Budget 2025

Some of the expectations have changed – income tax was said to be going up, but it is not now – instead there is a continued freeze on the personal allowance that may not increase until 2031, so a fix for almost ten years.  Many matters were pre-announced, so there is little surprise.

Here is a summary of the changes mentioned in the Chancellor’s announcement today.

Income Tax & National Insurance Contributions

Freeze on Income Tax thresholds to 2030/2031, to remain at £12,570 for another three years.  Inflation increases salaries and therefore the freeze is deemed a “stealth tax”.  The last increase in the threshold for basic rate income tax was in 2021/2022 (although that was only £70 increase from the £12,500 for 2020/2021), so it will be unchanged for a decade.  National Insurance thresholds will also be maintained.

National Minimum Wage (NMW)

The NMW will be increased by 4.1% in 2026.  The rise from £12.21 to £12.71 is added to the recent National Insurance increases for employers.  Younger people of 18 to 20 years old have an 8.5% increase to £10.85 to get closer to the figure for over 21s.

State Pension

Triple lock to continue to raise state pensions by 4.8% from April 2026.

ISA Limits

From April 2027 the cash ISA allowance is cut from £20,000 to £12,000 reducing the amount that can be saved tax-free annually in cash savings.  This is proposed to encourage stocks and shares ISAs that will be maintained at the higher annual allowance (or by adding £8,000 to £12,000 in cash ISAs).

Pensions Savings

A salary sacrifice cap of £2,000 a year from 2029 will limit the amount payable into pensions free of tax.  This reduces the amount people can save into pensions through salary-sacrifice arrangements and may discourage some pensions savings.  Any payments above £2,000 will be taxed at the same rate as other employee pension contributions.

Child Benefit Cap

The benefit will be paid for more than two children, which scraps the two-child benefit cap.  The cost of this is £3bn.

Property and Savings Tax

Landlords will pay 2% more on rental income.  This increase also applies to dividends and savings income. Basic rate taxpayers’ rate will be 22%, higher rate 42% and additional rate 47% for income above the personal savings allowance.

“Mansion Tax”

From 2028 High Value Council Tax Surcharge of £2,500 for properties worth over £2m and £7,500 for £5m properties.

Fuel duty

Extending 5p fuel price cut to Sept 2026.

Tax on motorists

Introduction of Electric vehicles excise duty.  Pay per mile charges of 3p per mile for electric and 1.5p per mile for hybrids.

Inheritance Tax

All funds paid for Infected Blood Compensation will be exempt from Inheritance Tax.

Motability

BMW, Mercedes-Benz, Audi, Lexus, and Alfa Romeo cars will no longer be available under the Motability scheme with immediate effect.  It also appears that VAT will now be charged for the vehicle acquisition and insurance.

Sugar tax

Extra 20% on prepared/pre-packaged milk drinks (e.g. milkshakes, etc) which are high in sugar.

Gambling Taxes

Increasing online gaming from 21% to 40% and online gambling from 15% to 25%.  No increase for in-person gambling, including horse racing.