UK Budget Changes and recent letter from HMRC

In her Budget speech on 26 November 2025, the UK Chancellor indicated changes to voluntary National Insurance Contributions (NIC) for individuals living and working overseas. 

This scheme is likely to cost billions in future commitments to the UK government, so it is not surprising that changes were to be considered.

Announced changes

The 2025/26 tax year is the final year in which those living and working abroad will be able to make voluntary Class 2 NI contributions.  Existing Class 2 NIC voluntary rate arrangements will cease after 5 April 2026.

For those who have been on Class 2, this requires thought for the future years beyond 2026. Instead of paying less than apx £200 per annum at Class 2 to increase your UK State Pension Class 3 will cost apx £900 per annum after 2026, should you wish to continue to contribute (it is all voluntary and down to your personal decision).

Every year you contribute towards the max 35 year UK State Pension will raise the current value of your annual pension by appx £340per annum (this is the current value which is index linked and will increase annually.) So for each annual apx £900 invested it will take apx 2.7 years in your retirement to earn this.

To continue making UK voluntary contributions from the 2026/27 tax year, those living and/or working abroad will need to complete a follow up application (under Class 3 i.e. at the higher rate)

Next steps

HMRC are currently issuing guidance letters by post on the changes announced.
Action will be required by those currently making voluntary contributions at the Class 2 rate to:

• Decide whether they wish to continue adding ‘qualifying years’ at the higher Class 3 rate
• Apply to make Class 3 contributions from tax year 2026/27 and beyond

To apply to continue at Class 3 rate it is a requirement to complete online (as per the letter) on www.gov.uk/class-3-ni-abroad.

It is a simple application process requiring just your Name, Natl Ins Number, address, tel number and takes 5-10 minutes. The only 2 questions that have confused some people were:

“Have you paid voluntary Class 2 or Class 3 National Insurance contributions in 2024/2025 or 2025/2026 tax years?”  Suggest you check if you have paid these and answer accordingly.  On a separate note, after answering, If you have not paid these years and are entitled to class 2 you should have received a letter to voluntarily pay. If you did not receive a letter suggest you call them on +441912037010 and if you wish to pay, use the same means as we suggested previously

 “Will your employer be paying your voluntary National Insurance contributions while you are abroad?”  This was misinterpreted by many people. It refers to the possibility that your NON UK employer will undertake to pay your UK Natl Insurance while overseas. It is unlikely that the answer would ever be yes! If you are self-employed, then the normal answer is usually no.

Once completed you need to print the form, sign and send to the HMRC address shown.

Please note that completing this form does not compel you to pay the future year(s) at Class 3. As always, all payments to improve your UK State Pension are voluntary. But, from my understanding that if you receive a letter and do not re-apply, then you may not have the opportunity to voluntarily improve your forecast in the future.

Most importantly, this future arrangement has been brought about by a UK Government Rule change. Our arrangement with you as clients covered the task of filling past gaps in UK Natl Insurance and we have no role nor responsibility in guiding future decision you make. The information provided above is solely based on our recent experience with these letters to assist you. We will not be providing any further info or exchanging email responses further on the subject. 

We provide Information and execution only, never pension advice.. If you require any advice, you may wish to consult with your pension or financial advisor on this.