The 28 October Budget and offshore bonds: savings rates to 24%, 44% and 49% from April 2027

John Healey delivered his first Budget as Chancellor on Wednesday 28 October 2026. For a family holding an offshore bond one line in it matters more than the rest: the rates of income tax on savings income rise by a further two percentage points from 6 April 2027. Chargeable event gains on a life policy are savings income, so the tax on cashing in a bond in 2027/28 is now set to be 24% at the basic rate, 44% at the higher rate and 49% at the additional rate, subject to the Finance Bill. No measure in the Budget mentions investment bonds, chargeable events, top slicing relief or the personal portfolio bond rules by name. The change reaches them all the same.

What was announced

The Treasury's policy costings document lists the measure as "Savings Income: increase tax rates on savings income by 2ppts at the basic, higher and additional rate from 6 April 2027", with the same two points added to the rates on property income. The Finance Act 2026, which enacted last November's Budget, had already lifted the savings rates from 20%, 40% and 45% to 22%, 42% and 47% from the same date. The two increases stack, which is how Royal London, Bishop Fleming and Forvis Mazars all read it: 24%, 44% and 49% from 6 April 2027, across the whole of the UK, since savings income is not devolved.

Dividend tax was left alone. The Chancellor said there would be no further change to the dividend rates, which stand at 10.75%, 35.75% and 39.35% with a £500 dividend allowance. The main rates of capital gains tax, 18% and 24%, were not raised, and there is no exit charge on leaving the UK and no change to the uplift of base cost on death. Business asset disposal relief is cut to the first £500,000 of lifetime gains, from £1 million, and a new founders' relief from 6 April 2027 charges 10% on up to £10 million of qualifying gains under stricter conditions.

On inheritance tax, the nil-rate bands stay frozen and unused pension funds come into the estate from 6 April 2027, both as previously announced. A new rule, applying to deaths and chargeable transfers from 28 October 2026, limits the deduction of trustee liabilities that were funded with value from a beneficiary's own estate. The seven-year rule, taper relief and the residence nil-rate band are unchanged. For savers, the planned £12,000 cap on cash ISA subscriptions has been dropped, the £20,000 ISA allowance stays, and the Lifetime ISA is to be replaced by a first-time buyer ISA.

Why offshore bond gains are caught

Income Tax Act 2007 section 18 treats gains from contracts for life insurance as savings income. When a UK resident cashes in an offshore bond, takes out more than the cumulative 5% allowance, sells it, or the last life assured dies, the gain is taxed at the savings rates of the tax year in which the event falls. There is no 20% credit on a policy from an insurer outside the UK, because the insurer paid no UK tax on the fund. So an event in 2026/27 is taxed at 20%, 40% or 45%; the same event after 5 April 2027 at 24%, 44% or 49% once the Finance Bill passes. On a £1,000,000 gain in the hands of an additional rate taxpayer that is £40,000 more tax for waiting a tax year, before any relief.

Top slicing relief survives untouched. It still divides the gain by the number of complete years the policy has run and works out the relief at the rates of the year of the event, so the slice and the whole gain are measured against the same, higher, bands. The Finance Act 2026 had already rewritten the relief to use the new savings basic rate, and nothing in this Budget reverses that. Our offshore bond tax calculator runs the figures for 2026/27 and for 2027/28; we will move its 2027/28 rates to 24%, 44% and 49% once the Finance Bill is published.

Three things the Budget did not change still decide most of the outcome. The 5% withdrawal allowance remains a way to draw on the bond without an immediate charge. Giving whole segments to a spouse, an adult child or a trust is still not a chargeable event, so a gain can land in the hands of someone taxed at a lower rate (assigning an offshore bond). And time spent outside the UK still comes off the gain in proportion (moving to or from the UK with a bond). The personal portfolio bond rules are also unchanged: a policy whose assets the policyholder can choose is still taxed on a deemed gain of 15% a year.

What to compare now

For a family that was already weighing a surrender, the question is the same one we set out before the Budget, with new numbers: an event in 2026/27 at this year's rates against one in 2027/28 at rates four points higher. Deferral is worth more with every rise in the savings rates, but only if the money will eventually come out at a lower rate than today's, in retirement, abroad or in the hands of the next generation. A bond that will be cashed in by an additional rate taxpayer in a few years' time has just become a little more expensive to hold.

Two points are still open. The Budget papers do not say whether the trustee rate on savings income moves with the additional rate; the Finance Bill will. And the personal savings allowance and the £5,000 starting rate band, which can shelter a small part of a gain, are not mentioned either. We will update this note and the UK tax page when the Bill is published.

This article is general information only and is not tax, legal or financial advice. Rates for 2027/28 are as announced on 28 October 2026 and take effect only when enacted.

Sources

HM Treasury, Budget 2026 Policy Costings (October 2026), "Savings Income" and "Property Income" measures
Royal London, Autumn Budget 2026: key announcements (28 October 2026)
Bishop Fleming, Autumn Budget 2026 summary (28 October 2026)
Forvis Mazars, Autumn Budget 2026 summary
Professional Paraplanner, Budget 2026 key announcements (28 October 2026)
Income Tax Act 2007, section 18 (savings income)
Finance Act 2026 (legislation.gov.uk)
HMRC, HS321 Gains on foreign life insurance policies (2026)