Workers, pension savers, landlords, employers and investors face paying higher taxes as a result of the government’s Autumn Budget 2025.
The main ways the Treasury is raising money are:
- keeping tax thresholds frozen;
- capping the National Insurance (NI) break on salary sacrifice; and
- increasing taxes on property, dividend and savings income.
We explain what the changes announced by Chancellor Rachel Reeves could mean for your savings and pensions.
Maike Currie, VP Personal Finance at PensionBee, says: “For anyone serious about protecting their wealth, saving within tax-efficient wrappers like ISAs and pensions is no longer optional - it’s essential.”
Tax thresholds frozen
A three-year extension of the freeze in personal tax thresholds is the main revenue raiser for the Treasury.
Income Tax and NI thresholds will now be frozen for a further three years until 2031 from the current 2028 date. It means any pay rise you get over the next few years will drag more of your pay into tax, and could also push you into a higher tax bracket.
The policy will affect people in England, Wales and Northern Ireland, which all have the same Income Tax rates. Scotland has its own structure but the Personal Allowance of £12,570 - the threshold at which you start paying Income Tax - is the same across all four nations.
Extending the freeze will raise an additional £8 billion in 2029/30. It also means around 780,000 more basic rate taxpayers, according to the Office for Budget Responsibility (OBR).
It’ll also create 920,000 more higher rate taxpayers and 4,000 more additional rate taxpayers than if the thresholds had risen with inflation. There are around 7 million higher rate taxpayers today paying 40% Income Tax on earnings above £50,270.
Inheritance Tax thresholds frozen
The freeze in Inheritance Tax (IHT) thresholds will be extended by a further year to 2030/31.
The main IHT allowance, the nil-rate band, is to stay at £325,000 per person - a figure that has remained unchanged since 2009. The residence nil-rate band, which applies if you leave a family home to a child or grandchild, will remain at £175,000 per person.
Changes to salary sacrifice
People who pay into a workplace pension through salary sacrifice will pay NI on contributions above £2,000 a year from April 2029.
NI rates are 8% on earnings up to around £50,280 and 2% on earnings above that.
Employers will also be hit by the change, having to pay 15% NI on contributions above the £2,000 cap. The move will raise £4.7 billion for the Treasury.
If you earn £50,000 a year, for example, and pay £3,000 a year into your pension through salary sacrifice, the £1,000 above the £2,000 cap would be subject to 8% NI. This would reduce your take-home pay by £80 a year.
Currently, all pension contributions through salary sacrifice save on NI. High earners in particular often take advantage of this.
Lisa Picardo, Chief Business Officer UK at PensionBee, says: “Employees that are enrolled in a scheme that facilitates salary sacrifice should look to take advantage of the opportunity to maximise pension contributions before the April 2029 deadline.”
Pensions are still a tax-efficient way of saving, despite the reform. Most UK taxpayers get tax relief on pension contributions, up to a certain limit. Usually basic rate taxpayers get a 25% tax top up and higher and additional rate taxpayers can claim more. Contributions also reduce your overall adjusted net income. This could take you out of a higher tax bracket and mean you’re still entitled to benefits such as Child Benefit.
If you’re a high earner, pension contributions could bring your adjusted net income below £100,000. This means you keep all your Personal Allowance of £12,570 and access to childcare schemes such as tax-free childcare and funded childcare hours.
Higher taxes on property, dividend and savings income
Reflecting the fact that income from property, dividend and savings incur no NI, Chancellor Rachel Reeves says the Treasury is increasing tax on these income sources to raise an additional £2.1 billion a year.
For landlords in England, Wales and Northern Ireland, there will be a 2% increase in tax rates from property income. From April 2027 rates will increase to:
- 22% for basic rate;
- 42% for higher rate; and
- 47% for additional rate.
The same 2% rise to Dividend Tax will also affect landlords who hold their property investments through a limited company.
People who receive income through dividends will also face higher tax bills from April 2026 as:
- the basic rate is rising from 8.75% currently to 10.75%; and
- the higher rate is rising from 33.75% to 35.75%.
There’s no change in the additional dividend tax rate, which will remain at 39.35%. The annual dividend allowance will remain at £500.
Meanwhile taxes will increase on savings income by 2% across all Income Tax bands from April 2027. The changes to dividend and savings income rates will apply UK-wide.
Cash and Lifetime ISA reforms
The current £20,000 ISA allowance will remain, however the amount you can pay into Cash ISAs each year will be capped at £12,000 a year. The remaining £8,000 can only be used for investments such as a Stocks and Shares ISA.
However, this cap will only apply to anyone under the age of 65. Savers aged 65 and over keep the full ISA allowance of £20,000 in a Cash ISA.
The government also plans to scrap the Lifetime ISA (LISA) and replace it with an ISA product aimed specifically at first-time buyers. The current LISA can either be used to buy a first home or for retirement income. The government will launch a consultation on how the new ISA could work in early 2026.
Maike Currie, VP Personal Finance at PensionBee, says: “The changes carry an important signal for millions of self-employed savers who’ve used the LISA as a flexible retirement vehicle: pensions remain the UK’s only durable, purpose-built long-term savings product. For anyone saving for retirement, pensions offer the stability, tax relief and regulatory protection that ISAs can’t match.”
What should you do now?
If you have the ability to save, make sure you’re using tax efficient schemes wherever possible to keep more of your money. Pensions have the benefit of tax relief, contributions can reduce your adjusted net income and growth is tax-free while it remains invested. ISAs provide tax-free growth and income, offering protection from Income Tax, Capital Gains Tax and Dividend Tax.
Elizabeth Anderson is a Personal Finance Journalist and Editor (Times Money, Metro and i paper).
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
