After months of speculation and rumour, Chancellor Rachel Reeves has delivered the Autumn Budget for 2025.
Last year, in her maiden Budget, the Chancellor sought to balance the public finances with tax rises to cover a reported £22 billion black hole.
This year, Reeves arguably faced an even more difficult landscape. In turn, she has announced an estimated £26 billion of tax rises by 2029/30.
The Chancellor had to start her speech by acknowledging the “deeply disappointing” and “serious error” of the Budget announcements being released early by the Office for Budget Responsibility (OBR).
Many of the pre-Budget predictions proved to be wide of the mark and, in this update, we’ll explain the key changes and what they mean for you.
GDP, national debt, and inflation
The Chancellor says the government’s plans will reduce borrowing more over the rest of this parliament than any country in the G7. GDP is expected to grow by 1.5% in 2025, higher than the OBR’s 1% forecast earlier this year.
In subsequent years, however, the estimations of growth all fall below previous forecasts:
- In 2026, growth is estimated to be 1.4%, below the previous forecast of 1.9%.
- In 2027, the estimate is 1.6%, the forecast was 1.8%.
- In 2028, it’s 1.5% compared to a forecast of 1.7%.
- In 2029, 1.5% is estimated, 1.8% was forecast.
Due to weaker underlying productivity growth, the OBR estimates tax receipts will be £16 billion lower in 2029/30 than forecast in March 2025.
Average inflation is expected to fall over the next three years to 3.5% in 2025, 2.5% in 2026 and it will fall to 2% in 2027.
National debt will stand at £2.6 trillion this year. £1 in every £10 the government spends is on debt interest.
Tax threshold freezes extended until 2031
The Labour manifesto promised not to increase Income Tax or National Insurance (NI), and despite pre-Budget speculation, the government has kept to that promise in this Budget.
However, the Chancellor announced that Income Tax thresholds will remain frozen for a further three years beyond the previous 2028 freeze, staying where they are until April 2031. This will raise a huge £8 billion in additional revenue. Similarly, the Inheritance Tax (IHT) threshold freeze is extended from 2030 to 2031.
While this will not increase your Income Tax or IHT bills directly, this so-called “fiscal drag” means more of your income and wealth may be exposed to tax over time
The government is also upholding its commitment to bringing pension pots into the scope of IHT from April 2027, and reforms to relief for business and agricultural assets from April 2026.
The tax rates on dividends, savings, and property income will rise by two percentage points
Tax rates are going to rise for dividends, savings, and property income.
- Dividends: From April 2026, ordinary and upper rates of tax on dividend income will rise by two percentage points to 10.75% and 35.75% respectively. There is no change to the additional rate, which will remain at 39.35%.
- Property and savings: From April 2027, the rate of tax on property and savings income will increase by two percentage points across all tax bands to 22%, 42%, and 47% respectively.
Even after these reforms, 90% of taxpayers will still pay no tax on their savings. However, these changes are set to impact many business owners and landlords.
The ISA allowance will be reformed for under-65s, and some allowances have been frozen
The Chancellor announced that from April 2027, the Individual Savings Account (ISA) allowance will change for under-65s.
As it stands, adults can contribute £20,000 across their ISAs, including Cash ISAs and Stocks and Shares ISAs, each tax year.
From April 2027, £8,000 of this allowance will be reserved exclusively for investments, leaving an available £12,000 that savers can pay into their non-investment accounts, such as Cash ISAs.
Over-65s will continue to be able to save up to £20,000 in a Cash ISA each year.
The allowances for Junior ISAs and Lifetime ISAs are frozen until April 2031 at £9,000 and £4,000 a year, respectively.
Salary sacrifice on pension contributions to be capped at £2,000
As widely anticipated, the Chancellor has capped NI-efficient pension contributions made under salary sacrifice. Employer and employee NI will be charged on pension contributions above £2,000 a year made via salary sacrifice. This will not take effect until 6 April 2029.
The rationale for this change is that whilst salary sacrifice cost the government £2.8 billion in 2016/17, this was set to triple to £8 billion by 2030/31.
