Budget summary 2025

Chancellor Rachel Reeves has delivered her second budget. While some changes were known in advance, the following sections provide a budget summary of the main announcements.

Personal taxation

Initially, the government decided to freeze national insurance and tax thresholds for an extra three years. Consequently, these thresholds will remain frozen until beyond 2028, which means more people will fall into higher tax bands. Regarding savings, the limit for a cash ISA is now £12,000 for those under 65. This new limit starts in April 2027; meanwhile, individuals can use the remaining yearly allowance (currently £20,000) for investment purposes. Furthermore, the government will apply a 2% point rise on ordinary and upper tax rates on dividend income from April. In addition, the same rule will apply to all savings income starting in April 2027.

Pensions, wages, and benefits

Starting in 2029, a yearly cap of £2,000 will apply to the amount you can sacrifice from your salary towards your pension pot. This change effectively removes a valuable tax benefit. On the other hand, the government has extended and expanded the help-to-save scheme beyond 2027. Specifically, this scheme offers a savings bonus to people on universal credit.

In terms of income, the legal minimum wage will rise in April. The rate rises to £10.85 per hour for 18–20-year-olds and £12.71 per hour for those over twenty-one. Additionally, the two-child cap will no longer apply from April. Because of the triple lock guarantee, the government will increase both the basic and new state pension by 4.8% from April—a rate higher than inflation.

Housing and property

Following a revaluation of houses in bands F, G, and H, any properties in England valued over £2 million will face a council tax surcharge of between £2,500 and £7,500. Moreover, from April 2027, the government will add a 2%-point increase to the tax it charges on rental income.

Transport

To assist motorists, the government has extended the 5% temporary cut on fuel duty for both petrol and diesel to September 2026. However, the duty will then rise again over a six-month period. Regarding greener travel, a new mileage-based tax will begin for electric vehicles and hybrid cars from 2028. Additionally, the motability scheme will now exclude premium cars. Finally, the government has decided to freeze regulated train fares for journeys in England.

Business taxes

For employers, the government is freezing national insurance thresholds until 2031. As a result, costs will increase as wages rise. Furthermore, the Treasury plans to scrap the tax exemption for overseas packages worth under £135 from 2029. Tax rates for gambling will also shift; remote gaming duty will rise to 40% from April 2026, while general betting duty will rise to 25% from April 2027.

Household bills, smoking, and drinking

To adjust energy costs, the government will move green levies off energy bills and pay for them through general taxation. Meanwhile, health-related taxes are increasing. Tobacco tax will rise by 2% above the higher RPI rate of inflation, and the tax on alcohol will also rise to the higher RPI rate from February. Additionally, from 2028, pre-packaged milkshakes and lattes will no longer benefit from the sugary drinks tax exemption.

Other measures

Notably, the government will exempt compensation from infected blood from inheritance tax. Investment in infrastructure includes £5 million for secondary school libraries and £18 million for upgrading playgrounds. Furthermore, NHS prescription charges in England will remain frozen for a further year.

Regarding employment for young people, the government will offer six-month paid placements to any 18- to 21-year-olds on universal credit who are not earning or learning for 18 months. However, those who do not accept the offer may lose their benefits. Finally, small- and medium-sized companies will receive free training for apprentices under 25 years old.

Summary

Although this list is not comprehensive, it covers many of the key factors. While the government claims this is a budget for growth, many would argue the opposite. Because there are significant changes regarding pension planning, seeking financial advice will be highly beneficial.