Budget 2025: How the Key Tax Changes Could Affect Your Finances
The 2025 Budget introduced a range of tax measures that will impact individuals, investors, pension savers and households over the coming years. While some thresholds remain frozen, several important changes to dividend tax, savings income, pension salary sacrifice and ISA allowances will shape personal financial planning from 2026 onwards.
Below is a clear and factual summary of the most relevant changes — with no speculation or repeated statements — written for clients seeking practical guidance.
Dividend and Savings Income Tax Increases
Dividend Tax Rates – From April 2026
Dividend income will be subject to higher tax rates from 6 April 2026:
- Basic rate: increasing from 8.75% to 10.75%
- Higher rate: increasing from 33.75% to 35.75%
- Additional rate: unchanged at 39.35%
These changes apply to dividend income above the £500 dividend allowance.
Savings and Property Income – From April 2027
From 6 April 2027, the tax rates on savings interest and property income (such as rental profits) will increase by 2 percentage points. This affects individuals earning interest on savings and landlords receiving rental income.
Frozen Tax Thresholds and Fiscal Drag
The higher-rate threshold of £50,270 and the personal allowance of £12,570 will remain frozen until April 2031. As incomes rise over time, a larger proportion of earnings will fall into higher tax bands—commonly referred to as fiscal drag.
These measures combined mean many individuals may see increasing tax liabilities on investment income and employment income over the coming years.
ISA Allowance Update: New Cash Restriction
The overall ISA allowance remains £20,000 per year, but from April 2025 the structure of that allowance will change.
New Cash ISA Limit – £12,000
You will be able to:
- Save up to £12,000 into a cash ISA, and
- Use the remaining allowance (up to £8,000) in a stocks and shares ISA,
- Or invest the full £20,000 into a stocks and shares ISA.
This change places a limit on the amount that can be held in cash within the ISA wrapper, while keeping full flexibility for investment ISAs.
Salary Sacrifice Pensions: National Insurance Changes from 2029
A major change affecting employees using salary sacrifice pension schemes will take effect from April 2029.
New £2,000 NI Exemption Cap
Under current rules, employee pension contributions made via salary sacrifice are exempt from Employee National Insurance.
From April 2029:
- The first £2,000 of salary sacrifice pension contributions will remain NI-free.
- Any amount above £2,000 will be subject to Employee National Insurance at the applicable rate.
What Stays the Same
- Tax relief on pension contributions is unchanged.
- Employer NI rules under salary sacrifice are separate and may require additional review depending on scheme structure.
This change is expected to affect individuals who make larger annual pension contributions through salary sacrifice, particularly higher earners.
Student Loans and Frozen Thresholds
The Budget confirmed that student loan repayment thresholds will remain frozen. When combined with frozen income tax thresholds, this will result in higher repayments as incomes increase.
Key freezes include:
- Personal allowance: £12,570
- Basic rate limit: £37,700
- Higher rate threshold: £50,270
- Student loan repayment thresholds across applicable plans
With thresholds static, future pay rises may result in a greater proportion of income being used for both student loan repayments and income tax.
- Need Support Understanding the Changes?
Budget reforms can affect each person differently depending on employment income, pensions, investments, and savings. If you’re unsure how these updates apply to your circumstances, professional advice from us can help you plan ahead and avoid unexpected liabilities.
Our team is available to discuss how these measures could influence your tax position and financial planning over the coming years.
Please always seek professional advice before taking any action. We are happy to answer questions in future issues. Please send your questions through the contact us page on our website: www.champconsultants.co.uk
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