27/11/2025
2025 Autumn Budget – Overview of changes
While we cannot cover every detail of the Budget here, we will focus on the key changes that impact personal clients.
Change – Freeze in the income tax thresholds until April 2031
It was announced that the freeze on all income tax bands in England* would be extended from April 2028 to April 2031. Whilst not an increase in the rate of income tax, the OBR expects this to increase the income tax receipts by over £12.4Bn in tax year 2030/31.
Creating what is known as fiscal drag; as salaries and pensions increase, a larger portion of their income falls into higher tax brackets, even though their real purchasing power hasn’t increased much.
This effectively acts as a stealth tax on inflation driven income growth, likely increasing the numbers of basic, higher and additional rate taxpayers along with those impacted by the £100,000 personal allowance taper.
*tax rates and bands differ in Scotland, Wales has powers to adjust tax rates.
The use of tax efficient planning becomes even more valuable as tax increases. Contributions to a pension scheme reduce your adjusted net income and receive tax relief at your highest marginal rate.
Utilise your ISAs allowance on an annual basis. Funds invested within an ISA are free of income tax, allowing clients to utilise their income tax allowances elsewhere.
It would also be prudent for both spouses to ensure they are using their annual tax allowance fully and ensuring, where appropriate, that assets are owned in the most tax efficient way between spouses.
Change – Cash ISA allowance reduced from £20,000 to £12,000
The Chancellor announced that she would maintain the total ISA annual subscription limit at £20,000 with cash limit reduced to £12,000 for under‑65s from April 2027.
Cash ISAs have long been an efficient means of holding surplus cash in an income tax efficient wrapper. The Chancellor explained she was attempting to drive individuals to redirect their contributions to investment ISAs due to increased growth potential over the long term.
The Chancellor confirmed the change was brought in to encourage greater numbers to invest, rather than hold assets in cash. Financial Planners can support important education conversations to ensure investing these funds is appropriate, based on investment horizons and objectives.
Change – National Insurance relief on pension Salary Sacrifice limited to £2,000
It was announced that full exemption from National Insurance Contributions, for both employees and employers, on pension contributions made by salary sacrifice would be limited to £2,000.
The government will levy employer and employee NICs on pension contributions above £2,000 per annum made via salary sacrifice. These changes will take effect from 6 April 2029.
The costs of this relief were set to increase from £2.8 billion in 2016-17 to £8 billion by 2030-31 without reform, and use of these arrangements has disproportionately benefitted higher earners.
Where it is appropriate to do so, some individuals may wish to maximise the use of the pension allowance before the 2029 changes.
It’s important to remember that salary sacrifice doesn’t operate in isolation. It is often used as a means to reclaim child benefit and childcare support. Understanding the full benefits of the contribution is valuable.
The upfront tax relief will still make pensions attractive, especially for higher and additional rate taxpayers. There is a risk of the baby being thrown out with the bath water should pension contributions cease due to the changes.
For employers, understanding the financial impact of the additional Employer NICs and whether they wish to alter their employee benefits as a result of the changes.
Taxation of income from assets
It was announced that income from property, dividend and savings income would increase. This was to narrow the gap between tax paid on work and that paid on income from assets.
From April 2027, there will be a separate tax rate for property income of 22%, 42% and 47% for income in the basic, higher and additional rates respectively.
There will be an increase of 2 percentage points to the ordinary and higher rate of dividend income, with no change to the additional rate. This will be effective from April 2026.
Increasing the tax rate on savings income by 2 percentage points across all bands from April 2027.
The use of tax wrappers which shelter individuals from income tax, including ISAs and Pensions will be even more attractive as the tax rates increase. Ensuring allowances and exemptions are used on an annual basis will continue to be vital.
Business owning clients will need to think about their remuneration structure, including the balance of salary and dividends, due to the increase in dividend tax rates.
We saw a number of other announcements which will be of interest to clients.
The so called “mansion tax”, detailed in the Budget as a High Value Council Tax Surcharge, will be levied from April 2028. New charges will start at £2,500 per year for properties worth £2m or more, increasing to £7,500 for properties valued above £5m
Currently, qualifying disposals to Employee Ownership Trusts (EOTs) are provided with 100% relief from CGT. Effective immediately, the rate of relief would be reduced to 50% on all disposals.
It was announced that the £1m Business/Agricultural Relief allowance can be transferred between spouses and civil partners where unused.
The current inheritance nil rate band, residence nil rate band and £1m 100% rate of business and agricultural relief freeze will be extended for another year until 2031.
