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