After months of speculation, chancellor Rachel Reeves finally delivered her Budget on 26 November 2025. In it, she outlined a range of tax changes and spending commitments designed to balance the public finances.
Unfortunately, the chancellor highlighted the difficult economic landscape she faces and unveiled an estimated £26 billion worth of tax rises by 2029/30.
Read on to learn about five Budget changes that could affect your finances, and how we can help.
1. Important tax thresholds remain frozen until 2031
As expected, Reeves announced that she was extending the freeze on Income Tax thresholds until 2031.
This means that the amount you can earn each year before paying Income Tax will remain at £12,570. You will then pay:
- The basic rate of 20% on earnings between £12,571 and £50,270
- The higher rate of 40% on earnings between £50,271 and £125,140
- The additional rate of 45% on earnings above £125,140.
The freeze has been in place since 2022 and was originally set to end in 2028, but the chancellor confirmed the thresholds wouldn’t increase until at least 2031.
This is important because, while the thresholds are frozen, average wages have increased. You might also draw more income from other sources such as investments, properties, or pensions as living costs rise.
As a result, more of your income could be pushed into the taxable range and you may be more likely to move into a higher tax bracket. This is known as “fiscal drag” and means you effectively pay more tax.
According to Sky News, the overall freeze is expected to raise £56 billion between 2022 and 2031, with £12 billion coming from the most recent hold announced during the Budget.
The chancellor also revealed that the Inheritance Tax (IHT) nil-rate bands – the total amount you can pass on without triggering an IHT charge – will remain frozen until 2031. The impact of this is similar to the freeze on Income Tax thresholds and could mean that more of your estate is subject to IHT in the future.
2. The rate of tax you pay on dividends, property income, and savings interest will increase
The rate of tax you pay on income from certain sources is set to increase in the future.
Property and cash savings interest
Currently, you pay tax at your marginal rate of Income Tax on earnings from property.
You may also pay Income Tax on interest you earn from non-ISA cash savings. As of 2025/26, you have a Personal Savings Allowance of:
- £1,000 if you’re a basic-rate taxpayer
- £500 if you’re a higher-rate taxpayer
- £0 if you’re an additional-rate taxpayer.
Any interest you earn above the PSA is subject to Income Tax at your marginal rate.
During her Budget, the chancellor announced that the rate of tax on both property income and savings interest would increase by 2% across all tax bands from April 2027. This means you’ll pay 22%, 42%, or 47% depending on your tax bracket.
Dividends
Each year, you can earn £500 from dividends – payments made from a company’s profits to the shareholders – without paying tax. You’ll then pay:
- 8.75% if you’re a basic-rate taxpayer
- 33.75% if you’re a higher-rate taxpayer
- 39.35% if you’re an additional-rate taxpayer.
However, from April 2026, the basic and higher rates of Dividend Tax will both increase by 2% to 10.75% and 35.75%, respectively.
This change, and the freeze on Income Tax thresholds, could mean you pay more tax in the future. We can discuss ways to adapt to these rules, such as increasing pension contributions to mitigate a large Income Tax bill.
We may also review certain investments to consider how tax-efficient they are in light of new legislation.
3. The Cash ISA limit will fall to £12,000 for under-65s
ISAs are useful tax wrappers that allow you to build wealth without paying Income Tax, Capital Gains Tax (CGT), or Dividend Tax.
There are several types to choose from, including a Cash ISA, which allows you to deposit your savings and earn interest. Alternatively, you might invest your wealth through a Stocks and Shares ISA.
Under the current rules, you can contribute up to £20,000 across all your ISAs each year, and you have complete flexibility over how you use this allowance. For example, you could put the full £20,000 into a Cash ISA, or keep £15,000 in cash and invest the other £5,000 in a Stocks and Shares ISA.
However, from April 2027, the rules will change for under-65s, and £8,000 will be reserved exclusively for investments. You will still have an overall ISA allowance of £20,000, but you will only be able to put a maximum of £12,000 into a Cash ISA each year.
The rules will not change for over-65s.
Once this change takes effect, you may need to reconsider how you hold your savings. Fortunately, this could be a good opportunity for us to help you invest a larger portion of your wealth and perhaps generate more growth.
4. The benefits of salary sacrifice for pension contributions will be capped at £2,000
Salary sacrifice schemes allow employees to give up a portion of their salary in exchange for a benefit of some kind, including pension contributions. Paying into your pension through salary sacrifice could reduce the Income Tax and National Insurance contributions (NICs) that you and your employer pay.
Normally, HMRC calculates the Income Tax and NICs you owe based on your salary. Afterwards, you pay a part of your pension contribution, and your employer pays their share.
With salary sacrifice, you reduce your earnings by an amount equal to your share of the pension contribution. Your employer then puts the full amount, including their own portion, directly into your pension.
This means the same amount goes into your pension, but your salary is technically reduced. So, HMRC calculates the Income Tax and NICs you owe based on the lower amount, meaning you pay less tax.
Your employer also pays NICs based on your salary, so they’ll make a saving too. Read our previous article on the benefits of salary sacrifice for more detail about how this works.
As rumoured in the lead-up to the Budget, the chancellor announced a cap on the NIC savings from salary sacrifice. From 6 April 2029, employers and employees will still pay NICs on any pension contributions above £2,000 made via salary sacrifice.
While this will mean that salary sacrifice is not as beneficial as it currently is, you will still pay less Income Tax and NICs than you would if you made pension contributions outside the scheme. Still, we can help you explore alternative ways to build wealth tax-efficiently if changes to salary sacrifice affect you.
5. Owners of high-value properties will pay a “mansion tax”
The “mansion tax”, officially called the High Value Council Tax Surcharge (HVCTS), is another highly anticipated change announced in the Budget.
This is an additional tax charged each year on properties worth more than £2 million. The amount payable will increase depending on the value of the property. The following table shows the four bands of the HVCTS.
| Property value | Annual surcharge |
| £2 million to £2.5 million | £2,500 |
| £2.5 million to £3 million | £3,500 |
| £3.5 million to £5 million | £5,000 |
| Over £5 million | £7,500 |
Source: UK government
The government also confirmed that the surcharge will increase in line with inflation each year from 2029/30 onwards.
If you have a high-value property, you may need to factor this additional cost into your budget.
Get in touch
You may be concerned about how the Budget announcement will affect your financial plan. We can help you understand any changes and adapt your financial plan so you can continue working towards your goals.
Please get in touch or email us at advice@mlifa.co.uk if you need support.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.