Autumn Budget 2025

In-depth summary

Rachel Reeves presented the Autumn Budget on 26 November 2025. We’ve sifted through all the changes and picked out these key messages for your clients:

• Only the first £2,000 of salary sacrifice pension contributions will remain exempt from National Insurance contributions, from April 2029
• Income tax and National Insurance thresholds have been frozen until April 2031
• Dividend basic and higher tax rates will increase by 2%, from April 2026
• New property income tax rates will be 22%, 42% and 47%, from April 2027
• The Cash ISA deposit limit will reduce to £12,000 while the overall ISA limit remains at £20,000, from April 2027
• The government will consult on a new ISA with the aim to replace the Lifetime ISA
• The State Pension will rise by 4.8%, from April 2026

More detail on the key changes

Pension salary sacrifice

From April 2029, any salary sacrificed pension contributions above £2,000 will be subject to both employer and employee National Insurance Contributions (NICs).

Ordinary employer pension contributions will remain exempt from NICs.

This will impact the efficiency of salary sacrifice schemes, as it will ultimately reduce the level of take-home pay for those where the sacrifice exceeds £2,000 (through increased NICs). Employers that currently pass on their NIC saving as an additional employer pension contribution will also be restricted, as there's no saving above the £2,000 cap. This change to how salary sacrifice schemes are taxed will disproportionately impact basic rate taxpayers who choose to sacrifice high proportions of their income – specifically due to their 8% NIC exposure, relative to 2% NIC exposure for higher or additional rate taxpayers.

Those contributing the auto enrolment minimum will barely see any impact. While employees who choose to sacrifice salary to receive tax-free childcare or Child Benefit can keep doing so without being included in this £2,000 cap.

Key points to consider

• Clients can maximise their salary sacrifice contributions while the existing rules continue to apply. You may be able to model the financial impact of this change to help clients better understand the net outcome on their take home pay and, if appropriate, their business costs.
• Review whether continuing with a large salary sacrifice arrangement remains optimal, or if alternative strategies (such as personal contributions with tax relief) would be more effective.
• Consider the balance between dividends and salary sacrifice to meet Director needs.

Pensions and IHT

With the wider changes to pensions and Inheritance Tax (IHT) from April 2027 (to be legislated for in Finance Bill 2025-26), personal representatives will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay Inheritance Tax due in certain circumstances.

Personal representatives will be discharged from a liability for payment of Inheritance Tax on pensions discovered after they have received clearance from HMRC.

New income tax rates

Savings tax - tax on savings income will increase by 2% across all bands. The basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from April 2027.

Dividend tax - tax on dividend income will increase by 2%. The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75% from April 2026. The additional rate will remain unchanged at 39.35%.

Property income - the Government is creating separate tax rates for property income. Income tax is already charged on property income. These separate rates mean property income will have its own individual tax rates. From April 2027, the property basic rate will be 22%, the higher rate will be 42% and the additional rate will be 47%. This will only apply to income for residents in England, Northern Ireland and Wales initially. Legislation to allow the Scottish government to vary income tax rates on property will follow.

The new order of taxation for the purposes of the income tax calculation will be as follows:

1. income which is not property, savings or dividend income
2. property income
3. savings income
4. dividend income

The personal allowance must also be applied following this order.

Key points to consider

Income taken from pensions will be taxed at a lower rate than savings or property income. This, along with the April 2027 changes to IHT, offers a further reason for clients to consider their pension first as a source of retirement income.

Bonds remain a powerful tool for tax deferral. We would expect the rate of life company corporation tax to increase to 22% in April 2027, but this has not been confirmed.

Frozen thresholds and bands until April 2031

Income tax and National Insurance thresholds remain unchanged and will remain frozen until April 2031.

The Inheritance Tax nil rate band of £325,000, main residence nil rate band of £175,000 and the combined agricultural and business property relief allowance of £1 million are also frozen until April 2031.

Agricultural and business property relief – transferable allowance

A new measure introduces the ability to transfer any of the unused agricultural and business property relief allowance of £1 million (for the 100% rate of agricultural property relief and business property relief) between spouses and civil partners from 6 April 2026. This measure also applies where the first death happened before 6 April 2026.

Cash ISA limit lowers for the under 65s

There’s no change to the overall ISA contributions limits, but they will remain frozen until 5 April 2031.

There are changes to the amount that can be invested into a Cash ISA, from 6 April 2027. This will reduce to £12,000 for investors under 65. If a client wishes to fully use their ISA allowance, they will need to invest at least £8,000 into Stocks and Shares ISAs.

The rules will differ slightly for clients who are 65 and over. For them, the Cash ISA rules will remain unchanged, and they will still be able to invest up to £20,000 in either a Cash ISA or Stocks and Shares ISA or a mix of both.

Key points to consider

Consider the investment mix for clients under 65 who regularly fully fund their ISAs. 

Other measures

Lifetime ISA reform

A new consultation will be issued in early 2026 on the introduction of a new, simpler ISA product to support first-time home buyers. This new product will replace the Lifetime ISA (LISA). It is not clear if current LISA investors will be able to invest in or transfer to the new product. This should be clear when the outcome of the consultation is issued.

State Pension

The State Pension is set to rise by 4.8% from April 2026, as the triple lock is retained for the duration of this parliament. The full new State Pension will increase from £230.25 per week to £241.30.

For those who reached State Pension age before 6 April 2016, the basic State Pension will increase from £176.45 per week to £184.90.

The government plans to ensure that from 2027/28, those whose sole income is the state pension do not have to pay small amounts of income tax as the state pension continues to rise each year.

The government is removing access to the cheapest class 2 voluntary NICs for individuals abroad and increasing the initial residence or contributions requirement for class 3 voluntary NICs to 10 years. This should reduce the ability of those with limited connection to the UK building state pension entitlement at a cheaper rate whilst overseas.

Defined Benefit pensions

Defined Benefit (DB) pension scheme surplus extraction – is a plan to introduce flexibilities for employers and trustees to agree surplus extraction and reduce tax charges on direct payments to members from April 2027. This should help free up some of £160 billion surplus in Defined Benefit schemes.

Pension protection fund (PPF) and Financial Assistance Scheme (FAS)

From 1 January 2027 the PPF and FAS will provide inflation protection capped at 2.5% a year for pre-1997 pensions where members’ former schemes provided inflation protection. This will help ensure members’ pensions keep pace with the cost of living.

At the time of writing, HMRC has not updated the usual information it provides on the finer details of the budget. We hope to bring those to you in our webinar on Friday 28 November.