The Chancellor’s latest Budget introduced a series of measures that will affect savers, investors, and homeowners. While some aim to simplify the system, others risk adding complexity. Here’s what these changes mean for you.
The big picture
The headline change is the cut to the annual cash ISA limit, dropping from £20,000 to £12,000 from April 2027. Only people over 65 will be exempt. This move is intended to encourage more people to invest rather than hold cash. However, cash ISAs remain deeply ingrained in UK saving habits, and many savers value the certainty they offer. Splitting allowances between cash and investments, with age-based exceptions, adds complexity to what was meant to be a simple system.
Much of the detail on the changes will be confirmed following a consultation period, such as whether it will impact transfers between ISA types. Stocks & shares ISAs will continue to offer long-term growth potential, and for those who wish to keep savings in cash, options such as money market funds within a stocks & shares ISA exist - though they carry some risk.
Frozen income tax thresholds are another major feature of this Budget. Extended until 2030/31, they will pull millions into higher tax bands even if their real living standards don’t improve. This stealth tax rise means pay growth that once felt like progress will push people into higher rates far earlier than expected.
The freeze on inheritance tax thresholds has also been extended to 2030/31, increasing the tax take to £14.5bn a year by the end of the freeze. Combined with changes to pensions being drawn into taxable estates from 2027, families will need to plan carefully to minimise exposure.
Property and housing
The introduction of an annual mansion tax on homes worth over £2 million marks a significant shift. While affecting a relatively small number of properties, mainly in London and the South East, it adds uncertainty through regular revaluations and could reduce market mobility.
Stamp duty reserve tax will be waived for three years on new UK share listings, a measure aimed at boosting capital markets. However, experts suggest this is unlikely to have a major impact unless the holiday becomes permanent.
Retirement and pensions
National Insurance relief on pension salary sacrifice will be capped at £2,000 from 2029. This could lead to reduced contributions and strain employer budgets, undermining efforts to encourage saving.
From 2027, the government will write off small income tax bills for pensioners whose sole income is the state pension. This attempts to resolve the issue of the state pension surpassing the frozen £12,570 personal allowance in the coming years, which would otherwise drag them into the tax system.
Other notable changes
- A mileage-based tax for electric vehicles (EVs) will replace lost fuel duty but may slow EV adoption and make government targets harder to meet.
- Dividend and savings tax rates are rising, while allowances remain static, meaning more people will pay tax on savings and dividends and face self-assessment for the first time.
With the UK budget in the spotlight, now’s the time to get your money working for you.
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