In the run up to the budget, the cacophony of different tax rumours was deafening, and it was virtually impossible to make sense of the din. The budget announcement contained its fair share of difficult news – not least the fact that key measures were accidentally published early by the Office for Budget Responsibility (OBR).
On the plus side, in the quieter aftermath, we have a chance to get to grips with 20 key announcements, and what they mean for you.
The government has extended the freeze on income tax thresholds until 2031, so if you get a pay rise between now and the end of the freeze, you’ll pay more income tax, and if you cross a tax threshold, you’ll pay more of it at a higher rate.
It doesn’t sound like much of a change, but it’s an incredibly effective stealth tax, which could land you with a significantly higher bill.
The government argued that given savings, dividends and rental income aren’t subject to national insurance, the income tax rate will rise two percentage points across the board in order to treat this income more similarly to tax on earned income. It’s going to mean higher tax bills for some savers and investors.
If you bust your personal savings allowance, basic rate taxpayers will pay 22% on interest, higher rate taxpayers 42% and additional rate taxpayers 47% from April 2027. The dividend tax rate will be hiked from 8.75% to 10.75% for basic rate taxpayers and 33.75% to 35.75% for higher rate taxpayers in April 2026. This comes off the back of a rise in 2022 – plus cuts in the dividend tax allowance in recent years. This is horrible news for investors.
Income tax on rental income for landlords will rise by 2% across the board from April 2027. The rates will rise to 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers. Landlords already face a big tax burden, so some will have to reconsider whether the maths still adds up for them under these rules.
There’s a tax hike in store if you own an expensive property, because there’ll be a surcharge added to your council tax.
This isn’t going to happen overnight, because it will be coupled with a revaluation of homes in the highest tax bands, but it’s worth preparing for.
There will be plenty of people who bought their home when it was much cheaper, so they’re rich on paper, but don’t have particularly high incomes. It could mean they struggle to pay the higher tax bill.
They’ll be able to defer the extra tax until their home is sold after they pass away, but this could be a nasty surprise for any family member relying on an inheritance to make their finances add up.
From April 2026, rules will be axed that mean only the first two children are considered when you apply for universal credit.
This will help improve the lives of 1.7 million children and is expected to lift at least 350,000 of them out of poverty.
The introduction of a £2,000 limit on what you can save into a pension under national insurance-free salary sacrifice could mean you end up saving less for retirement.
The cash ISA allowance will be cut to £12,000 a year, from April 2027, within an overall allowance of £20,000. Those aged 65 and over will still be able to put the full £20,000 in a cash ISA.
The government has said it is hoping the move will encourage people to invest instead, but there’s no evidence that cutting the cash ISA allowance will encourage them to make the change. If people end up saving more outside ISAs instead, there’s a risk they’ll fall foul of the higher income tax rates on savings interest.
It means those who need to save more should take as much advantage of their cash ISA as they can in the current tax year – and the next one – to use the rules before they change.
The freeze on inheritance tax thresholds has been extended for another year – to 2031. It means rises in the value of anything from investments to property risk pushing more people over the thresholds and into the realms of paying 40% tax.
Chancellor Rachel Reeves has outlined tax-raising measures worth £26bn by the end of the parliament. ·Anadolu via Getty Images
The budget documents included plans for a consultation early next year to replace the Lifetime ISA (LISA) with an ISA product to support first time buyers. A lot will depend on the details of the consultation.
Those who have taken advantage of the LISA will want to see steps to ensure they aren’t disadvantaged by any change.
This scheme offers government bonuses to people on low incomes who save. Around 3 million people on universal credit were eligible, and now an extra 1.5 million will be.
Fuel duty has been frozen for the 16th consecutive year. In addition, the 5p temporary cut introduced when fuel prices were sky high has also been extended again.
Some of the social levies on bills will be scrapped, which is expected to save households £150 a year in tax.
The threshold for English graduates repaying Plan 2 student loans will remain frozen until 2029/30. It means more will need to repay earlier in their career, and as graduates receive pay rises, more of their income will be over the threshold, and therefore count towards their monthly student loan repayment calculation.
The government has introduced a new grant to subsidise the cost of buying an electric vehicle. However, there will also be a new scheme that means a 3p per-mile cost for these cars.
The national living wage will rise by 4.1% – or 50p an hour – ahead of where inflation is expected to be by then. The minimum wage for younger people will rise even more – on the way to equalising the minimum wage across different ages.
The cost of prescriptions will be frozen at £9.90. It follows a similar freeze in the previous budget.
Regulated rail fares will frozen next year. These tend to rise with inflation in most years, and this will be the first freeze in 30 years.
Regulated fares make up about 45% of all fares – including season tickets. The bus fare cap will also remain in place. Both should help control the cost of commuting.
The sugar tax will be extended to milkshakes and coffees. This could hit milkshake fans in the short term, but if the experience of the sugar tax so far is anything to go by, it’s likely to mean sugar levels are cut in future, to escape the tax where possible.
English local mayors will be able to a charge for overnight stays in their area in order to raise funds to spend locally.
This follows Scotland and Wales, which will both bring in charges next year.
Duty will rise again, as it does every year in an effort to promote healthy living through the tax system. Alcohol duty will rise with RPI inflation while tobacco duty will get an extra boost as usual.
