Autumn Budget 2025 summary

Income tax 

Frozen income tax thresholds

As predicted, the Chancellor backtracked on her promise to increase thresholds by extending the freeze by a further 3 years, to the end of the tax year 2030/31. The income tax Personal Allowance will stay at £12,570, higher rate threshold at £50,270 and additional rate threshold at £125,140.

This freezing tactic, known as fiscal drag, will bring in over £23 billion over the 3-year period.

In addition to fiscal drag, there was more bad news for savers and landlords with new higher rates being introduced from 6 April 2026 and 2027:

Dividend taxation

Tax on dividend income will increase by 2 percentage points. The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75% from April 2026. The additional rate will remain unchanged at 39.35%.

The dividend tax credit for non-UK residents with UK income will also be abolished, aligning their treatment with UK residents. This will also take effect from 6 April 2026.

Savings income

Tax on savings income will increase by 2 percentage points across all bands. The basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from 6 April 2027.

The Starting Rate for Savings will be retained at £5,000 until 5 April 2031.

We do not believe that there will be any change to the policyholder rate for life assurers and the basic rate tax credit on chargeable event gains, but are seeking clarity on this point.

Property income

Property income will also have its own individual tax rate. From 6 April 2027, the property basic rate will be 22%, the higher rate will be 42% and the additional rate will be 47%. Finance cost relief will be provided at 22% (currently 20%).

The governments of Scotland and Wales will be engaged to provide them with the ability to set property income rates in line with their current income tax powers.

Order of income

Current rules allow for income tax allowances to be used in the most beneficial way. This would allow taxpayers to shield some of the income types above in preference to earned or pension income. The income tax ordering rules will be changed from 6 April 2027 so that the Personal Allowance will be deducted against employment, trading or pension income first.

Income tax relief on VCT investments

From 6 April 2026 the VCT income tax relief will decrease to 20%, down from 30% currently.

National Insurance (NI)

There were no headline rate changes to NI, however, thresholds will remain frozen in line with income tax until 2030/31.

The per-employee threshold at which employers become liable to pay NI (the Secondary Threshold) will also be maintained at £5,000 until 2030/31.

From the 2026/27 tax year, new restrictions will apply to individuals who have spent time abroad. You will no longer be able to make Class 2 voluntary contributions; instead, you may only use Class 3 contributions to fill gaps in your National Insurance record caused by periods abroad. To qualify for paying Class 3, you must have either lived in the UK for 10 consecutive years or paid National Insurance contributions in the UK for at least 10 years.

Capital Gains Tax (CGT)

Annual Exempt Allowance & CGT Rates

There were no changes to the AEA or CGT rates.

CGT uplift on death

After lots of speculation that this generous relief would be removed, no changes were announced.

Employee Ownership Trusts

The CGT relief available on qualifying disposals to Employee Ownership Trusts will reduce from 100% of the gain to 50% from 26 November 2025.

Inheritance Tax (IHT)

Nil-Rate Band & Residence Nil-Rate Band Frozen until 5 April 2031

The nil-rate band (£325,000) and Residence Nil-Rate Band (£175,000) thresholds were frozen until 5 April 2030. This has been extended by a year to include the 2030-31 tax year. The Residence Nil-Rate Band taper amount will also remain at the current level of £2 million. This measure will be effective from 6 April 2030 (as they were already frozen until this date anyway).

No changes to gifting exemptions

There were no changes to the IHT gifting exemptions, which will remain as now.

Agriculture Property Relief/Business Property Relief

The forthcoming combined allowance for the 100% rate of agricultural property relief and business property relief will also be fixed at £1 million for a further year until 5 April 2031. This will be legislated for in the Finance Bill 2025-26 and take effect from 6 April 2030.

Any unused £1 million allowance for the 100% rate of agricultural property relief and business property relief will be transferable between spouses and civil partners, including if the first death was before 6 April 2026. This will also be legislated for in the Finance Bill 2025-26 and take effect from 6 April 2026.

Individual Savings Account (ISA)

From 6 April 2027, the annual cash ISA limit will be set at £12,000, within the overall annual ISA limit of £20,000. Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2031. Savers 65 and over will continue to be able to save up to £20,000 in a cash ISA each year.

The speculation regarding a mandated investment level into UK equities did not materialise, although it was announced that some financial services firms have committed to providing new, easily navigable ways for clients to find the right UK investment for them.

