Rachel Reeves’ Autumn Budget 2025: Key Tax, Pension & IHT Changes Explained
Chancellor Rachel Reeves delivered her second Autumn Budget on November 26, 2025, unveiling a substantial package of tax reforms and spending commitments aimed at "rebuilding Britain’s economy." With a backdrop of stubborn inflation (hovering around 3.6%) and sluggish productivity, the Chancellor’s speech focused on stabilising public finances while funding key public services like the NHS.
This budget marks a distinct shift towards wealth taxation and "stealth" fiscal tightening, with significant implications for businesses, property owners, and higher earners, while offering some relief to low-income families and pensioners.
Quick Snapshot & What They Mean for You
❌ Pension Salary Sacrifice Changes (from April 2029)
Only the first £2,000/year of salary sacrifice will be NI-free.
Impact: If you're sacrificing £15,000 annually, you’ll lose £260 in NI savings.
🚫 Employer Top-Ups Likely to End (from April 2029)
Employers will no longer be incentivised to pass NI savings to your pension.
Impact: You could lose an extra £1,794/year in employer contributions.
🧊 Tax Thresholds Frozen (to April 2031)
Personal allowance & NI bands remain unchanged for 6 years.
Impact: You’ll pay more tax as your income rises. But if you’re contributing via salary sacrifice, you’re already softening the blow.
📉 Dividend & Savings Tax Rates Increase
Both will rise by 2 percentage points.
Impact: If you hold £20k in a savings account earning 4.5%, you’ll now pay around £8 more per year.
💡 Good News: Energy Bills to Drop
ECO charge scrapped in 2026/27.
Impact: Expect a £150 reduction on your bills.
📈 State Pension Increase Confirmed
Up 4.8% from April.
Impact: That’s around +£575/year in your future retirement income.
💼 ISA Changes (from April 2027)
Cash ISA allowance drops to £12k (for under 65s).
Impact: No change to your Stocks & Shares ISA strategy carry on investing.
🏠 Council Tax Surcharge for £2m+ Homes
New surcharge and band changes incoming.
Impact: No change if your home is under £520k in value.
1. Key Tax Announcements
The Chancellor adhered to Labour's manifesto pledge not to raise the headline rates of Income Tax, National Insurance (NI), or VAT for "working people." However, revenue is being raised through other significant channels.
Extended Freeze on Tax Thresholds: In a major move, the freeze on Income Tax and National Insurance thresholds has been extended for a further three years, from 2028 to 2031. This "fiscal drag" will pull millions more workers into paying tax or into higher tax bands as wages rise over time.
Capital Gains Tax (CGT) Hike: The rate for Business Asset Disposal Relief (BADR) will increase from 14% to 18% starting April 2026. This directly impacts business owners selling their companies.
Dividend Tax Increase: From April 2026, the basic and higher rates of tax on dividend income will rise by 2 percentage points, reaching 10.75% and 35.75% respectively.
Inheritance Tax (IHT) Overhaul:
Pension Pots: In a landmark change, unused pension pots will be brought into the scope of Inheritance Tax from April 2027. This removes a key tax-planning vehicle used by many retirees to pass wealth tax-free to beneficiaries.
Business & Agricultural Relief: The 100% relief on Business Property and Agricultural Property will be capped at £1 million from April 2026, impacting family farms and family-owned businesses.
2. Impact on Property and Housing
The property sector faces a tougher tax environment, with measures aimed at raising revenue from landlords and owners of high-value homes.
Higher Property Income Tax: The basic and higher tax rates on property income will rise by 2 percentage points from April 2027, bringing them to 22% and 42% respectively.
"Mansion Tax" Surcharge: A new high-value council tax surcharge will be introduced from April 2028. Properties worth over £2 million will attract an annual surcharge of £2,500, rising to £7,500 for homes valued above £5 million.
Stamp Duty: No new immediate changes were announced to Stamp Duty Land Tax rates beyond what is already scheduled, offering some stability to the mainstream housing market.
3. Pensions and Savings
Savers and pensioners will see a mix of good and bad news.
State Pension Boost: The State Pension will rise by 4.8% in April 2026, honouring the "triple lock" commitment. This matches the average wage growth figure from May–July 2025.
New State Pension: Rises to £241.30 per week.
Basic State Pension: Rises to £184.90 per week.
Salary Sacrifice Cap: From 2029, a £2,000 annual cap will be placed on the amount of salary sacrifice pension contributions that are exempt from National Insurance. Contributions above this will be subject to employer and employee NICs.
ISA Changes: The Cash ISA annual allowance will be cut to £12,000 from April 2027. The overall £20,000 ISA limit remains, but savers under 65 will be required to hold at least £8,000 in Stocks & Shares ISAs if they wish to use their full allowance—a move designed to encourage investment in the UK economy.
4. Business and Transport
Electric Vehicle (EV) Tax: From 2028/29, a new "pay-per-mile" excise duty will be introduced. EV drivers will pay 3p per mile, while plug-in hybrids will be charged 1.5p per mile. This is intended to plug the gap in fuel duty revenue as the UK transitions away from petrol and diesel.
Fuel Duty Frozen: The freeze on fuel duty has been extended until September 2026, offering continued relief to motorists and logistics businesses.
Minimum Wage Rise: The National Living Wage will increase by 4.1% to £12.71 an hour from April 2026. The rate for 18-20 year olds will see a larger jump to £10.85, narrowing the gap with older workers.
5. Welfare and Public Services
Two-Child Benefit Cap Scrapped: In a significant policy reversal aimed at tackling child poverty, the controversial two-child cap on benefits will be abolished from April 2026.
NHS Funding: Billions in efficiency savings will be reinvested into the NHS to fund more nurses, GP appointments, and 250 new local health centres, targeting the immense backlog in waiting lists.
Rail Fares Frozen: To help commuters, regulated rail fares in England will be frozen for 2026.
What It Means for You
For Individuals: The continued freeze on tax thresholds is the "silent" story of this budget. While your tax rate hasn't changed, inflation-linked pay rises will push more of your income into tax, or into higher tax bands. Combined with the future salary sacrifice cap, middle and higher earners will feel a tighter squeeze on their take-home pay and pension efficiency over the coming years.
For Retirees: The 4.8% State Pension rise is a welcome inflation-beating boost. However, bringing pension pots into the Inheritance Tax net fundamentally changes estate planning. Retirees may now be more inclined to spend their pension pots during their lifetime or gift assets earlier, rather than preserving them as a tax-efficient inheritance vehicle.
For Investors & Landlords: The environment is becoming more challenging. Higher taxes on dividends and property income reduce the net return on investment. The changes to ISAs signal a clear government intent to push capital away from cash and into the stock market, forcing savers to take on more investment risk to utilise their full tax-free allowance.
What You Can Do Next:
✔️ Review your salary sacrifice plan before 2029
✔️ Shift excess savings into your Stocks & Shares ISA
✔️ Consider early pension contributions while employer top-ups still apply
✔️ Use our free Retirement Planner to see your updated path to financial freedom
✔️ Book a chat with an FCA-regulated adviser via Plouta
Written by
Joshua Shepherd
FCA Regulated Independent Financial Adviser
Take control of your retirement, starting today.
Use Plouta to track your savings, forecast your retirement and get clear, practical advice tailored to your goals.
Disclaimer: This guide provides general information based on economic forecasts and tax rules available as of late 2025. It does not constitute financial advice. Interest rates and tax thresholds can change. Always research current rates and consider seeking professional advice for your specific situation.
