Newsletter September 2026

The last six months have brought some of the most significant changes to UK pensions and estate planning in a decade — a new Prime Minister, confirmed plans to bring pensions into inheritance tax for the first time, and continuing friction for clients with US tax and estate connections. This newsletter summarises some of these key developments in addition to including updates on global markets from a UK fund manager’s perspective and recent changes to US taxation of foreign gifts.

As always, please do not hesitate to contact your Florin Pensions’ advisor if you have any questions regarding your UK pension planning.

From 6 April 2028, the earliest age at which most people can normally access their UK pension savings is rising from 55 to 57. If you are several years off 55, this is simply a date to be aware of. But if you will be turning 55 or 56 around that time, there’s a specific transitional window to be aware of.

Who is affected

The transitional rules apply if you were born between 6 April 1971 and 5 April 1973 — in other words, you’ll be aged 55 or 56 on 5 April 2028, the day before the new rules take effect.

• Born before 6 April 1971? You’ll already be 57 or older by the time the change lands, so it doesn’t affect you.
• Born on or after 6 April 1973? You won’t reach 55 until after the increase, so you’ll simply need to wait until 57 to access your UK pension, with none of the transitional protection described below.

What the transitional rules mean for you

UK HM Revenue & Customs (HMRC) has set out its intended approach in Pension Schemes Newsletter 180. The principle is straightforward: if you’ve already started drawing pension income from your pension before 6 April 2028, those payments can continue uninterrupted — even though you haven’t yet turned 57.

This covers, for example, funds you’ve already moved into Flexi-Access Drawdown before that date. Once you’ve taken that step, ongoing income payments from those “crystallised” funds remains possible, regardless of your age when each individual payment is made.

What it does not do is give you a general right to start drawing on your pension for the first time between age 55 and 57. If you haven’t yet moved some or all of your funds into drawdown by 5 April 2028, you will need to wait until you turn 57 to do so — unless you qualify for a scheme-specific protected pension age or you’re retiring on ill-health grounds.

Why this matters for planning

If you’re approaching 55 in the next couple of years and think you may want to start taking income from your pension before you turn 57, timing matters. Acting before 6 April 2028 could preserve your ability to draw an income seamlessly through the transition; leaving it later could mean an unplanned wait until 57.

This isn’t a decision to rush — accessing pension savings early has long-term implications for your retirement income, tax position, and any allowances you may hold. But it is a conversation worth having well ahead of the deadline, with your Florin Pensions advisor.

A word of caution

These rules are not yet finalised. HMRC is currently consulting on the draft legislation, with the technical consultation closing on 28 September 2026. While we don’t expect the core approach to change significantly, the details could still be refined before it becomes law. We’re monitoring developments and will update you as the position becomes clearer.

We will be making contact with clients who will be turning 55 or 56 around April 2028 to talk through what this means for your own plans, however, do not hesitate to speak to your Florin Pensions advisor if you have any questions at this time.

This article reflects HMRC’s currently published guidance (Pension Schemes Newsletter 180, April 2026) and the draft regulations open for consultation. The rules described may change before being finalised.

For our clients, obtaining the correct UK tax treatment on pension withdrawals remains one of the most persistent administrative frictions we experience as advisors — and it continues to catch clients out.

The core problem

By default, HM Revenue & Customs (HMRC) requires UK pension providers to deduct tax at source through PAYE on withdrawals, even where the pension member is not UK resident. To stop this, a non-resident member needs HMRC to issue their pension provider a ‘Non-Tax’ (NT) code, confirming that — under the US–UK Double Taxation Treaty — the income should be paid gross, with tax instead due only in the country of residence. To do this, we assist clients with the application process which includes completing IRS Form 8802 and HMRC Form 2002.

HMRC generally needs an existing PAYE record before it will issue an NT code (see below). Processing times vary but we advise clients to assume at least six months.

When a client takes their first pension withdrawal this is usually taxed on an emergency ‘Month 1’ basis, which can result in significant over-deduction — sometimes up to 40%. Any overpaid tax can be reclaimed, but in our experience, the process can take time. We recommend you speak to your Florin Pensions advisor well in advance of the time you plan to start drawing pension income.

A new complication: HMRC’s guidance on ‘lump sums’ (INTM163160)

A further layer of complexity has emerged from guidance HMRC added to its International Manual at INTM163160 (‘Pensions – Lump Sums’), first published in March 2025 and updated as recently as August 2026. This is the first time HMRC has set out, in writing, how it decides whether a UK pension payment counts as a ‘periodic payment’ or a ‘lump sum’ for treaty purposes — a distinction that matters a great deal, because the two are taxed quite differently under Article 17 of the UK/US Double Taxation Treaty.

