Fabio Dias
Photo courtesy of Fabio Dias

LONDON, UK. December 2nd 2025 - "Our behaviour as investors, employers, employees and households is heavily influenced by the tax system," writes Dr. Fabio Dias in his latest client note following the Chancellor's November statement. If the goal of the 2025 Budget was to influence behaviour, it will certainly succeed. Though perhaps not in the ways the Government intended.

Dias occupies a unique vantage point in the financial landscape. A self-described "academic practitioner," he bridges the often-divided worlds of rigorous theory and high-stakes practice. On one hand, he is a Senior Lecturer in Finance at Surrey Business School and Program Director for the MSc in FinTech and Policy, holding a PhD in Econometrics from UCL. On the other hand, he serves as CEO of Stalwart Holdings, applying his research on "signed path dependence" and algorithmic modelling to manage capital in real-time markets.

His assessment of the budget is stark: we are entering an era of complexity where passive accumulation is no longer safe.

The centrepiece of Dias' analysis is the extension of the freeze on Income Tax thresholds until 2031.

"This will mean a period of 10 years with NO increases, which is an incredible amount of time," Dias notes. He points out that if, for example, the Personal Allowance had tracked inflation in those 10 years, "at the end of 2031 it would have been around £17,000, give or take. However, it will still be £12,570!"

This creates a massive "fiscal drag," pulling middle-earners into higher tax bands and dragging pensioners into the tax net for the first time. For the financial advice profession, this signals that "Advice Alpha" has increased. Passive accumulation is no longer sufficient. Clients who previously self-managed via simple workplace pensions now face a complex web of capped allowances. As Dias' analysis suggests, they need professional cash-flow modelling to avoid 60%+ marginal tax traps.

Perhaps the most aggressive behavioural nudge in the budget is the reduction of the Cash ISA allowance from £20,000 to £12,000, effective April 2027. The Government's intent is to force capital into Stocks & Shares ISAs to fund UK growth.

Dias is sceptical of the outcome: "This will probably not have the desired effect... and could just add more complexity," he writes, suggesting that risk-averse savers might simply pivot to Premium Bonds or money market funds which "behave in a very similar way" to cash.

However, he believes that for the advisory community this policy shock creates an immediate "advice gap." Advisors must urgently review client cash holdings. It serves as a powerful conversation starter for moving "lazy cash" into managed portfolios or justifying the shift to Stocks & Shares ISAs, which retain the £20k limit.

For business owners and high earners, the new cap on Employer National Insurance (NI) relief for pension contributions (limited to the first £2,000) is a significant blow.

Dias describes the move as "counter-intuitive," given the state's interest in private pension provision. "The current Government are seeing this as a tax loophole, rather than responsible future planning," he observes. He predicts an unintended consequence: a rush to "start a salary sacrifice scheme with their employer, before it is curtailed in 2029."

This change fundamentally weakens one of the most popular tax-efficiency strategies for corporate clients. Advisors will now need to remodel remuneration strategies for business owners. The "automatic" benefit of salary sacrifice is blunted; calculations must be redone to see if it remains viable versus taking dividends, particularly as dividend tax rates are also set to rise by 2% in 2026.

While the budget addressed Venture Capital Trusts (reducing relief from 30% to 20%) and Electric Vehicles (introducing a "per mile" tax), Dias alludes to the broader anxiety pervading the market.

Advisors are currently navigating a palpable risk of "tax fatigue." With Capital Gains Tax up, dividends squeezed, and now ISAs targeted, wealthy clients may pause decision-making. Furthermore, the "Pensions in IHT" reality, looming for 2027, remains the unaddressed elephant in the room. The 2025 Budget offered no reversal here, meaning advisors must continue dismantling the "pension as legacy" strategy. 2026 will be the critical year to finalize these plans, with Trusts and Whole of Life policies seeing renewed relevance.

Dias criticises the Government's continued leaking of policies to gauge reaction pre-budget, which became known by the jargon of "Kite Flying". He argues that the Government's "kite flying" created "uncertainty which has been damaging to the economy," a sentiment echoed by the Confederation of British Industry (CBI), which reported a sharp decline in business confidence and hiring intentions leading up to the statement. Dias notes that this hesitation caused businesses to pause decisions, directly contributing to unemployment levels "not seen since the aftermath of Covid in 2021." This claim is supported by the Office for National Statistics (ONS) Labour Market Overview from November 2025, which confirmed the UK unemployment rate had risen to 5.0%, matching the recessionary peaks last recorded in the summer of 2021.

Advisory firms themselves are not immune to these risks. They are still digesting the rise in Employer NI to 15%, and the new levy on salary sacrifice adds another line item to overheads, squeezing margins for firms that use generous pension matching to retain talent.

Despite the headwinds, Dias remains pragmatic. "World stock markets are still high, and our globally diversified investments are performing well," he concludes. His final message to clients is one of proactive engagement: "Many people start thinking about their finances in January, but why not get ahead now."

Media Contact

Fabio Dias

fabio.dias@stalwart.vg

07910393327

London, UK