Autumn Budget 2025: What the Tax Changes Mean for You
This year’s Autumn Budget arrived after an unusual spell of market volatility. An early leak of the OBR report caused gilt yields and sterling to move sharply before the Chancellor had even spoken — a rare “pre-reaction window” in which markets were forced to price incomplete information. Once the full statement was released, gilt yields eased slightly, sterling strengthened, and the UK’s fiscal position was viewed somewhat more favourably than many had assumed earlier in the day.
Against this backdrop, here is a clear, structured look at the tax changes and what they mean in practical terms, supported by broader economic and market interpretation.
Income Tax: Frozen Thresholds and the Growing Pressure of Fiscal Drag
The freeze on income tax thresholds has been extended for another three years, longer than forecasters expected. Although tax rates remain unchanged, the freeze intensifies fiscal drag: as wages rise, more income is pushed into higher bands.
Key economic point:
The OBR now expects stronger wage growth and slightly higher inflation in the coming years. This increases future tax receipts without raising rates, but it also quietly increases the annual tax burden for many. The extended freeze is expected to raise around £8bn, making it one of the most significant elements in the Budget.
Impact:
Households with rising incomes will feel a gradual squeeze
Dual earners may move into higher-rate tax sooner
Earnings approaching the £100k taper point will lose Personal Allowance more quickly
It’s a hidden increase in income taxation delivered via the back door.
National Insurance: A Major Shift in Pension Efficiency from 2029
From 2029, salary-sacrifice above £2,000 per year will become subject to National Insurance, affecting voluntary contributions into workplace pensions.
Key economic point:
This measure is expected to raise around £5bn and is clearly aimed at higher earners using sacrifice strategies to reduce tax and NI bills. It’s more substantial than anticipated and reshapes the long-term efficiency of workplace pension funding.
Impact:
Personal pensions may become more attractive relative to workplace schemes
The years leading up to 2029 offer a window to boost contributions under the current rules
Despite the new salary sacrifice savings limit, personal pension contributions will still be exempt from income tax and workers can continue to enjoy pension tax relief at the current levels. Plus, making pension contributions will still reduce a taxpayer’s adjusted net income, pulling them out of higher rate tax while also boosting their retirement savings.
Dividend Tax: A Meaningful Rise Across All Income Bands
Dividend tax will rise by 2 percentage points across all bands from 2026. This directly increases the cost of taking income from a company and reduces the net value of investment portfolios held outside tax wrappers.
Key economic point:
This was not widely expected and is forecast to raise about £2bn. It forms part of a wider pattern: increasing taxes on non-labour income while keeping taxes on employment steady.
Impact:
Company directors drawing income through dividends will face higher costs
Portfolios held in unwrapped accounts will lose more to tax
Those relying on dividend income in later life will feel a reduced net yield
This change reinforces the value of using ISAs, pensions, and other efficient structures.
Tax on Interest and Rental Income: A 2% Increase on Passive Returns
Savings interest, bond interest (gilts, corporate bonds etc.) and rental profits will also rise by 2 percentage points from 2026. This mirrors the dividend increase and confirms a deliberate shift towards taxing passive returns more heavily.
Key economic point:
Higher expected inflation and wage growth make this a reliable revenue source while directly affecting households with substantial savings or property income.
Impact:
Landlords face a further squeeze
Cash held outside tax-wrappers becomes less efficient
Fixed-income investors may see noticeably lower net returns
This is the moment to review how savings and investments are structured.
ISA Changes: Reduced Cash Allowance Reinforces Long-Term Investing
The overall ISA allowance remains £20,000, but from 2027 only £12,000 can be placed into a cash ISA (unless aged over 65). The remaining £8,000 must be invested to use the full allowance.
Key economic point:
This reflects a clear policy message: cash is for liquidity, not long-term wealth building. The government wants more investment flowing into productive assets.
Impact:
Those who normally place the full allowance into cash will need to adjust
Long-term funds are encouraged towards investment, not cash holding
Over-65s retain full flexibility, reflecting their greater need for capital stability
This change strengthens the case for structured, long-term portfolio planning.
High-Value Property Surcharge: A New Annual Levy on £2m+ Homes
From 2028, properties valued above £2m will face a new annual charge of £2,500–£7,500. This affects a concentrated number of households, predominantly in London and the South East.
Key economic point:
This measure was widely anticipated. It intersects with estate planning because high-value property holdings may create future liquidity challenges for beneficiaries.
Impact:
Those with larger property portfolios may need earlier tax and cashflow planning
Second-home owners and inherited property portfolios face a higher annual cost
Long-term property-heavy wealth structures may warrant review
This is a subtle yet permanent shift in how property wealth is taxed.
Inheritance Tax: Frozen Reliefs, But No Fundamental Overhaul
Importantly, the Budget avoided sweeping changes to inheritance tax — a relief to many.
Notably unchanged:
No increase in the 40% rate
The £325,000 nil-rate band remains (though still frozen)
The residence nil-rate band remains intact
Gifting rules unchanged — the 7-year rule still applies
No removal of the CGT uplift on death
No changes to pension tax relief or tax-free cash
A great deal of pre-Budget speculation proved unfounded.
Impact:
Established intergenerational planning strategies remain effective
The freeze on allowances still means more estates drifting into IHT, but rules remain stable
Premature actions — such as withdrawing tax-free cash or giving assets away too early — would have been unnecessary
In this area, “no change” is one of the most impactful outcomes.
Business Taxes: Sector-Specific Increases with Limited Spillover
Business rate increases will affect large warehouses and distribution centres, while gambling duties have been modernised upwards. These changes primarily impact certain industries, not broad-based economic activity.
Key economic point:
These measures were largely predictable and do not reshape the wider tax environment, but they do matter for those with concentrated business or investment exposure in these areas.
Impact:
Operators in e-commerce logistics may see higher costs
Industrial-property investors could see slightly lower net returns
Most businesses remain unaffected
A targeted rather than broad strategy.
Fuel Duty Freeze and New EV Taxes: Stability Now, Higher Costs Later
Fuel duty remains frozen until 2026, and per-mile taxation for EVs and hybrids begins in 2028.
Key economic point:
The fuel duty freeze and energy-bill support are expected to reduce CPI modestly in the coming years, contributing to forecasts that interest rates may fall gradually over the next 18–24 months.
Impact:
Short-term running costs remain steady
EV ownership becomes slightly more expensive over time
Tax comparisons for company car users will need updating
This is more of a long-term awareness issue than an immediate financial shift.
Disclaimer: This information is based on our understanding of the announcements made on 26 November 2025, which may change.
The value of your investment can go down as well as up, and you can get back less than you originally invested. Levels, bases of, and reliefs from, taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate tax planning.