Article 17(1) — the provision an NT code is generally built on — gives taxing rights over periodic pension payments to the individual’s country of residence. For our clients, this would be the United States. Article 17(2), however, carves lump sum payments out separately and gives exclusive taxing rights to the country where the pension scheme is established — the UK, for a UK pension.

HMRC’s guidance sets out the factors it will weigh in deciding which category a withdrawal falls into: principally, whether the payment is regular in timing and amount, and what proportion of the remaining fund it represents. As a rough guide, HMRC’s own examples suggest a payment of 20% or more of a pension fund is likely to be treated as a lump sum, while a consistent pattern in amount and timing (HMRC’s example: roughly £20,000 drawn every year) is more likely to be treated as periodic.

Based upon Florin Pensions’ recent experience, HMRC’s guidance is having a practical effect for our clients both when applying for an NT code and even when a client already has an NT code.

For clients seeking to obtain an NT code, it is becoming important to be able to demonstrate that pension payments are periodic in nature. In addition, for clients that already have an NT code we are seeing that this does not automatically extend to a later lump sum-style withdrawal — like an unusually large one-off SIPP drawdown or inconsistent future pension drawdowns. Where such a withdrawal is treated as a lump sum under this test, the UK may retain a taxing right over it under Article 17(2), notwithstanding the client’s US residence and their existing NT code — a result that would previously have been widely assumed not to arise.

This adds real friction to a process that was already slow. Before any significant or irregular withdrawal, we recommend that you consult with your Florin Pensions advisor. It is now important to consider whether HMRC is likely to characterise it as a periodic or lump sum payment.

It doesn’t end with the NT code

An NT code only stops UK tax being withheld at source — it does not exempt the income from tax altogether. US taxpayers must still report UK pension income on their US tax returns as ordinary income. We always recommend that you speak to your US tax advisor regarding how this foreign income is treated, including foreign tax credits and associated filing requirements.

What to consider

• If you would like to apply for an UK NT code, speak to your Florin Pensions advisor well in advance to discuss the application process and confirm your pension drawdown strategy.
• This is a two-jurisdiction problem: UK administrative delay on one side, US reporting complexity on the other, and both need managing together.
• Before taking a large or irregular UK pension withdrawal, discuss with your Florin Pensions advisor as it could be considered a ‘lump sum’ under HMRC’s INTM163160 guidance — an NT code covering periodic income may not shield a lump sum-style withdrawal from UK tax.

Commentary

This reporting period has seen the military might of the US humbled by Iran in much the same fashion as Russia continues to experience in Ukraine. Drone warfare has been a ‘game changer’ allowing nations with this technology to effectively defend against, and frustrate, a much better resourced adversary. Although the rhetoric from Donald Trump continues to be victorious, even some of his loyal supporters acknowledge the war has not gone to plan and the current negotiation is likely to provide considerable concessions to Iran.

As the US approaches the mid-term elections in November, President Trump’s approval rating is at an all time low of -25% (as at the 2nd of August) being below the same point of his previous term in 2017 (-9%) and Biden in 2021 (-15%). Inflation is the area of most concern to voters with approval at -47% being directly linked to the effect of the Iran war on energy costs and the ongoing imposition of tariffs. The likely outcome is that the Democrats secure a majority in the House of Representatives where they will be able to limit President Trump’s domestic policy, particularly through their control of funding. However, they will have less direct influence over foreign policy which may push Trump further into this arena where consequences for global investors are unpredictable.

Despite the volatile global political environment, all major markets increased in value when measured by the relevant IA (Investment Association) peer group sector over this reporting period. Japan and UK All Companies increased by +7.24% and +7.10%, followed by Europe (ex-UK) +6.90%, Asia Pacific (ex-Japan) 6.03%, North America +5.22% and Global Emerging Markets +4.71%. Fixed interest markets improved slightly, measured by the IA Gilts Sector which returned +1.02%.

