Autumn Budget 2025

1. Tax thresholds frozen until 2030/31
   Your personal allowance and tax bands have been extended for a further three years until April 2031. The nil rate band threshold for Inheritance Tax (IHT) has also been extended to April 2031.
   As wages, pensions, and investment income rise with inflation the extension of the income tax thresholds will drag more clients into paying higher rates of marginal income tax.
2. Cap introduced on salary-sacrifice pension contributions (from 2029)
   Currently, salary sacrifice allows you to save on tax and National Insurance (NI) when contributing to your pension. From 2029, contributions above £2,000 per year will attract NI charges for both you and your employer.
   Salary sacrifice currently helps workers save up to 8% in employee NI on the cost of their pension contributions, in addition to income tax relief. Employers also save their 15% National Insurance contributions.
   Employers have been given a relatively long lead-in time of over three years to work out how to re-position their employees’ pension savings.
3. Increases to tax on dividends and other investment income taxes
   If you rely on dividends or interest from savings and investments, you will pay more tax on that income. Basic and higher rate taxpayers will face an increase of 2% in the amount they pay on dividend income from April 2026.
   Savings income will also see a 2% tax increase for all levels of taxpayer beginning in April 2027. Basic rate taxpayers will then pay 22%, while those in the higher and additional rate brackets will pay 42% and 47% respectively.
4. Heightened focus on wealth and property taxation
   Starting in April 2028, owners of properties valued at over £2 million will be subject to an additional yearly tax, a ‘mansion tax’, collected at the same time as council tax, although the revenue will flow to central government rather than remain with local government.
   This surcharge will begin at £2,500 a year and scale in bands to £7,500 a year for properties valued at £5m or more. These will increase in line with consumer price inflation (CPI) each year.
   The value of the property will not be determined using current council tax methodology. There were also signals of further reform across property and inheritance taxation.
5. Reduction in the annual allowance for Cash ISAs to £12,000 for under 65s
   While stocks & shares ISAs will maintain their £20,000 annual subscription allowance, cash ISAs will have a £12,000 limit each year beginning in April 2027. N.B. This limit will not apply to those over the age of 65.
   It is not clear at this stage whether this change will be accompanied by a restriction on transfers from stocks & shares ISAs to cash ISAs, or any other complexity.
6. Reduction in tax relief on VCTs, EIS remains unchanged
   From April 2026, the initial tax relief on Venture Capital Trusts (VCTs) will drop from 30% to 20%.
   Enterprise Investment Scheme (EIS) relief stays at 30%, as well as other reliefs such as capital gains tax deferral and business relief.
7. Lifetime ISA scrapped
   The Government has announced it intends to scrap the lifetime ISA and replace it with a new simpler ISA product to support first-time buyers to buy a home. It will consult on this new ISA in early 2026.
   However, Lifetime ISAs are also used by the self-employed, and others, as a way of saving for retirement. The Pensions Commission is only just up and running and will be concentrating on improving the outcomes for those on lowest incomes, as well as the self-employed. It therefore makes sense that no big decisions are taken on the future of the lifetime ISA until the Pensions Commission concludes its work.
8. IHT on pensions
   Unused pensions will be brought into the calculation of IHT from April 2027, as previously proposed. Under the proposals personal representatives (PRs) are responsible for calculating and paying the IHT due from the pension scheme.
   There will be a tweak to the proposed process to give the PRs the power to ask the pension scheme to withhold 50% of the taxable benefits for up to 15 months and to pay the IHT due in certain circumstances. The PRs will also no longer be liable for the payment of any IHT due on pensions discovered after they have received clearance from HMRC. This will give PRs some much needed flexibility to pay the IHT due.

What are the potential implications of these changes for your financial planning?

• Fiscal drag will increase tax bills over time: When allowances remain frozen while income rises, more income becomes taxable. This affects earned income, pensions and investment withdrawals.
• Reduced efficiency of workplace pension saving for higher earners: The salary sacrifice cap limits one of the most effective methods of building pensions tax-efficiently.
• Dividend-based investment strategies become less attractive: For business owners and investors, the increased tax burden reduces net returns from income-heavy portfolios and from extracting profits via dividends.
• Estate and wealth-preservation strategies may need revisiting: Changes to property taxation and potential inheritance-tax reform may weaken currently effective arrangements.
• Retirement income planning becomes more complex: More pensioners could face income tax — particularly those with a rising state pension or those accessing multiple sources of retirement income.
• Reduced Cash ISA allowance: This may well push more people to invest into riskier investments or have more of their savings taxed.

What this means for you

These changes highlight the importance of proactive financial planning, whether this is:

• reviewing your pension contributions
• rebalance portfolios for tax-efficiency
• the use of tax efficient wrappers
• reassessing your property and estate-planning structures
• modelling your retirement income carefully
• considering the timing of withdrawal or use of allowances
• Please do speak with your consultant who can help you navigate these changes and optimise your financial plan strategies.

If you have any questions or need further assistance, please don’t hesitate to reach out to our team.