In the weeks leading up to the UK Budget, the industry has struggled to read the signs from the Treasury as to what was most likely to happen in the Autumn Statement and what new taxes were to be introduced – we just knew that tax would rise.

Proposals have been floated, leaked and then hastily withdrawn, leaving advisers and their clients in a fog of uncertainty. Income Tax hikes were ‘in’ before being scrapped, eventually replaced by an extended freeze on thresholds, the income levels at which higher tax rates come into force.

This is a stealth taxation through ‘fiscal drag’. If tax thresholds do not rise to keep pace with wage increases and inflation, then as people earn more – to keep pace with rising prices – they move into higher tax brackets. This means they are paying more tax, even though their spending power in real terms has not increased

In the pre-Budget rumour mill, the annual Cash ISA allowance of £20,000 had looked safe, only for rumours to then begin to circulate of a cut to £12,000 to encourage people to invest in the stock market.

Pension perks have danced in and out too, with salary sacrifice* caps and whispers of changes to tax relief causing concern. To this we can add talk of mansion taxes, Capital Gains Tax tweaks and levies for drivers of electric vehicles (EVs).

For us, this level of unpredictability complicates planning and erodes client and taxpayer confidence, reinforcing the need for flexible strategies and clear communication in an environment where policy seems to change with the wind.

The irony was not lost that the Office for Budget Responsibility (OBR) revealed the contents of the before Chancellor Rachel Reeves had the chance to present it in Parliament (ironically, not very responsible!).

SO, WHAT ARE THE KEY TAKEAWAYS?

The headline measures include a freeze on Income Tax thresholds for an additional three years to April 2031, the introduction of National Insurance on salary sacrifice pension contributions above £2,000 from April 2029, and a new property tax on homes valued at more than £2 million, taking effect from 2028. Collectively, these and other changes are expected to raise £26 billion in additional tax revenue by 2030.

OBR FORECAST

However, the OBR revised its forecast for productivity growth downward by 0.3 percentage points to 1%, which is projected to reduce tax revenue by £16 billion by the end of the forecast period. In March, the OBR anticipated the government’s day-to-day tax revenues and spending would reach ‘balance’ by 2029-30 with a surplus – or ‘headroom’ – of £9.9 billion. That figure has now increased to £21.7 billion, providing the government with greater flexibility.

MARKET REACTION

Markets responded swiftly. At the outset of the premature OBR release, both sterling and UK government bonds weakened. By the time Chancellor Reeves delivered her address, both had reversed course, buoyed by the improvement in forecast headroom. The UK stock market moved marginally higher, broadly in line with global markets.

IMPACT ON INDIVIDUALS

For individual investors, however, the picture is less encouraging. The Budget includes a two-percentage point increase in tax rates on dividends, property income, and savings income. High-value property owners will also face the new ‘mansion tax’, which is a council tax surcharge on homes worth over £2 million.

PENSIONS

The government opted not to alter the pension tax-free lump sum allowance (a pre-Budget concern). However, the combination of reduced salary sacrifice benefits and the 2024 Budget’s inclusion of pension assets in Inheritance Tax calculations from 2027 may prompt wealthier individuals to reassess pension contributions and explore alternative structures to manage their wealth.

We believe that now more than ever, clients will need to use a range of solutions to structure their wealth in the most efficient way. Clients will need to understand the differences between investments targeting capital growth and those designed to pay an income. They will also need to appreciate the advantages and drawbacks of pensions and understand the rising costs of investing and owning property.

IF YOU WOULD LIKE TO HEAR MORE ABOUT THE IMPACT ON YOU AND YOUR FAMILY PLEASE BE IN TOUCH SO THAT WE CAN OFFER YOU AN OPINION AND CHECK HOW YOU ARE IMPACTED INDIVIDUALLY. 

KEY FACTS

What was announced?

The government will create separate tax rates for property income as follows:

• Basic rate 22%
• Higher rate 42%
• Additional rate 47%

The separate rates of tax for property income will apply to England, Wales and Northern Ireland. The government will engage with the devolved governments of Scotland and Wales (who have partly devolved powers in this respect) to provide them with the ability to set property income rates in line with their current Income Tax powers in their fiscal frameworks.

This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027.

What was announced?

The government will introduce the High Value Council Tax Surcharge (HVCTS) in England only and will be administered alongside existing Council Tax by local authorities.

The HVCTS is a new charge on owners of residential property in England worth £2 million or more in 2026, taking effect on 6 April 2028. A public consultation on details relating to the surcharge will be held in early 2026, which will include looking at a full set of reliefs and exemptions, as well as rules for more complex ownership structures including companies, funds, trusts and partnerships. It will also cover those required to live in a property as a condition of their job (tied property).

Properties above the £2 million threshold will be placed into bands based on their property value:

Charges will increase in line with CPI inflation each year from 2029-30 onwards. Fewer than 1% of properties in England are expected to be above the £2 million threshold.

What was announced?

The basic and new state pension will increase by 4.8% from April 2026, in England, Wales and Scotland.

The government will fund the Northern Ireland Executive to increase the basic and new State Pension by 4.8%, from April 2026, should it choose to do so, as this policy area is devolved.

What was announced?

The chancellor announced that salary sacrifice for pension contributions will be limited to £2,000 from April 2029. Any salary sacrificed above this amount will be subject to both employee and employers national insurance.

Employer pension contributions not derived from a sacrifice of salary will continue to be eligible for corporation tax relief (subject to the wholly and exclusively rules).

Contributions above £2,000 will now effectively be brought into line with net pay and relief at source schemes, as you pay national insurance on earnings under both of those contribution methods.

* Salary sacrifice is an agreement between an individual and their employer, where the individual gives up part of their taxable pay. The employer then directs that money into something else, often the individual’s workplace pension. The individual’s taxable income is lower, so they pay less Income Tax and National Insurance (NI). The employer also saves NI.