Important tax and pension changes: 2025 and beyond

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We remind you of some of the pension changes we saw in 2025. We also explore a few tax and pension changes due to come into force in future.

What changed in 2025?

1. The State Pension went up

In April 2025, the State Pension increased by 4.1%, taking the full new State Pension to £230.25 a week, giving people £11,973 a year. The new State Pension is what’s available to men born on or after 6 April 1951, or women born on or after 6 April 1953. People older than that can receive the basic State Pension instead. 

The full basic State Pension rose to £176.45 a week, equalling £9,175.40 a year.

The State Pension age is currently 66, rising to 67 by 2028. You can check your State Pension age on GOV.UK. You can read more about the State Pension and how you qualify on MoneyHelper.

2. Pension Credit increased

If you’ve reached State Pension age and are on a low income, you may be able to claim Pension Credit, which tops up your income to a particular level. 

Pension Credit increased in April 2025. It now tops up a single person’s income to £227.10 a week, if they’re eligible. It tops up a couple’s income to £346.60 a week.

The amount of money you get depends on your circumstances. Read more on MoneyHelper.

What’s to come in future?

Let’s look at a few changes confirmed as part of the 2025 Autumn Budget. 

1. Salary sacrifice will be capped from 2029

Salary sacrifice is a way some people pay into their pension plans. It means ‘giving up’ part of your salary in exchange for a payment into your pension plan. Your salary is then taxed minus that payment into your plan. So you pay less in income tax and National Insurance Contributions (NICs) than you otherwise would’ve done. 

Your employer normally pays into your plan, too.

From April 2029, if you pay in more than £2,000 a year via salary sacrifice, further payments you make above this amount in that tax year will be subject to both employee and employer NICs. So you might pay more in NICs than you have done in the past. But pension plans are still a tax-efficient way to gear up for the future. 

2. The State Pension will increase again in April 2026

The amount of State Pension you can get is going up again – this time by 4.8%. From April 2026, those on the full new State Pension will receive £241.30 per week, which is £12,547.60 per year.  Those on the full basic State Pension will get £184.90 a week, which is £9,614.80 a year.

3. Tax rates for dividends, savings interest and property income will change

If you own shares in a company, that company may give you some money back, known as ‘dividends’. From April 2026, the rate of tax on dividend income is increasing by 2% for some people. Basic-rate taxpayers will pay 10.75% and higher-rate taxpayers will pay 35.75%. But there’s no change for additional-rate taxpayers – it’ll stay at 39.35%.

From April 2027, the rate of tax you pay on savings interest will rise by 2%. So it’ll be 22% for basic-rate taxpayers, 42% for higher-rate taxpayers and 47% for additional-rate taxpayers.

And the government’s creating separate tax rates for property income – money earned through letting land and buildings. From April 2027, property income for basic-rate taxpayers will be taxed at 22%. For higher-rate taxpayers, it’ll be 42% and for additional-rate taxpayers it’ll be 47%. 

There are tax allowances and reliefs available that can reduce the tax you pay (or that mean you might not need to pay anything). 

You don’t pay tax on savings interest or dividends from an Individual Savings Account (ISA). 

4. Pension Credit will rise in 2026

Pension Credit is set to rise again in April 2026. It will start topping up a single person’s income to £238.00 a week and a couple’s to £363.25 a week, if they’re eligible.

5. Inheritance tax will apply to pension savings from 2027

Pension savings that you haven’t yet taken, and death benefits, aren’t usually considered as part of your ‘estate’. This means they aren’t subject to inheritance tax (IHT) when you die. But from April 2027, the government intends to include these things when calculating the value of people’s estates. So unused pension savings and death benefits could be subject to IHT in future.

The full details of how this will work are still to be confirmed by the government. In the meantime, it’s worth brushing up on how IHT works now, as well as what currently happens to your pension savings when you die. 

6. Some tax thresholds are frozen until 2031

The Chancellor announced income tax thresholds will be frozen at their current levels until 2031. Remember, income tax bands and rates can be different depending on where you live in the UK.

IHT thresholds have been frozen until 2031 too. 

 

The information here is based on our understanding in December 2025 and shouldn’t be taken as financial advice.

A pension is an investment. Its value can go down as well as up and could be worth less than was paid in. 

Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.