Lifetime ISA (LISA) reform

The government will publish a consultation in early 2026 on the implementation of a new, simpler ISA product to support first time buyers in purchasing a home. Once available, this new product will be offered in place of the LISA.

Pensions

Pensions were relatively lightly impacted in this year’s Budget. There will be no changes to the main pension tax allowances, which will continue at their current levels for the 2026/27 tax year.

This means the Lump Sum Allowance, Lump Sum and Death Benefit Allowance, Overseas Transfer Allowance and Annual Allowance all remain unchanged, providing some continuity for retirement planning. This includes those elements within the Tapered Annual Allowance. So threshold income continues at £200,000 and adjusted income stays at £260,000.

The headline measure for pensions relates to salary sacrifice.

NICs on salary sacrificed pension contributions

Salary sacrifice into pension schemes is forecast to almost treble in cost, from £2.8 billion in 2016-17 to £8 billion by 2030-31. As a result, the government has sought to limit its cost.

From April 2029, the amount of pension contributions that can be made via salary sacrifice and benefits from employee and employer NICs relief will be capped at £2,000 per year. Contributions above the £2,000 cap will be subject to NICs in the usual way.

One crumb of comfort is the confirmation that normal employer contributions to pensions (i.e. not funded via salary sacrifice) will continue to be fully exempt from NICs, and income tax relief on pension contributions will remain unchanged.

The State Pension

With the freeze on the income tax personal allowance extended to 2031, many more pensioners will be brought into tax. In recognition of this, the government will ease the administrative burden for pensioners whose only income is the basic or new State Pension (without any increments). From 2027-28, this change will mean that pensioners in this group will not have to pay small amounts of tax via Simple Assessment if their new or basic State Pension exceeds the Personal Allowance from that point. More details on how this will be implemented will be shared in 2026.

Today, the government also confirmed its commitment to the triple lock for the remainder of Parliament. The new State Pension will increase by 4.8% (average earnings) in April 2026.

They also confirmed that the third independent review of State Pension age and new Pensions Commission are currently considering how the pension system can be made fit for the future. Both are expected to provide updates in 2026.

IHT on unused Pension

As announced previously in the 2024 Budget, the government committed to include most defined contribution pension death benefits in scope of the IHT regime.

Today’s Budget confirms an additional feature of the process for IHT to help support personal representatives to effectively administer estates containing pensions.

If personal representatives expect IHT to be due, they can direct pension scheme administrators to withhold 50% of the taxable death benefits for up to 15 months from the date of death.

Personal representatives can then direct the pension scheme to pay the IHT due to HMRC before releasing the rest of those benefits to pension beneficiaries. If the instruction is withdrawn or the period ends, the remaining funds can be paid out.

This will not apply to:

• exempt benefits e.g. those paid to a spouse or civil partner,
• funds under £1,000, or
• continuing annuities.

Personal representatives will also be discharged from liability for pensions discovered after they have received clearance from HMRC.

Defined Benefit Pensions

The government has confirmed that from 1 January 2027 it will provide inflation protection for pre-1997 pensions rights held in the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS), where members’ former schemes provided this.

Collective Money Purchase (CMP)

The government will enable unconnected, multiple employer CMP schemes to apply to HMRC to become a registered pension scheme and allow HMRC to refuse to register or to de-register an unauthorised CMP scheme.

Other points of interest

‘Mansion Tax’ - High Value Council Tax Surcharge (HCVTS)

The government will introduce the High Value Council Tax Surcharge a new charge on owners of residential property in England worth £2 million or more, starting in 2028-29. Local authorities will collect this revenue on behalf of central government. Revenue will be used to support funding for local government services, with further detail to be set out at the next spending review. The government will consult on implementation of HVCTS in the new year.

An estimated 165,000 properties will be subject to the tax in 2028–29.

Salary Sacrifice and High-Income Child Benefit Charge (HICBC)/Tax Free Childcare

Employees who choose to sacrifice salary to receive Tax Free Childcare or Child Benefit can keep doing so and are not affected by the budget. Salary sacrifice can continue to be used to reduce income to negate the effects of the HICBC and loss of tax-free childcare.

Removal of the two-child benefit cap

Child benefit is a separate benefit from the child element paid as part of the Universal Credit benefit. From 6 April 2026 the two-child cap that applies to the child element of Universal Credit will be removed.

Corporation tax

No changes to the rates of Corporation Tax.

Tax Table