Autumn Budget 2025 - What It Means For You
- Jeanette Watson
- Dec 3, 2025
- 7 min read
On 26 November, Rachel Reeves delivered her second Autumn Budget as Chancellor. It comes against a difficult backdrop: weak growth, high debt and ongoing pressure on public services.
Her main aims were to:
Plug a large hole in the public finances without another round of “austerity”
Shift more of the tax burden towards wealth, property and investment income
Maintain market confidence by demonstrating fiscal responsibility
The Office for Budget Responsibility (OBR) expects real household incomes to grow by only about 0.25% a year to 2030, so this is not a giveaway Budget.
At the same time, Reeves is using some of the extra tax to:
Scrap the two-child benefit cap from April 2026
Put more money into the NHS and public services
Help with energy bills and transport costs in targeted ways
Broadly:
Higher earners, landlords, investors and owners of high-value homes will pay more.
Low-income families and some pensioners see modest gains.
Middle earners are quietly dragged into higher tax bands over time.
Below is our summary of the Budget and what it could mean for you.
*Link to our full guide can be accessed at the end of this article.
1. Income Tax & National Insurance - The Freeze That Bites Thresholds frozen until April 2031
The big story is not a new tax rate, but the decision to keep income tax and National Insurance thresholds frozen until 5 April 2031. Income Tax and NI bands stay unchanged until April 2031.
Key frozen amounts: Personal Allowance £12,570; Higher-rate £50,270; Additional-rate £125,140; Employer NI threshold £5,000.
Impact: More people pulled into paying tax or into higher tax bands as incomes rise.
Most affected: Working-age earners, pensioners with rising State Pension, and business owners/directors.
Planning tips: Use pensions/ISAs, share income between couples, review salary/dividend mix for company owners.
2. Investment, Savings & Property Income – Higher Tax On “Unearned” Income
Higher tax on investment & property income: Government targeting dividends, savings interest and rental income as they attract lower tax/NI than earnings.
Unearned income targeted: Dividends, savings interest and rental income taxed more heavily as they pay less tax/NI than earnings.
Dividend tax rises (2026): Basic-rate 8.75%→10.75%, Higher-rate 33.75%→35.75%, Additional-rate unchanged at 39.35%. Non-UK residents lose dividend tax credit.
Savings interest tax rises (2027): All bands increase by 2 percentage points (20→22%, 40→42%, 45→47%). Starting Rate for Savings (£5,000) frozen to 2031.
Impact: Around 90% still pay no tax on savings, but wealthier savers and those holding large cash balances will feel the rise.
Rental and other property income – landlords hit again
Rental income tax rises (2027): New higher rates for landlords—22% basic, 42% higher, 47% additional; finance cost relief increases to 22%. May push some landlords to sell or incorporate.
Order of income changes (2027): Personal Allowance must be used against earnings/pensions/trading income first, reducing planning flexibility for people with mixed income sources.
VCT tax relief cut (2026): Income tax relief on new VCT investments drops from 30% to 20%, making the upfront benefit less generous.
3. ISAs & Tax-Free Saving – More Valuable, With A Twist
This Budget quietly makes tax-free wrappers more valuable by increasing tax on what sits outside them.
ISAs become more valuable: Higher taxes outside wrappers increase the appeal of tax-free savings.
ISA allowance rules (2027): £20,000 annual limit stays, but under-65s can only put £12,000 into cash ISAs; remaining allowance (up to £20,000), must go into Stocks & Shares or other ISA types. Over-65s keep full £20,000 cash ISA flexibility.
Other ISA limits frozen: Lifetime ISA (£4,000) and Junior ISA/CTF (£9,000) frozen until 2031.
No UK investment requirement: ISAs won’t be forced into UK-only assets, though providers may offer easy UK-focused options.
Lifetime ISA future change: Government to consult in 2026 on a new first-time buyer ISA that would replace the LISA.
Practical impact for clients: Maximising ISA allowances becomes more important; under-65 cash savers may need to invest more; cautious savers may need mixed strategies (laddering cash, bonds, pensions).
4. Pensions – Allowances Steady, But Salary Sacrifice Capped
Pension allowances unchanged: All main allowances stay the same for 2026/27.
Salary sacrifice cap (2029): Only the first £2,000 of salary-sacrifice pension contributions gets full NI savings; amounts above this lose the benefit.
Who’s affected: Higher earners and anyone using large salary-sacrifice arrangements.
Employer impact: Firms may restructure benefits and review how NIC savings are shared.
State Pension: Triple lock continues; full State Pension rises to ~£12,547.60 in 2026, close to the tax threshold.
Pensioners & tax: More pensioners could hit the Personal Allowance from 2027; government to simplify small tax assessments.
Pension IHT tightening (2027): Most unused DC pensions become subject to IHT; PRs can withhold up to 50% of benefits to cover tax.
Exceptions: Spouse/civil partner benefits, small pots under £1,000, and ongoing annuities unaffected.
DB & specialist schemes: Some pre-1997 PPF/FAS rights gain inflation protection; CMP scheme rules widened.
