Budget 2025: What the Changes Mean for Your Money

The Chancellor’s latest Budget didn’t deliver fireworks, but it did confirm a long list of changes that will shape how people earn, save and pass on wealth over the rest of the decade. The theme running through the entire statement was simple. While some Tax rates may be untouched, thresholds, allowances and incentives are being tightened in almost every direction. For anyone earning, investing or planning, the detail matters.

Below is a clear explanation of the measures that count, what the limits actually are, and why now is the time to prepare rather than wait for these rules to land.

A Long Freeze on Income Tax Thresholds

The headline rates of income tax remain unchanged, but the thresholds that determine how much of your income falls into each band will now stay frozen until 2031. That means the personal allowance stays at £12,570, the basic rate band still tops out at £50,270, and the higher rate band still runs to £125,140. The additional rate remains anything above that figure.

On paper nothing changes. However, in reality, if your earnings rise, the amount of tax you pay will increase, whilst your spending power will not. More people will drift into higher bands, and more income will be taxed at the 40% and 45% rates even though the bands themselves haven’t moved. The personal allowance taper above £100,000 remains in place, creating a painful marginal rate for those falling into that range. Freezing thresholds for this long is effectively a tax rise without the Chancellor ever increasing the rate itself.

Inheritance Tax: Frozen Allowances and a Small Step Forward

The inheritance tax nil-rate band stays locked at £325,000 and the residence nil-rate band stays at £175,000. Together, couples can still pass on up to £1 million, but the freeze until at least 2031 means more estates will fall into charge as asset prices continue to rise.

The one welcome improvement comes from April 2026, when the £1 million business and agricultural property relief ceiling becomes transferable between spouses. That allows couples to shelter up to £2 million of qualifying assets, which will make a meaningful difference to business owners and farming families.

ISA Rules Tighten for Under-65s

From April 2027 the ISA system becomes split by age. Under-65s retain the current £20,000 annual limit, but only a maximum of £12,000 of that can go into a cash-based ISA. The remaining allowance can only be utilised through an investment-based ISA. Over-65s remain free to put the full £20,000 into cash if they prefer.

Importantly, ISA money already saved is unaffected and will stay exactly where it is. The changes apply only to new contributions. The structure remains flexible, but younger savers will be nudged firmly towards investment-based ISAs in future.

Higher Dividend and Savings Taxes

Dividend tax will increase in April 2026, with rates rising to 10.75% at basic rate, 35.75% at higher rate and 39.35% at additional rate. This will reduce net income for business owners and investors drawing dividends from portfolios or company structures.

Savings income will follow a similar path, with tax rates rising in April 2027 to 22%, 42% and 47%. Interest on cash savings, bonds and fixed-income holdings will therefore become less tax-efficient unless wrapped or sheltered.

Property Income Tax Rates

From April 2027, property income will be taxed under its own standalone rates, separate from other forms of income. The basic rate will rise to 22%, the higher rate to 42% and the additional rate to 47%. For landlords and anyone receiving rental income, this shift is likely to increase annual liabilities and will become an important consideration when reviewing how property fits into a wider financial plan.

Salary Sacrifice Restriction

Salary sacrifice remains available, but from April 2029 the National Insurance saving will be limited. The first £2,000 of employer-routed pension contributions remains NI-free, but employer and employee NI will apply above that level. Pension tax relief and the 25% tax-free lump sum were both left untouched, despite widespread speculation ahead of the Budget.

VCT Income Tax Relief Cut

One of the more contentious measures is the reduction of Venture Capital Trust income tax relief from 30% to 20% from April 2026. While investment limits for qualifying companies are being increased, the cut in relief is expected to reduce investor appetite and restrict the flow of capital into smaller businesses. Many industry voices expect a spike in demand this year as investors lock in the 30% relief while they still can.

High-Value Property Surcharge

From April 2028 owners of homes valued above £2 million will face a new annual surcharge collected alongside council tax. Properties in the £2 million to £2.5 million range will face a charge of £2,500, rising to £7,500 for homes valued at £5 million or more. Since this requires valuations to be updated for the first time since 1991, many households may find themselves closer to the threshold than expected.

Changes for Those Living Abroad

One change that will matter immediately to internationally mobile clients is the abolition of voluntary Class 2 NI contributions for people living overseas. Class 2 contributions have historically been an inexpensive way to build or maintain UK State Pension entitlement, so losing this route will require more careful planning.

Side Notes That Still Matter

Electric vehicle road pricing grabbed the headlines, with charges of 3p per mile for EVs and 1.5p for plug-in hybrids from 2028. But the freeze on fuel duty, which affects far more drivers, has only been extended by six months. Increases will resume from September 2026, which may come as a surprise to those who heard the headline and missed the detail.

A Lot to Absorb, but Time to Prepare

What stands out in this Budget is not an immediate shock, but the volume of changes arriving over the next four years. The majority of measures take effect in 2026, 2027, 2028 and 2029, which creates a reasonable planning window.

There is still time to use the current ISA rules, take advantage of today’s salary sacrifice structure, review how income is drawn from investments, prepare for the changes to dividend and savings tax, and assess how property or estate plans may need adjusting long before new thresholds bite.

The direction of travel is consistent. Allowances are tightening, incentives are being reduced and more income, wealth and savings will be brought into the tax system by default. That makes early planning far more valuable than reacting when the rules finally land.

If you would like to understand how these changes interact with your wider position, our advisers can help you review your plan and make the most of the opportunities that still exist before the new rules take effect.