Published: 03/12/2025 By Oliver O'Brien
Our thoughtsThis was an extensive budget, with more than 80 tax and rule changes. Despite the heady anticipation leading up to the budget and the wide array of measures, we don’t think anything seismic emerged. There are plenty of small changes and, overall, an increase in tax for employees and employers, with the budget expected to raise approximately £26bn per year. Explosive changes such as the rumoured reduction in pension tax-free cash again failed to materialise.
The likely headline news, from a financial advice perspective, is the change to income tax rules and pension salary sacrifice. Our expectation is that this will not change the fundamentals of good financial planning, but it does reinforce how important it is to consider how tax affects your portfolio by making the best use of your allowances and tax wrappers.
If you’d like advice on how best to manage your finances and investments going forward, please get in touch with us today.
Pensions
Collective Money Purchase Schemes
Unconnected, multi-employer schemes will be able to apply to HMRC for registration. Previously only single or connected employers were given this ability. HMRC will also get more powers to legislate for CMPs in the future.
Allowances
These remain unchanged; lump sum allowance, lump sum death benefit allowance, annual allowance, money purchase annual allowance and tapered annual allowance.
Inheritance Tax Treatment
The government’s changes from last year remain unchanged, most unused pension funds will be subject to Inheritance Tax (IHT) from 6th April 2027.
The update we got this budget was that Personal Representatives will be given the ability to instruct pension administrators to:
- Withhold up to 50% of the taxable benefits for up to 15 months
- Pay IHT to HMRC before releasing any benefits to beneficiaries
Pension Salary Sacrifice
Probably the “big” change of the budget for financial services. National Insurance (NI) relief on salary sacrifice contributions will be capped to the first £2,000 paid. While this reduces the tax efficiency of this option, it still retains partial NIC relief compared to Net Pay or Relief At Source; meaning it will still be the most tax efficient method overall.
The new NI charges should be implemented via payroll, making this less onerous on employees as they won’t have to declare anything to HMRC. Employee contributions will also continue to reduce Adjusted Net Income, a critical part of financial planning to maintain valuable benefits and allowances like Child Benefit and the Personal Allowance.
However, it does mean for those contributing more than £2,000 per annum the tax bill will increase for both themselves and their employer.
The changes take effect from April 2029.
Pension Protection Fund (PPF) & Financial Assistance Scheme (FAS)
From 2027, any PPF or FAS compensation with pre-1997 benefits will receive CPI-linked increases capped at 2.5%.
Tax
Income Tax Allowances & Thresholds
The Personal Allowance and rate thresholds remain frozen until 2031, effectively a stealth tax increase. Rates will also remain unchanged:
- 20% on the first £37,700 over the personal allowance
- 40% on earnings over £50,270
- 45% on earnings over £125,120
Changes to non-earned income
Income from property, dividends and savings will have their tax rates increased by 2%, excluding the Additional Rate for Dividends, which was inexplicably spared.
| Dividends | Property | Savings | |
| Basic Rate | 10.25% | 22% | 22% |
| Higher Rate | 33.75% | 42% | 42% |
| Additional Rate | 39.35% | 47% | 47% |
A change to beneficial ordering means you must allocate your Personal Allowance to earned income first, before applying any residual allowance to non-earned income in the most tax-efficient manner.
Due to tax devolution in Scotland and Wales, we will need to wait and see whether they follow suit with these changes.
Employee Ownership Trusts (EOT)
Capital Gains Tax relief on disposals to EOTs has been reduced from 100% to 50%.
Income changes
National Minimum Wage
The National Minimum Wage and National Living Wage have been increased:
| Rate | From 1 April 2026 | From 1 April 2025 | Increase |
| NLW Age 21 + above | £12.71 an hour | £12.21 an hour | 4.1% |
| NMW Age 18-20 | £10.85 an hour | £10.00 an hour | 8.5% |
| NMW Age 16-17 | £8.00 an hour | £7.55 an hour | 6.0% |
| Apprentice rate | £8.00 an hour | £7.55 an hour | 6.0% |
National Insurance Contributions
Mostly unchanged but the Lower Earnings Limit and Small Profits Threshold will increase by 3.8%. The rate of Class 2 & 3 NICs will also increase by this amount.
State Pensions
The triple lock remains, and the Basic, New, and Pension Credit amounts will increase by 4.8%. The New State Pension will rise to £12,547.60 from 6 April 2026.
Class 2 voluntary contributions will be removed for those living abroad, and eligibility for Class 3 contributions will require either 10 consecutive years living in the UK or at least 10 years of contributions while in the UK.
The government also announced plans to simplify tax reporting for pensioners whose only income is from the State Pension. While details are yet to be confirmed, the intention is that they will no longer need to pay small amounts of tax via self-assessment.
Savings and Investments
Individual Savings Accounts
Subscription limits remain unchanged:
- Adult ISA - £20,000
- Junior ISA & Child Trust Fund - £9,000
- Lifetime ISA - £4,000
Lifetime ISA (LISA) Reform
The government announced a new consultation which is designed to retire the LISA and replace it with a new product that is simpler but achieves the same goal of supporting first time homebuyers.
Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS)
An increase to the total amount VCT & EIS company investment limits were increased, allowing fledgling companies to raise more capital.
However, the income tax relief offered to investors will reduce to 20%, from 30%. The intention was to balance this against EIS schemes, which do not offer tax-free dividends like VCTs.
Individuals looking to utilise VCT subscriptions should consider completing this before the change.
Miscellaneous
Inheritance Tax
The nil rate and residence nil rate band remain frozen until 2030/31. With unused pensions forming part of the estate, this will continue to put pressure on an increasing number of households.
The newly announced £1m of Business and Agricultural relief allowance has also been confirmed to be transferable between spouses, which is welcome news.
High Value Council Tax Surcharge
An annual charge of £2,500 or £5,000 will be levied on properties valued over £2m and £5m, respectively. Charges will increase in-line with CPI from 2029/30 onwards.
Universal Credit Two Child Benefit Cap
This is due to be scrapped from April 2026. It will only apply to children born after 2017.
Disclaimer
Due care and attention have been given to ensure this information is both correct and compliant with our understanding of law and HMRC practice. This may change and independent advice should be sought before acting or not acting on the information provided here. This information is also based on announced changes, which may ultimately change before implementation.