Autumn Budget – what does it mean for your customers?

After months of speculation, Chancellor Rachel Reeves delivered the 2025 Budget on 26 November. 

Before delving into the changes, it is important to begin by highlighting several tax changes that were widely rumoured but ultimately absent from the Budget.

1. Pension Tax Relief

There were rumours that there could be changes to income tax relief on pensions. The income tax relief associated with pensions, along with the £60,000 annual allowance, were unchanged, leaving clients with a tax efficient opportunity to save for their retirement.

2. Pension Commencement Lump Sum (PCLS)

As with the 2024 Budget, there was much discussion in various quarters about the potential restriction of the PCLS. This remained at 25% of an individual’s pension pot, subject to the Lump Sum Allowance maximum of £268,275 for most people.

3. Increase in the rate of income tax

There was some commentary that the rates of income tax may increase, or the thresholds reduce. The thresholds were unchanged and the rates remain 20%, 40% and 45% for basic, higher and additional rate taxpayers respectively.

The current rates and thresholds of National Insurance Contributions were also unchanged.

4. Inheritance Tax (IHT) Changes

There was plenty of discussion regarding potential changes to IHT, including increasing the 7-year gifting period or potentially implementing a lifetime limit. We did not see these proposals, allowing the current planning strategies to continue.  

5. National Insurance Contributions on rental income and Partnership profits

We heard speculation that the Chancellor may charge national insurance contributions on rental income and partnership profits. It was confirmed that this will not be the case.

6. Capital gains tax and exit charges

There were no announced changes to capital gains tax rates or allowances. During the build up to the Budget, it was rumoured there would be an exit charge on capital assets. Again, this was not part of the 2025 Autumn Budget.

Rumours, even when unfounded, highlight how decisions based on speculation can undermine robust financial plans and ultimately lead to poor outcomes for clients. 

For Financial Planners, guiding clients through such uncertainty is challenging, and this reinforces the importance of building financial strategies grounded in facts rather than conjecture.

2025 Autumn Budget – Overview of changes

While we cannot cover every detail of the Budget here, we will focus on the key changes that impact personal financial planning and outline considerations for those advising clients.

Change – Freeze in the income tax thresholds until April 2031

Detail

It was announced that the freeze on all income tax bands in England would be extended from April 2028 to April 2031. 

Tax rates and bands differ in Scotland and Wales where the administrations have devolved powers to adjust tax rates.

Planning Considerations

The use of tax efficient planning becomes even more valuable as tax increases. Contributions to a pension scheme reduce your adjusted net income and receive tax relief at your highest marginal rate.

Utilise your ISAs allowance on an annual basis. Funds invested within an ISA are free of income tax, allowing clients to utilise their income tax allowances elsewhere.

It would also be prudent for both spouses to ensure they are using their annual tax allowance fully and ensuring, where appropriate, that assets are owned in the most tax efficient way between spouses.

Change – Cash ISA allowance reduced from £20,000 to £12,000

Detail

The Chancellor announced that she would maintain the total ISA annual subscription limit at £20,000 with cash limit reduced to £12,000 for under‑65s from April 2027. 

Cash ISAs have long been an efficient means of holding surplus cash in an income tax efficient wrapper. The Chancellor explained she was attempting to drive individuals to redirect their contributions to investment ISAs due to increased growth potential over the long term.

Planning Considerations

Ensure your clients use the allowance between now and April 2027 where it remains appropriate to do so.

The Chancellor confirmed the change was brought in to encourage greater numbers to invest, rather than hold assets in cash. Financial Planners can support important education conversations to ensure investing these funds is appropriate, based on investment horizons and objectives.

The principle of ensuring “tax tail does not wag the investment dog” is an important part of the conversation.

Change – National Insurance relief on pension Salary Sacrifice limited to £2,000

Detail

It was announced that full exemption from National Insurance Contributions, for both employees and employers, on pension contributions made by salary sacrifice would be limited to £2,000.

