Income Tax thresholds frozen
Although the Chancellor maintained Labour’s manifesto pledge not to raise the headline rates of Income Tax, Ms Reeves did announce an extension to the freeze on Income Tax thresholds to April 2031. Without thresholds rising with inflation, more people’s earnings will be pushed into the higher tax brackets, without an uplift in their standard of living. This ‘stealth tax’ measure is expected to raise £8bn a year for the government, which gives a sense of how widely it will be felt.
Salary sacrifice schemes curtailed
Salary sacrifice schemes are a popular way of encouraging people to put money aside for their retirement. You simply give up part of your salary in return for an employer contribution into your pension. As the contribution comes straight from your pay before deducting tax and National Insurance (NI), both you and your employer save on the amount sacrificed. However, from April 2029, only the first £2,000 of salary-sacrificed pension contributions each year will not be subject to National Insurance. Anything above that will attract both employer and employee NI at the usual rates.
As well as affecting those looking to boost their retirement savings, this change has other knock-on implications. For example, people often use salary sacrifice to stay below the £100,000 earnings threshold, at which point their £12,570 personal income allowance begins to be withdrawn. Without being able to use salary sacrifice, more people with incomes between £100,000 and £125,000 will find their effective marginal tax rate hikes up to 62%.
Salary sacrifice has also been used by parents trying to keep their income within the limits for childcare benefits. The new cap reduces how much room there is to use that approach, although it’s worth remembering that there is still time to make salary sacrifice contributions before the new rules come into force in over three years’ time.
New ‘mansion tax’ brought in
If you live in a home worth more than £2m, you’ll be disappointed to learn that from April 2028, you’ll be expected to pay a new annual high value Council Tax surcharge.
This surcharge, collected by your local authority, will be £2,500 for properties valued from £2m to £2.5m, £3,500 for homes valued from £2.5m to £3.5m, £5,000 for homes valued from £3.5 to £5, rising to £7,500 for properties valued at £5m or more. The Valuation Office will be conducting a targeted valuation exercise to identify properties above £2m. While this tax does not directly affect most households, it may influence the upper end of the housing market and reshape long-term expectations about how property wealth is taxed. For families hoping to trade up in future, it could mean longer selling times, tighter negotiation and fewer higher-value homes coming up for sale. The surcharge will also affect landlords who own properties over £2m.
Changes to Cash ISAs and other investments
In a move designed to encourage more Britons to invest in home-grown companies, from April 2027, the annual Cash Individual Savings Account (ISA) allowance will fall to £12,000 for under 65s, but the overall annual ISA allowance remains £20,000. In other words, you can invest £12,000 in a Cash ISA each year and invest £8,000 in a Stocks & Shares ISA. The Lifetime ISA or LISA, which is designed to appeal to first-time buyers, is due to be replaced sometime next year with a simpler version. The Junior ISA allowance remains at £9,000.
Dividend, savings and property income taxes up
From April 2026, Dividend Tax will rise by two percentage points, to 10.75% and 35.75% for basic and higher-rate taxpayers, respectively. Small company directors who take income through dividends will see higher tax bills from April next year as a result.
Tax on savings income and property income will also increase by two percentage points from 2027. These increases apply to income held outside tax-efficient wrappers. If you have a general investment account, rental properties or meaningful cash savings, you can expect your tax bill to gradually rise.
For landlords, the basic, higher and additional rates will increase to 22%, 42% and 47% respectively from April 2027, a move that could add between £20 and £25 per month to typical rents in England. Coming on top of changes to Mortgage Interest Relief and Stamp Duty which have already increased landlord costs and hit profits, the OBR has recognised that this move will hit landlords in the pocket and force rents up.
VCT and EIS tax relief reduced
For those considering higher-risk investments, Income Tax relief on Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) will be cut from 30% to 20% from April next year. Although this reduces the upfront incentive of investing in these funding mechanisms for UK early-stage higher risk companies, there are still other benefits. The government is increasing the VCT and EIS company investment limit to £10m, and £20m for Knowledge Intensive Companies (KICs) and increasing the lifetime company investment limit to £24m, and £40m for KICs. These changes will be legislated in the Finance Bill 2025/26.
Electric vehicle owners targeted
Drivers of electric vehicles will face new per-mile charges from 2028, with a rate of 3p per mile for full EVs and 1.5p for plug-in hybrids. Although the rates are low, it introduces a running cost that did not previously exist and will need to be factored into budgeting when you plan your next car purchase.
Two-child benefit cap removed
Although maybe not relevant to you, one of the most significant announcements during the Budget was the decision to remove the two-child benefit cap. The change may offer some relief if household income ever drops because of redundancy, illness or separation. The removal of the cap provides a stronger safety net at a time when families can be financially stretched and more vulnerable to unexpected shocks.
We’re always here to help
Budget announcements can feel overwhelming, especially when you’re balancing so many moving parts – career, family, property and retirement planning all at once. So, it’s important to remember that most of the changes announced this year won’t come into effect until 2027 or later. There’s no need to make quick decisions. Instead, talk to your Finli planner about your long-term plans and how these announcements could influence them. We’re here to help you make sense of the details and support all your financial needs.
All details are correct at the time of writing (03 December 2025)
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
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