2025 Autumn Budget – what it means for personal finances?

Rob Morgan, Chief Investment Analyst at Charles Stanley

A higher income tax burden and a ‘pick and mix’ of smaller, technical revenue raisers were the notable characteristics of a fiscal event that aimed to fill a fresh hole in the nation’s finances. Here, we provide a summary of the major changes affecting personal finances and investments.

Income tax and National Insurance

The chancellor had previously been at pains to stick to her manifesto rule book and avoid raising rates of income tax, along with national insurance and VAT. But given the scale of the fiscal deficit, and in the absence of cuts to spending, stretching the rules to breaking point proved a necessity.

The income tax burden is to continue to rise for many. The frozen income tax personal allowance, as well as the thresholds for the higher and additional rate tax, will now remain in the chiller until the 2030/31 tax year rather than 2027/28 as previously indicated. This results in a higher tax burden by stealth through what is known as ‘fiscal drag’ even though rates of tax remain the same.

This has now become a semi-permanent feature of the system with taxpayers the proverbial boiling frogs. Having already been frozen at 2021 levels in the aftermath of the Covid pandemic, the income tax personal allowance should be worth over £15,000 today rather than £12,570 if it had increased at the same rate as inflation, and the higher rate threshold would be over £62,000 rather than £50,270.

On top of the gradual effect of fiscal drag, there is a higher burden for savers, investors and second property owners. The government has announced that rental profits and savings interest will increase from the next tax year with each band increasing by two percentage points. Meanwhile, a rise to the ordinary and upper rates of dividend tax, to bring them more in line with income tax, will also apply as follows.

Source: GOV.UK.

The personal savings allowance and the dividend allowance are to be maintained at their present levels, providing only limited shelter from tax, which underscores the value of tax efficient ISAs and SIPPs to shield assets.

Inheritance tax and capital gains tax (CGT)

Having rightly adopted the brace position last time around, those concerned with estate planning have been spared further major moves this year. The inclusion of pension pots in estates from April 2027 and the limitation of agricultural and business reliefs from April 2026 has already had a dramatic effect on intergenerational planning.

The rates of CGT also remain unchanged with them having risen in last year’s Budget and the £3,000 annual exemption stays the same. The one specific point to note is 100% CGT relief on sales of businesses into an Employee Ownership Trust is to be cut to 50%, impacting some retiring business owners.

Pensions

A much-feared restriction around pension tax-free cash was ruled out by the chancellor ahead of the Budget. The limit remains 25% up to a maximum of £268,275. There were also no changes to income tax relief, which remains at an individual’s marginal rate, so in that sense it’s a case of “keep calm and carry on”.

However, a new restriction on salary sacrifice arrangements – also known as salary exchange – is poised to have a major impact on those saving via some workplace schemes. Pension salary sacrifice is where an employee gives up a portion of salary in return for their employer paying an equivalent amount into their pension.

From the 2029/30 tax year, there is to be a £2,000 cap on the amount of earnings that can be exchanged for pension contributions that benefit from a NI exemption. Restricting salary sacrifice in this way isn’t an explicit tax rise, but many employees will either see less in their pension pots – or in their pay packets if they increase their contributions to compensate. It might seem abstract but the long-term effects on the nation’s retirement savings could be considerable.

A cap at £2,000 is low enough to catch a lot of people using these schemes. Anyone earning over £40,000 and making the minimum 5% contribution into a workplace pension would be affected. It is also worth noting that NI relief at 8% for basic rate taxpayers versus 2% for higher rate means in some cases moderate earners are hit more, particularly those with pre-sacrifice earnings in the £40,000 to £60,000 region and making large contributions. This will include people on a typical career trajectory making catch up contributions to their pensions in later working years, and in those cases it could hamper retirement plans. There is at least some time for individuals and employers to adjust, with the potential to accelerate contributions before the changes take effect.

Elsewhere, the expected uplift to the state pension in line with average earnings was confirmed, with the payment rising an inflation-busting 4.8% to just over £240 per week for a full new state pension.

Property

With the chancellor thinking outside the box to implement some kind of workable ‘wealth tax’, owners of homes valued at over £2m will be targeted with a High Value Council Tax Surcharge

from April 2028:

• £2,500 for properties worth more than £2m

• £7,500 for properties worth more than £5m

Given huge rises in property prices, combined with rises in the cost of living, some people may be caught in the vice of being asset rich on paper but cash poor with their finances – and an impact on this ‘mansion tax’ on the top end of the housing market seems all but inevitable.

ISAs

The amount under 65s can add to a Cash ISA is to be cut to £12,000 from the 2027/28 year. Currently, anybody can split their £20,000 overall ISA allowance between the main ISA types in whatever proportion they like.

This will apply to new deposits only, meaning that existing Cash ISAs are unaffected, and the overall limit of £20,000 is unchanged.

The rationale behind the move is that Brits would be better off in diverting money into the stock market and other assets to gain a better long-term return, but there are concerns that some people who are unable to take risk with their money will see their tax-free options curtailed.

However, those using the full £12,000 in a Cash ISA will have the option of adding a further £8,000 to a Stocks & Shares ISA and opting for a low-risk investment such as a money market fund.

Meanwhile, the government said it would consider a new, simpler ISA product to support first time buyers to buy a home in place of the Lifetime ISA.

Stamp Duty Reserve Tax

A small bright spot among the announcements is a three-year Stamp Duty Reserve Tax (SDRT) holiday for shares of companies newly listed on the London Stock Exchange with immediate effect. SDRT is normally applied at a rate of 0.5% to all share purchases on the UK market.

Many have been calling for action for a long time to help foster a competitive, flexible, UK stock market that attracts a wide range of companies to list rather than carrying a cost and liquidity disadvantage. The UK has experienced the weakest volume of IPOs in more than 35 years, despite strongly rising global stock markets amid a tech and AI boom.

This move is a small shot in the arm to the city but it is modest in the grand scheme of things. However, it could be a precursor to widening the exemption if it proves effective. A bolder move of scrapping SDRT entirely would stand to permanently level a playing field tilted away from UK listed companies and towards overseas ones. And it would potentially benefit the UK economy in the long term more than it costs the exchequer.

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