What the New Changes Mean for Your Finances
The 2025 Budget arrived after weeks of speculation about major tax reforms. Many predicted large increases to capital gains tax, sweeping changes to pensions and a long list of new revenue-raising measures. The final statement turned out to be far more measured. Capital gains tax, VAT and the core pension framework were left untouched, while several targeted tax adjustments were introduced to increase revenue gradually.
This Budget summary highlights some of the key changes that will matter for savers, homeowners, investors and anyone planning for their long-term financial future.
Income Tax Thresholds Frozen Until 2031
One of the most notable outcomes of the 2025 Budget is the extension of the income tax threshold freeze until 2031. As wages rise while thresholds remain fixed, more individuals will slowly move into higher tax bands. This gradual increase in tax burden is known as ‘fiscal drag’ and will continue to affect take-home pay for the rest of the decade.
New Council Tax Surcharge on High-Value Homes
From April 2028, homes in England valued above £2 million will face a new council tax surcharge.
The High Value Council Tax Surcharge (“Mansion Tax”) starts at £2,500 for properties valued between £2 million and £2.5 million, and then increases in steps for higher-value properties, rising to £7,500 for homes worth £5 million or more.
This will require the first revaluation of properties in the top council tax bands since 1991. Around 100,000 homes, mainly in London and the South East, are expected to be affected.
Cash ISA Allowance Reduced for Under-65s
From April 2027, the annual cash ISA allowance for those under 65 will reduce from £20,000 to £12,000. The government aims to encourage savers to shift more towards growth-focused investments rather than holding large sums in cash. For long-term wealth building, investing typically offers better inflation-beating potential than cash alone.
Pension Salary Sacrifice Contributions Capped
A new limit will apply to pension contributions made through salary sacrifice from April 2029. The maximum that can be contributed via salary sacrifice will be £2,000 per year. Income Tax relief on pension contributions remains unchanged, but this cap will reduce the efficiency of larger salary sacrifice arrangements for some earners.
Dividend Tax Rates Increasing from 2026
Dividend tax rates will rise by two percentage points for basic and higher rate taxpayers.
- Basic rate: 10.75%
- Higher rate: 35.75%
- Additional rate: 39.35% (unchanged)
Anyone receiving dividend income from investments or business ownership should factor these changes into future planning.
Higher Tax on Rental and Savings Income
From April 2027, tax on property income and savings income will increase by two percentage points. The new rates will be 22%, 42% and 47% for basic, higher and additional rate taxpayers. This affects landlords, savers with interest-bearing accounts and investors receiving taxable interest.
The way individuals report and pay tax on property, savings and dividend income will remain the same – it is only the rates of tax charged that will change.
Road Pricing for Electric and Hybrid Vehicles
As fuel duty revenue declines, the government plans to introduce a per-mile road-use charge for electric and hybrid vehicles from 2028. This will apply alongside existing road taxes, with further detail expected as the policy develops.
Positive Announcements Worth Noting
The Budget also included several smaller measures that offer some financial relief:
- The state pension will increase by 4.8% in April.
- The government will remove the two-child limit on Universal Credit from April 2026. This means families will once again be eligible for support for a third and any subsequent child.
- Regulated rail fares in England will remain frozen until March 2027.
- Fuel duty will stay frozen until at least September 2026.
What the 2025 Budget Means for Your Financial Planning
This 2025 Budget shows a pattern of gradual adjustments rather than dramatic reforms. Most of the measures are phased in, giving individuals time to understand their impact, plan ahead and avoid rushed decisions. The key is recognising which changes apply to your circumstances and how they influence your long-term financial goals.
If you would like help understanding how the 2025 Budget may affect your finances, or if you want support with your broader financial planning, you are welcome to book a free initial consultation.