedule 1 (legislation.gov.uk)
GOV.UK, "Inheritance Tax if you're a long-term UK resident"
Inheritance Tax Act 1984, section 48ZA
HMRC, HS321 Gains on foreign life insurance policies (2026)
HMRC Insurance Policyholder Taxation Manual (5% allowance, time apportionment, assignments, personal portfolio bonds)
HMRC, Agent update: issue 148 (15 October 2026)
HMRC, Technical note 2 on inheritance tax and pensions (27 August 2026)
Chartered Institute of Taxation (4 September 2026)