The Chancellor maintains that many of those on low and middle incomes will be able to continue using salary sacrifice as normal, while high earners can expect to pay increased NI.
New “mansion tax” on high-value properties
The Chancellor confirmed the much-speculated “mansion tax” that will affect the top 1% of properties.
This new property surcharge will be paid alongside Council Tax and will apply to properties valued at £2m and over. There will be four price bands, starting with £2,500 for values between £2 million and £2.5 million and reaching £7,500 for values of £5 million or more.
Welfare reforms expected to increase by 2029/30
The BBC reported that changes to the government’s previously announced winter fuel payments and health-related benefits will cost £7 billion in 2029/30.
In addition, Ms Reeves revealed she is removing the two-child benefit cap at a cost of £3 billion by 2029/30.
State Pension: Removal of overseas access to Class 2 NI and committing to the triple lock
As a result of a loophole in the Class 2 voluntary NIs regime, overseas individuals with a limited connection to the UK can build a State Pension entitlement through cheaper rates.
The government will end this by removing access to the cheapest Class 2 NI for these individuals. Additionally, it will increase the initial residency or contribution requirements for those outside the UK.
The Chancellor also confirmed the government’s commitment to the triple lock. From April 2026, this will increase the basic and new State Pension by 4.8%, offering up to an additional £575 per year to pensioners.
A range of significant changes for business owners
In addition to the dividend, property and savings tax increases, a range of changes were announced that could affect business owners, including:
- Increases to both the National Living Wage (NLW) and National Minimum Wage (NMW). From 1 April 2026, the NLW paid to workers aged 21 and over will rise by 4.1%, from £12.21 to £12.71 an hour, an increase of approximately £900 a year for full-time employees. Employees aged 18 to 20 will see their NMW rise by 8.5% from £10 to £10.85 an hour, around £1,500 a year if working full-time. For 16- and 17-year-olds, and apprentices, the rise will be 6% from £7.55 to £8 an hour.
- Reduced Capital Gains Tax (CGT) relief for Employee Ownership Trusts (EOTs). When a business is sold to an EOT, CGT relief will fall from 100% to 50% effective immediately.
- Fully funded apprenticeships for under-25s. This will make them effectively free for SMEs from April 2026.
- Lower business rates for more than 750,000 retail, hospitality, and leisure properties. This will be funded through higher rates on properties worth £500,000 or more, such as warehouses used by online retail.
- A spousal exemption for agricultural and business asset IHT relief. Unused business and agricultural asset IHT relief will become transferable between spouses and civil partners.
- Customs duty will apply to parcels of any value from March 2029 at the latest. This removes the existing exemption for imported parcels worth less than £135.
Other announcements that may affect you
- Household energy bills will fall. Reeves is scrapping the Energy Company Obligation (ECO) scheme, saying that on average, families will save £150 a year in 2026.
- A new tax on electric vehicles. The Electric Vehicle Excise Duty will come into effect in 2028 costing 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrids, increasing annually in line with CPI.
- Fuel duty will be frozen until September 2026. In addition, a new “fuel finder” will help drivers find the cheapest fuel, saving the average household £40 a year.
- Reducing the levy threshold on soft drinks. From 1 January 2028, the sugar tax will also be applied to milk-based drinks, including bottled milkshakes and lattes.
- Tobacco Duty and Alcohol Duty will both be uprated. Tobacco Duty will be uprated as announced last year, and Alcohol Duty will now rise with inflation.
- Rising taxes on online gambling. From April 2026, Remote Gaming Duty will increase by 21% to 40% and a new Remote Betting Rate set at 25% will be introduced from April 2027. Horse race betting will be exempt from the changes.
What isn’t changing?
More broadly, the Chancellor made no mention of other key taxes, rates and thresholds that will remain the same. These include:
- The pension Annual Allowance
- The pensions tax free lump sum
- Stamp Duty Land Tax for residential properties
- The headline rates of Income Tax, NI, and VAT
Please note
All information is from the Budget documents on this page.
The content of this Autumn Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed, and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.
Please contact us if you would like to discuss how any of these changes will impact you personally by calling 0161 608 0000.