In summary:

• The catalysts for a rotation away from ‘Mag 7’ (Apple, Microsoft, Amazon, Alphabet (Google), Meta Platforms, Nvidia, and Tesla) into the wider market are coming into view as capital spending into Artificial Intelligence soars higher. The capital ‘parasites’ are becoming the capital ‘hosts’, increasing the risk of traditional index tracking underperformance due to index leadership rotation.
• Company earnings are increasing, partly as a result of inflation, which is helping valuations improve on key measures such as price-to-earnings ratios.
• Inflationary pressures are expected to remain elevated due to high government debt and underlying political causes deterring central banks from acting through rate increases, as the cause is seen as external to domestic interest rate policy.
• The Trump MAGA movement is losing support, and a post-mid-terms loss of the ‘House’ could put additional attention on ‘erratic’ foreign policy, increasing risk, and possible reduction in allocation to US assets by global investors.
• We continue to expect equity markets to trend higher, with some rotation away from AI into the broader market (ex-US large cap), whilst fixed interest markets trend sideways, or even lower for longer dated maturities.

The most attractive investments require little capital and provide significant profits. However, these businesses generally have few barriers to entry, so profits are quickly competed away. By contrast, businesses with high barriers to entry often require significant capital investment, for example pharmaceutical companies, where research and development costs are significant. If we consider the growth of the World Wide Web in the late 1990s, there were several companies that made huge capital investments to develop fibre optic infrastructure anticipating near endless demand for data. Companies such as Global Crossing (bankrupt in 2002), WorldCom (collapsed in 2002), BT (share price is now around 80% below its 2000 peak), AT&T (share price remains below its Y2K peak) and Verizon (share price remains below Y2K peak), amongst many others. The expectation of insatiable appetite for data was correct, so what went wrong for these business models?

Competition led to massive, synchronised capital investment resulting in acute inflation as the resources available to meet the demand for a rapid global fibre optic roll-out were insufficient. The value achieved was poor, setting the scene for underwhelming returns, further exacerbated by falling costs for fibre optic infrastructure as the supply chain shifted in response to demand. The situation then deteriorated further, as technological improvements allowed greater data transmission through existing infrastructure, the emergence of competition from wireless (3G, 4G then 5G) and later satellite (Starlink) meaning the cost of data access remained low. As can be seen, capital investment is inherently risky and there is always a possibility the business model will shift before the expected return on capital is achieved. Accordingly, equity markets generally ascribe a lower valuation multiple to capital-intensive businesses to reflect the additional risk whereas businesses with low capital investment and high margins are more attractive leading to higher valuations.

The capital investment into global data networks acted as ‘host’ for new business models which were able to leverage the investment of others to facilitate their business models as capital ‘parasites’. Businesses such as Meta, Apple, Netflix and Microsoft could not have thrived without consumers having rapid data access. However, the investment into AI is now turning these capital parasites into capital hosts and the numbers are bigger than anything previously seen in the history of the world. The expected investment into AI this year by the Mag 7 alone is expected to be over $800bn and exceed $1 trillion in 2027. This equates to approximately 5% of US GDP and is larger than the entire US defence budget. By next year, it is likely the Mag 7 will see negative free cash flow as their investment into AI will exceed the cash generated from normal operations.

It is not clear whether the substantial investment into AI will lead to an attractive return on capital, this will depend on demand, competition and, perhaps most interestingly, the effect AI has on itself. Railways destroyed the value of canals and road transport had a similar effect on railways. The advances in AI are occurring quickly and de-valuing previous models. For example, has Google’s AI engine destroyed the value of the Google search engine? If so, did they have any choice given a competitor could have achieved the same thing? Has the new Google AI search engine reduced advertising revenue as it is far more effective, therefore reducing the traffic created by the previous search engine? Is the investment into AI more about long term survival or will it generate additional revenue and returns for investors?

What is becoming clear is that businesses in all sectors can benefit from the use of AI which is inexpensive, at least for now, and improving efficiencies in a wide range of areas. The productivity benefits, and therefore profitability enhancement, will be progressive and will continue to accrue over time. Mainstream companies appear to be the new capital parasites, benefiting from the capital hosts of the AI leaders who may never be able to properly monetise their record-breaking capital spending. A rotation of capital from highly valued, predominately US listed AI leaders, into the wider market where valuations are more modest, could be underway with further room to develop into a long-term trend. It is comforting to note that the AI leaders can afford their investment into AI from existing cash flows, so the prospect of a 2000s style market crash is unlikely but the future returns from these companies are dependent on growing revenues.

