Budget 2025: Implications for Financial Planning

Key Implications of the 2025 Autumn Budget on Wages and Financial Planning

Reeves announced that the freeze on personal tax thresholds will be extended until 2030–31. The freeze will impact millions in a phenomenon known as ‘Fiscal drag’ – where more income is taxed at a high rate as wages rise. Private clients often overlook the fact they have personal allowances that allow them to utilise tax efficient savings vehicles such as pensions, ISAs and Venture Capital Trusts* (VCT’s). The former grants a huge savings against income tax that would otherwise have to be paid as does the latter. ISAs are often overlooked owing to no immediate tax saving, but their use in retirement to generate tax free income is potent. Annual allowances are often ‘use-them-or-lose-them' in the tax year permitted, so planning ahead is key. Many clients get to retirement and retrospectively see that they could have saved far more efficiently.

*VCT’s -Don’t invest unless you’re prepared to lose all the money you invest.  This is a high-risk investment.  You may not be able to access your money easily and are unlikely to be protected if something goes wrong.

 

Key Implications of the 2025 Autumn Budget on Pensions

Reeves reduced tax relief on pension contributions, with the introduction of National Insurance Contributions (NICs) on Salary-Sacrifice Contributions. Meaning that from April 2029, anyone paying into their pension pot under salary sacrifice schemes will start paying NI (8% on earnings below £50,270; 2% above that) on contributions above £2,000 a year. Employer NIC (15%) will also apply to any contributions over £2,000. It isn’t hard to see why the Chancellor clamped down on this method of saving. Not only does the individual get all the income tax relief saving into their pension, but any salary sacrificed that the company is then not paying the employee avoids the 15% employer and 2% employee NI contributions that should be going to the State. In practice, employers are going to be the major loser with this initiative.  Employees can still use their workplace pension or often a separate private pension to make these additional payments. The long timescale before implementation means that many can still benefit from maintaining if not increasing pensions contributions while current NIC exemptions apply.

Basic and new state pension payments to go up by 4.8% from April 2026, more than the current rate of inflation, in line with the "triple lock" policy.

 

Key Implications of the 2025 Autumn Budget on Property investments   

Reeves announced higher taxes on rental income, with basic and higher income tax rates on property and dividend income increasing by 2 percentage points from April 2027. Property Income Tax Rates will rise to 22% for basic rate, 42% for higher rate and 47% for additional rates.

Allied with a rise in borrowing costs in recent years as interest rates normalise, ‘net rental yields’, i.e. the actual return after tax and costs, have been impacted so property investors who haven’t done so through a limited company or who are not non-tax payers might wish to review their options.

 

Key Implications of the 2025 Autumn Budget on Share Investments

Dividend tax rates are set to rise by 2pp from April 2026. The increase in dividend tax rates (April 2026) means that anyone holding shares outside tax shelters (ISAs, pensions) will pay more tax on dividends. Those extracting profits via dividends from their companies will face higher personal tax bills. This could make salary or pension contributions more attractive.

In addition, the ‘Economic and fiscal outlook report’ published by the Office of Budget Responsibility (OBR) warns that, among other things, US market valuations are near ‘dotcom bubble’ levels, and the International Monetary Fund (IMF) and OBR both flag correction risk, i.e. a severe market fall, as elevated.

It has been some time since stock markets have seen a proper correction, usually caused by a recession, so many investors will be shocked when this inevitably happens. Good quality investments will sell off indiscriminately with the rest of the market but will rebound in due course; more overvalued areas will have a far harder time recouping losses.

 

Key Implications of the 2025 Autumn Budget on Savings

Savings Income Tax will rise by 2% percentage points from April 2027. This will apply to interest earned outside ISAs such as cash savings and bonds.

• Basic rate: 20% → 22%
• Higher rate: 40% → 42%
• Additional rate: 45% → 47%

Reeves announced a reform to the ISA system, with the annual cash ISA allowance cut from £20,000 to £12,000 for under 65s. The remaining £8,000 can still be allocated to other ISA types, such as Stocks and Shares ISAs or Lifetime ISAs. The change is expected to take effect from the 2026/27 tax year, giving savers time to use the current £20,000 cash ISA allowance before the cut.

 

Key Implications of the 2025 Autumn Budget on Inheritance Tax for Business Owners

Spousal Transfer of Business Property Relief (BPR)
The Autumn Budget introduced a major change for succession planning. The £1 million cap on BPR (combined with Agricultural Property Relief) can now be transferred between spouses, allowing couples to shield up to £2 million of qualifying business assets from inheritance tax when the second spouse dies. Previously, if the first spouse left the business to the surviving spouse, their £1 million allowance was lost.

Key Implications of the 2025 Autumn Budget on Property Assets worth over £2 million

Against backdrop of the ‘wealthiest pay their fair share’, Reeves announced that from 2028, properties in England worth more than £2m will be faced with a council tax surcharge of £2,500, rising to £7,500 for properties worth more than £5million. This will follow an evaluation of homes in bands F, G and H.

However by far the biggest consideration is the fact that inflation remains a little higher than targeted. Clients with assets in excess of the annual allowance, which is frozen until 2028, will likely see their IHT liability continue to grow year after year as property rises with inflation, and likely so too their pension income and investments all adding to the value of their estate if they aren’t spending it.

 

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Inheritance tax planning is not regulated by the Financial Conduct Authority.