While the weeks leading up to this year’s Budget were certainly eventful, it was nowhere near as eventful as the event itself, after the Office for Budget Responsibility (OBR) accidentally leaked its fiscal outlook.
The document, which contained the tax hikes and changes that the Chancellor, Rachel Reeves, would be announcing, confirmed much of what was expected. This included a freeze on the Income Tax and National Insurance Contributions (NICs) thresholds and an increase to Income Tax rates on property, savings and dividends.
During the Budget announcement, the Chancellor confirmed the ‘black hole’ in the public finances stood at £22 billion, meaning she still had a sizable challenge ahead of her. While the OBR upgraded its real Gross Domestic Product (GDP) growth in 2025 from 1% to 1.5%, it cut its forecast for UK productivity performance in the medium term by 0.3%.
According to the OBR, this will mean £16 billion less in tax receipts by 2030, meaning economic growth by itself is unlikely to fill the black hole. As such, the tax hikes that were announced are unlikely to be a surprise to those who have followed the build up to the Budget.
Against this backdrop, read on to discover what the Chancellor announced and what it might mean for your finances.
Income Tax thresholds will be extended
Fears that the Chancellor intended to increase Income Tax rates grew in the weeks leading up to the Budget, however, Reeves was said to have abandoned the move. The good news was that this was confirmed today, however, the Chancellor did have a surprise up her sleeve.
While she was expected to extend the freeze on the Income Tax and NICs thresholds for two years, on the day it turned out to be three. As such, the thresholds will remain static until 2031, which could mean millions of workers pay more tax by stealth, as workers are pushed up into higher tax bands as their incomes increase.
Salary sacrifice for pension contributions will be capped
As from April 2029, the NIC relief offered by salary sacrifice pension contributions will be capped at £2,000 per tax year. This could impact employers and employees using this method of pension contributions as any amount that exceeds the threshold will become liable to NICs.
The government estimates the move will raise £4.7 billion in the first year and £2.6 billion in 2030/31.
The Cash ISA Allowance will be cut
As the Chancellor is eager to encourage people to invest their money, instead of keeping it in cash savings, she confirmed that the Cash ISA Allowance would be cut to £12,000 from April 2027, for those aged under 65.
The Individual Savings Allowance (ISA) remains at £20,000 if money is placed into both a Cash ISA and a Stocks and Shares ISA, however, no more than £12,000 can be in cash.
Mansion Tax will be introduced
After months of speculation, the Chancellor confirmed that properties worth £2 million will be liable to a High Value Council Tax surcharge of £2,500 a year. The charge comes into effect from April 2028. Reeves also confirmed that there will be four price bands, which start at £2,500 and rise to £7,500 for a property in the highest band of £5 million or more.
Dividend Tax is to increase
As from April 2026, Dividend Tax will increase by 2 percentage points at basic and higher rate. As such, the rates will increase to:
- 10.75% if you’re a basic-rate taxpayer
- 35.75% if you’re a higher-rate taxpayer
Furthermore, Reeves announced that the rate of Income Tax paid on interest would increase as from April 2027. As a result, savers will become liable to the tax at 22%, 42% and 47% for basic-, higher- and additional-rate taxpayers respectively.
Landlords will also be liable to the 2% increase on Income Tax earned from rental income.
Drivers of electric vehicles face new charges
Electric vehicle (EV) drivers will become liable to a 3p per mile charge after April 2028, while those with a plug-in vehicle will become liable to a 1.5p per mile charge. According to the Evening Standard, this could cost the average EV driver an additional £250 a year.
The temporary 5p cut to the fuel duty remains in place until September 2026, and will then be unwound in three stages.
The State Pension is set to increase significantly
The Chancellor confirmed the State Pension will rise by 4.8% from next April, which could mean an additional £575 a year for millions of retirees. The uplift was confirmed as part of the 'triple lock' system, which guarantees that the State Pension increases annually by the highest of September's Consumer Price Index figure, average earnings growth between May and July, or 2.5%.
Join our webinar
If you want to better understand what the Chancellor’s announcements could mean for your money, join us for our next informative webinar on Thursday 4 December at 6pm. Former BBC presenter, Mark Foster, will be joined by AFH’s Chief Advice Officer, Austin Broad, and AFH Independent Financial Adviser, Jade Soutter-Davies, to unpick the Budget announcements, using clear and easy to follow language.
The online seminar will help you to understand what the announcements might mean for you, and how you may be able to mitigate any forthcoming tax changes. To register for our ‘Taxing times: what the 2025 Budget could mean for your money’ simply complete the form above.
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If you would like to discuss the implications of the 2025 Budget on your money, please contact us on 0333 010 0008 and we’d be happy to arrange a no-obligation initial meeting with one of our independent financial advisers.
26 November 2025