Key points from the 2025 Budget

We outline the main takeaways from the 2025 Autumn Budget that may affect your pensions, income, savings, investments and lifestyle.

On 26th November, the wind was taken out of the sails of the Autumn Budget by a leaked report, revealing all the key points just before Chancellor Rachel Reeves could deliver it! After weeks of speculation and a run of drip-fed announcements, there weren’t many surprises, with very few giveaways and a higher tax bill on the horizon for most.

Here’s an overview of the key points that might affect you and your family.

Personal taxes

Tax thresholds frozen for longer

Reeves extended the Conservative’s income tax and National Insurance freeze for another three years up to April 2031. This means that more people will pay more tax and drift into higher tax brackets as wages rise – what’s known as fiscal drag or ‘stealth tax’.

To put things in perspective, if the £12,570 personal allowance increased in line with inflation since it was frozen in 2021, today it would be worth around £15,700, and the £50,270 higher rate threshold would be £62,850.  

Remember, being dragged into a higher income tax bracket also hikes up your tax bill for capital gains, savings, property and dividend income. Another knock-on effect is shrinking your personal savings allowance from £1,000 to £500 (or zero for additional rate taxpayers).

Meanwhile, other thresholds remain stuck at an artificial low – the Chancellor extended the £325,000 Inheritance Tax threshold another year to 2031, and there’s been no change to frozen capital gains or dividends Tax allowances. As such, most people can expect a larger tax bill year on year as income, pensions and asset values grow over time.

"Most people can expect a larger tax bill year on year as income, pensions and asset values grow over time."

Higher tax rates for other income

There’ll be a 2% increase to income from savings and dividends over the next two years:

• • • Dividends tax from April 2026 goes up to 10.75% tax for basic rate taxpayers, 35.75% for higher rate taxpayers. The 39.35% additional rate stays the same. 
      
      
• Savings income tax from April 2027 rises to 22%, 42% and 47% for basic, higher and additional rates respectively.

Cash ISA allowance reduced to £12,000 for under 65s

In an effort to boost investing over saving, at least £8,000 of the original £20,000 ISA allowance has been reserved solely for stocks and shares ISAs. However, if you’re over 65 you won’t be affected by the cap, so can continue to invest up to £20,000 into a cash ISA each year. Existing ISA savings aren’t affected.

Pensions 

Some pension contributions will start being taxed

From April 2029, salary sacrifice pension contributions above £2,000 will attract both employee and employer National Insurance charges. Currently, employees can redirect a portion of pay into their pension tax-free, but the new cap means anything over the £2,000 level would attract the full rate of NI of 8% on a salary of less than £50,000 and 2% on income above that.

This won’t affect ordinary pension contributions, which remain exempt from National Insurance.

The State Pension will rise from April

In better news, the government will honour the ‘triple lock’ policy by increasing State Pension payments by 4.8% next year (more than the current rate of inflation). This brings the full new State Pension to £12,547.60 a year, an increase of £574.60.

While this is welcome, it now takes up the lion’s share of the personal income allowance and potentially could help tip people into a higher tax bracket. 

Inheritance Tax liability is still on track

It wasn’t explicitly mentioned, but last year’s bombshell that pensions will come into scope for inheritance tax (IHT) from 2027 is still in play. Although the government made some tweaks to their plans in July, it’s still expected to increase the average IHT burden by £34,000. 

Property 

• Rental income will start being taxed separately from April 2027 at the same rate as savings income (2% higher than income tax): 22%, 42% and 47%.
  
  
• The expected ‘mansion tax’ was introduced – a new council tax surcharge on houses worth more than £2m begins from 2028, ranging from £2,500 a year to £7,500.
  
  
• The £1m allowance for the 100% rate of agricultural property relief (APR) and business property relief (BPR) established last year is fixed for a further year until April 2031. In a positive change, from April 2026, married couples or civil partners can transfer unused portions of their £1m allowance on death to their surviving spouse, allowing up to £2m of full 100% relief per couple. This aligns APR and BPR with wider inheritance tax rules. 

Transport 

• The 5p cut in fuel duty stays until September 2026 before rising over the following six months.
  
  

• A new mileage tax comes in for electric vehicles from April 2028 (3p per mile for battery electric and 1.5p for plug-in hybrid cars).

Other measures

• The two-child benefit cap for universal or child tax credit will disappear from April 2026.
  
  
• Energy bills will be cut by an average £150 from April. 
  
  
• Minimum wage for over-21s goes up to 4.1% in April to £12.71 per hour; 18–20-year-old wage increases by 8.5% to £10.85 per hour.
  
  
• Capital gains tax relief for owners selling their businesses to employee ownership trusts is immediately halved to 50%. 

The UK economy

• UK economic growth is lower than forecast, expected to be 1.5% for the rest of the decade. 
  
  
• Inflation is estimated at 3.5% this year and 2.5% next, a bit higher than previously predicted. 

What this means for you 

The main pain point in this Budget is the extended freeze of the tax thresholds, which will mean more taxes for most, year on year. This will only be amplified by the upcoming 2% tax increase in savings, dividends and property income. The impending pension liability for inheritance tax in 2027 is another concern.

We'll be discussing these measures along with any recommended actions with Goodmans clients at our regular, face-to-face reviews. The Goodmans Tax Agency is also on hand to clients for year-round, hands-on technical support. And our open-door promise means we're always available to address any concerns. 

If you’d like to book in a financial planning review, give us a call.