The government will levy employer and employee NICs on pension contributions above £2,000 per annum made via salary sacrifice. These changes will take effect from 6 April 2029.

Planning Considerations

The first consideration for planners is to assess the impact of these changes and establish whether the changes will materially require a change to retirement saving. Will your clients still meet their retirement goal following this change? This is an individual decision and depends upon their circumstances.

Where it is appropriate to do so, some individuals may wish to maximise the use of the pension allowance before the 2029 changes.

It’s important to remember that salary sacrifice doesn’t operate in isolation. It is often used as a means to reclaim child benefit and childcare support. Understanding the full benefits of the contribution is valuable.

There is also a coaching and education conversation for advisers to undertake. Despite the proposed changes, the upfront tax relief will still make pensions attractive, especially for higher and additional rate taxpayers. 

For employers, it will be important to understand the financial impact of the additional Employer NICs and whether they wish to alter their employee benefits as a result of the changes.

Taxation of income from assets

Detail

It was announced that income from property, dividend and savings income would increase. This was to narrow the gap between tax paid on work and that paid on income from assets.

From April 2027, there will be a separate tax rate for property income of 22%, 42% and 47% for income in the basic, higher and additional rates respectively.

There will be an increase of 2 percentage points to the ordinary and higher rate of dividend income, with no change to the additional rate. This will be effective from April 2026.

From April 2027, the tax rate on savings income will also increase by 2 percentage points across all bands.

Planning Considerations

The use of tax wrappers which shelter individuals from income tax, including ISAs and Pensions will be even more attractive as the tax rates increase. Ensuring allowances and exemptions are used on an annual basis will continue to be vital.

Business owning clients will need to think about their remuneration structure, including the balance of salary and dividends, due to the increase in dividend tax rates.

We saw a number of other announcements which will be of interest to financial planners and their clients.

• The so called “mansion tax”, detailed in the Budget as a High Value Council Tax Surcharge, will be levied from April 2028. New charges will start at £2,500 per year for properties worth £2m or more, increasing to £7,500 for properties valued above £5m
• Currently, qualifying disposals to Employee Ownership Trusts (EOTs) are provided with 100% relief from CGT. Effective immediately, the rate of relief would be reduced to 50% on all disposals.
• It was announced that the £1m Business/Agricultural Relief allowance can be transferred between spouses and civil partners where unused.
• The current inheritance nil rate band, residence nil rate band and £1m 100% rate of business and agricultural relief freeze will be extended for another year until 2031.

These significant changes will again provide an opportunity to provide tax-smart planning alongside reassurance for your clients. As tax changes, the opportunity to deliver great outcomes becomes even more valuable.

Relationship with the 2024 Budget

When considering the impact of the 2025 Budget, it is also important to remember the changes announced in the 2024 Budget which are yet to come into force.

From April 2027, changes to Inheritance Tax on pensions could affect clients with large DC pots, particularly those planning to use them as part of an intergenerational wealth transfer.

Because pensions will be part of the inheritance tax assessment on death and, if death occurs on or after age 75, income tax for beneficiaries, many will need to rethink their decumulation strategies as we move towards April 2027.

This is a complex and highly individual area of planning, dependent on each client’s circumstances and objectives, and will likely result in many clients adopting very different decumulation and wealth transfer strategies than originally planned.

Clients owning businesses and farms will also need to be conscious of the changes in April 2026 which will limit 100% Business Relief and Agricultural Relief to £1 million per person. In light of this, succession planning becomes even more important.

Lifetime gifting, whether outright or into trust, will become more attractive, and insuring the increased liability may appeal to those reluctant or unable to gift.

There were a number of other changes, including CGT increases, domicile and residence tax rules, IHT freezes and increases to Employers’ NICs which need to be factored in to current planning.

Bringing all the changes from 2024 and 2025 together, into a robust coherent financial plan provides an opportunity for financial planners to deliver great outcomes and support clients through uncertain times.

The opportunity for financial planners to deliver real value to your clients is going to be greater than ever.

Simon Martin, Technical Distribution Manager