Rachel Reeves, the Chancellor of the Exchequer, announced her Budget in an hour-long speech on the 26th November 2025. Although many of the measures were trailed to the press early, they were confirmed at the dispatch box. We’ll comment on the changes that affect our clients and our view on those changes.
The theme of Budgets since August 2024 has been increasing taxation while also increasing spending. The tax burden is set to reach 38.3% of GDP by 2031, the highest in 70 years. Freezing Income Tax thresholds, along with changes to Inheritance Tax rules and other smaller tax changes have meant that financial planning is now more essential than ever. The percentage of those over the age of 16 who pay the higher rate of tax has almost doubled from 2020 to 2025, and estates liable to Inheritance Tax has risen by approximately 40% from 2020 to2025.
This Budget is a continuation of that, with £26bn of additional tax rises announced.
· Personal Allowance – first £12,570 taxable income – no Income Tax*
· Basic rate band - £12,570 - £50,270 taxable income – 20%
· Higher rate band - £50,270 - £125,140 taxable income – 40%
· Additional rate band - £125,140+ taxable income – 45%
*The Personal Allowance will be tapered by £1 for every £2 over £100,000. This creates an effective ~60% tax band for earnings between £100,000 and £125,140.
These bands have been frozen even further into the future; they were due to be uplifted from the 2028-29 tax year, but the Chancellor has confirmed that these will now stay frozen until 2030-31.
Although it may seem that this measure will have no impact, these thresholds were originally designed to rise with inflation, so that the real value of these bands would be retained. As they continue to be frozen and wages and investments grow, more of our clients will be pushed into the higher bands. Having effective tax planning only becomes more essential as the real value of the tax bands are reduced.
From April 2026, tax on dividend income will be raised by 2% on the basic rate from 8.75% to 10.75%, and the higher rate, up from 33.75% to 35.75%. The additional rate will remain 39.35%.
From April 2027, Income Tax on savings and property income will also increase by 2% across all bands. The basic rate will rise from 20% to 22%, the higher rate band from 40% to 42%, and the additional rate band from 45% to 47%.
The rise in tax for savings and dividend income shows the continued importance of holding investments and savings in a tax wrapper such as a pension or ISA. The rise of taxes, as well as the slashing of the Annual Exempt Amount for Capital Gains Tax and Dividends allowances in recent Budgets make holding investment and savings directly much less attractive.
Those with investment properties have seen almost yearly tax changes designed to make them less attractive to investors, and this policy has continued in this Budget.
From April 2027, the annual amount that individuals under the age of 65 can add to a Cash ISA will be reduced from £20,000 to £12,000. They will still retain the£20,000 annual ISA Allowance, but only £12,000 of this will be permitted as a subscription into Cash ISAs, with the remaining £8,000 available to be made into a non-Cash ISA (Stocks and Shares, Innovative Finance etc.).
If you are 65 or over, you still have the full £20,000 allowance available for Cash ISAs.
The government is set to consult in early 2026 on their plan to scrap the Lifetime ISA and replace it with another ISA product to support first time buyers, no other details have yet been released.
The move to cap the amount that can be put into Cash ISAs, along with the changes to the taxation of savings income seems to show a deliberate policy tilt towards encouraging people to invest. Cash is eroded by inflation over time, so this is not a negative for the majority of clients.
Clients who are in the process of decumulation, where you start to draw on investment income for expenditure needs, will likely need a higher cash holding as a buffer to protect against market volatility. For those under 65, making sure that savings that cannot be placed in Cash ISAs are not taxed at higher rates will form part of our planning.
Although the Lifetime ISA changes were in the Budget report, there have been no details about what will replace the product, or what will happen to existing Lifetime ISAs. This will be something that we will monitor over the coming months.
From April 2029, salary sacrifice into pensions will only be National Insurance free for the first £2,000 sacrificed each year, after this both employer and employer National Insurance will apply as normal at marginal rates.
Pension contributions are still very attractive, with pension contributions still exempt from Income Tax and tax relief up to your marginal rate of Income Tax. With these changes, looking at increasing personal contributions and reducing employer contributions for those who make large salary sacrifices to their pensions may be required. With the changes not happening until April 2029, this is something that can be assessed closer to the time.
From April 2028, a council tax surcharge will be introduced, with the below charging structure based on property value:
· £2.0m- £2.5m - £2,500 a year
· £2.5m- £3.5m - £3,500 a year
· £3.5m- £5.0m - £5,000 a year
· £5m+- £7,500 a year
The Valuation Office will conduct a valuation exercise to identify the properties that would be eligible for this surcharge.
For those clients who have the majority of their assets in their main residence, this will increase the planning required to have the funds available to pay this surcharge. Homes will be reassessed for this charge every five years, so it is likely more and more homes will be eligible over the years. Evaluating all options, including downsizing vs releasing equity in the property if funds are required must now take into account the increased costs of a high value property.
The aim of these reliefs is to ensure that farms or a family-owned business can survive as a trading entity after the death of the owner without having to be sold or broken up to pay an Inheritance Tax liability. At the Autumn Budget 2024, the Chancellor announced huge changes to Business Relief (formerly Business Property Relief) and Agricultural Property Relief. Previously, shares of a company that qualify for these reliefs could be passed to the next generation free from Inheritance Tax with no limits.
At the last Budget, it was announced that from April 2026 only £1m of assets that qualify would receive 100% relief, anything above this would only receive 50%relief. In essence, anything above £1m would suffer a 20% Inheritance Tax liability. The £1m allowance for 100% relief was per person, and could not be transferred between spouses, so lost on death.
At the most recent Autumn Budget, it was announced that any unused portion of the £1m 100% relief allowance can now be transferred to a surviving spouse/civil partner, in line with how the Nil Rate Band and Residence Nil Rate Band work.
We welcome this change to the relief. Under the previous rules, if you had passed away and left everything to your spouse, your entire Business Relief allowance would have been effectively wasted. As the majority of married couples do leave their entire estates to each other, many would have had to change their Wills to account for this, or face losing the relief all together.
This change means that the rules are now in line with other reliefs for Inheritance Tax such as the Nil Rate Band and Residence Nil Rate Band. Any of your unused £325,000 and £175,000 allowances can be passed to your surviving spouse for use on their estate on death.
One of our qualified and regulated advisers would be very happy to discuss your requirements.
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