5. Inheritance Tax – Thresholds Frozen, Reliefs Tightening
IHT bands frozen to 2031: Nil-rate band (£325k) and Residence NRB (£175k) stay frozen; taper threshold
remains £2m.
Effect: Rising asset values mean more estates drifting into IHT.
APR/BPR £1m allowance (2026): £1m combined 100% relief per individual; assets above this get 50% relief (effective 20% IHT).
Allowance frozen to 2031: The £1m APR/BPR limit now locked in until 2031.
Transferable allowance: Unused APR/BPR allowances will be transferable between spouses/civil partners from 2026, including deaths before that date.
Impact on farming/business families: Existing estate plans may need revisiting; large estates can no longer rely on APR/BPR to avoid IHT entirely.
Gifting rules unchanged: All current exemptions (annual £3k, small gifts, surplus-income gifts, 7-year PET rules) remain — lifetime gifting continues to be a key planning tool.
6. Capital Gains Tax – No New Shock This Time
No new CGT changes: No fresh rate or allowance changes in this Budget.
Existing rules already tightened: Annual Exempt Amount now £3,000 (frozen). Main CGT rates on most assets are 18% and 24%.
Planning impact: Phasing gains to use the £3,000 allowance matters more; ISAs/pensions remain key to reducing CGT exposure.
Business owners: Rise in Business Asset Disposal Relief rate to 18% in 2026 still on the horizon — unchanged but still relevant.
7. Property Wealth – The “Mansion Tax” & Visitor Levies
High-value council tax surcharge (2028): New surcharge for English homes worth £2m+; likely to cost owners a few thousand pounds per year.
Who’s affected: 150k–300k properties expected to fall into scope after revaluations; payments may be deferrable until sale or death.
Impact: Seen as a form of property-based wealth tax; may influence decisions on downsizing, gifting property, or using trusts.
Overnight visitor levy: Government consulting on allowing mayors/local authorities to charge a levy on hotel, B&B and holiday-let stays.
Effect on businesses: Potential extra cost for holiday-let owners and hospitality; likely passed on to guests, impacting tourism pricing.
8. Families & Benefits – Two-Child Cap Scrapped
Two-child limit scrapped (2026): Universal Credit and Child Tax Credit two-child cap abolished from April 2026.
Impact: Estimated 400k–450k children lifted out of poverty; cost around £3bn a year.
Client relevance: A social/financial-wellbeing change rather than a tax issue; may ease pressure on larger low-income families.
Child Benefit & HICBC: No change to the High-Income Child Benefit Charge.
Salary sacrifice still useful: Can still reduce taxable income for HICBC and Tax-Free Childcare — the new £2,000 cap only affects NI savings on pension contributions, not income tax calculations.
9. Everyday Costs – EV Drivers, Fuel, Gambling & Vaping
EV mileage charge (2028): Electric cars to pay 3p per mile; plug-in hybrids 1.5p per mile, via new eVED system.
Fuel duty: 5p cut extended to Aug 2026, then phased back up by March 2027.
Gambling duties: Remote gaming and online betting levies rise from 2026/27.
Vaping duty: New duty on vaping liquids from Oct 2026, plus higher tobacco duties.
Overall impact: Not core financial-planning items but relevant to everyday cost-of-living budgets.
Although these aren’t core financial-planning issues, they do feed into your cost-of-living picture.
10. Winners, Losers & Practical Next Steps
Based on current measures and independent analysis, the following groups may be more or less affected.
Likely “Winners”
Low-income families with 3+ children: Benefit from scrapping the two-child limit.
Pensioners relying mainly on State Pension: Gain from triple lock and simplified admin.
Strong ISA/pension users: Better protected as taxes rise outside wrappers.
Likely “Losers”
Middle & higher-rate earners: Dragged into higher tax bands due to frozen thresholds to 2031.
Landlords & property investors: Face higher property income tax and possible mansion tax.
Equity investors & company owners: Hit by higher dividend tax and reduced VCT relief.
Farming/business families: APR/BPR changes cap the amount of trade assets sheltered from IHT.
High salary-sacrifice contributors: Lose NIC savings beyond £2,000 per year from 2029.
Talking points / actions to consider
Tax-efficient wrappers: “Are you maximising ISA and pension allowances before higher dividend and savings taxes kick in?”
Income planning: “How will frozen thresholds and your future pay/pension rises affect your tax band over the next 3–5 years?”. “Should income be rebalanced between partners to stay tax-efficient?”
Landlords & property owners: “Do the new property tax rates or potential mansion tax mean you should hold, sell or incorporate?”
Retirement & estate planning: “Do your wills, pension nominations or gifting plans need updating in light of the new IHT rules?”. “Should we model your future IHT exposure under the APR/BPR changes?”
Family finances: “If your family is affected by the end of the two-child cap, how does this change budgeting or support needs?”
Read the full guide - Autumn Budget 2025
If you want to review your pension plans or have any questions about how the budget may affect you, get in touch via our contact form below:
Please Note
The content of this Autumn Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.
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