The cost-of-living crisis is a key platform topic for the latest Prime Minister of the United Kingdom as inflationary pressures persist at home and globally. Andy Burnham is the seventh Prime Minister to occupy No. 10 in 10 years following the dismissal of Keir Starmer by the Labour parliamentary party. It is difficult to think of a current political policy which is not inflationary at the present time. Russia’s ongoing invasion of Ukraine, the US attacks on Iran, Israel’s Palestinian conflict, climate change initiatives, US trade wars, associated responses and ever-increasing debt of developed countries are all examples. Central banks are reluctant to increase interest rates to tackle inflation due to the risk of causing economic damage combined with concern the measures will be ineffective, given much of the inflation risk is seen as external. Furthermore, central banks also underestimate the long-term inflation consequences of expanding the money supply (quantitative easing) following the global financial crisis in 2008/9 and Covid in 2019/22. Therefore, it is expected that inflation will remain elevated, diminishing the prospects for fixed interest investments whilst benefitting equities where earnings are generally inflation protected due to business pricing power.

As negotiations to re-open the Strait of Hormuz continue, it has become clear that the total defeat of Iran has not been possible and the US will need to make some uncomfortable concessions to reach a deal. The popularity of Donald Trump has been in decline since he took office last year with a recent pronounced dip linked to instigating attacks on Iran. Current polls suggest the Democrats will take a majority in the House of Representatives at the forthcoming mid-term elections on the 3rd of November. In this case, the Democrats will have much greater power in relation to the domestic agenda, for example they could frustrate President Trump with impeachment proceedings or block funding for his policies. The prospects for US politics to descend into bitter point scoring are high and it is likely to turn the President’s attention to foreign policy where his powers will be largely unaffected. Trust in the US amongst allies has deteriorated due to trade wars, reversals to agreements, criticism of NATO and hostile threats over Greenland with prospects of any improvement looking doubtful.

The US has dominated global markets since the current world order was established at the conclusion of the Second World War. As such, the Dollar is the global reserve currency and the US stock market represents around 70% of global listed financial assets by value, despite the US only accounting for around 4% of global population and 12% of trade. This position developed due to the trust of US allies and confidence in the application of law and justice. In an era of diminishing trust in US leadership, this concentration of investment could reverse. For over two decades index tracking strategies have increased in popularity as investors have been attracted to the combination of low cost and attractive returns. The S&P 500 has performed strongly as leading companies have continued to grow profits and increase their valuations with the Mag 7 now accounting for 34% of the S&P 500, being a multiple of 243 times their value on an equally weighted basis.

From time to time, leadership within indices changes generally causing performance to fall below an equally weighted index or against actively managed funds. If investors see a divergence between attractive returns and low cost, which way are they likely to trend? This question is reminiscent of music hi-fi systems popular in the 1980s and 1990s where manufacturers concentrated on perfectly recreating the sound through high-quality speakers, gold plated connectors and graphic equalisers believing this motivated the end user. However, when the new MP3 format allowed listeners to store near unlimited songs, albeit at reduced quality, it became clear the quality of sound reproduction was secondary to the convenience of having a large music library. If there is a divergence between performance and cost, performance will be the overriding objective which may come as a surprise to those focused on cost reduction alone.

In summary, the environment of higher inflation, caused by historical loose monetary policy, current political tensions and record capital investment, is enhancing earnings growth in all major markets. This provides a general tailwind for global equities and an ongoing headwind for fixed interest markets. Within global equity markets, the leadership of capital investment is changing as the Mag 7 invest record capital into AI with clear benefits to business and mankind but risks as the revenue model is not yet evident. The US is suffering from a deterioration in trust, and this could also impact the premium enjoyed by US equities, especially if President Trump’s domestic powers are curbed at the mid-terms and his erratic approach shifts further towards foreign policy.

Strategy

We continue to hold reduced allocations to fixed interest investments as these assets are negatively affected by rising inflationary pressure. Where held, the maturity profile is at the shorter end, as the inflationary effect is negligible, and the fixed rate offered is above the expected rate of inflation to provide a real return.

Allocations to the US are underweight due to higher valuations, the dominance of AI driven stocks, and the difficulty predicting which companies will achieve an economic return from their AI investments and how this will occur. Weightings are diversified away from US assets in favour of the UK, Asia and Emerging Markets which are more attractively valued and are expected to benefit broadly from AI as companies find efficiencies through the implementation of this technology.

Within equity markets, we hold increased exposure to medium and smaller companies to reduce exposure to Mega-caps, particularly those investing record capital into AI development.

Toby Ricketts CEO, Margetts Fund Management Ltd.