UK Budget 2025: Full Breakdown of Key Tax Changes and What They Mean for You

The Budget Analysis: Cutts & Co

Reeves framed this Autumn Budget as about “strong foundations, secure future”: cutting living costs, stabilising the public finances and investing for growth. The Office for Budget Responsibility (OBR) now expects growth of around 1.5% in 2025 and a slow fall in borrowing, with the tax burden rising to a record c. 38% of GDP later in the parliament.

Two things stood out politically:

• No headline rises in the main rates of income tax, VAT or National Insurance – a manifesto promise kept in letter, if not in spirit. 
• A highly embarrassing OBR leak, where the watchdog accidentally published its Economic and Fiscal Outlook online before the speech, meaning most key measures were known in advance. 

Overall, this is a tax-heavy Budget that leans on “stealth taxes” (freezing thresholds, reforming reliefs) and on better-off households, landlords, investors and owners of high-value property. 

2. Personal taxes: more people paying more, without rate rises

2.1 Income tax & National Insurance thresholds frozen to 2031

The government has extended the current freeze in income tax and NI thresholds to April 2031 (they had been due to start rising again in 2028).

What this means in practice:

• As wages rise, the point at which you start paying 20%, 40% and 45% income tax doesn’t move. 
• More people are dragged into tax, and more into higher bands – the OBR estimates around 780,000 new income taxpayers and over 900,000 more higher-rate taxpayers by 2030.

For Cutts & Co clients:

• Employees will feel this as a slow but steady squeeze on take-home pay. 
• Owner-managers who pay themselves via PAYE salaries will also be affected – planning the mix of salary vs dividends becomes even more important (especially given the dividend changes below).

 

2.2 Higher tax on savings, property income and dividends

From April 2026 and April 2027, the Budget increases tax on income from savings, rental property and dividends: 

• Dividends (from April 2026): 
  • Basic rate: 8.75% → 10.75%
  • Higher rate: 33.75% → 35.75%
  • Additional rate stays at 39.35% 
• Savings interest & property (rental) income (from April 2027): 
  • Basic rate: 20% → 22%
  • Higher rate: 40% → 42%
  • Additional rate: 45% → 47%

Treasury analysis suggests these measures raise around £2.1bn a year once fully in place. 

For Cutts & Co clients:

• Company owners relying on dividends will see higher effective tax; it may be worth revisiting the balance between dividends, salary and employer pension contributions (bearing in mind the new pension rules below). 
• Landlords face another squeeze – higher tax on rental profits on top of earlier restrictions (like mortgage interest relief changes in previous years). 
• Clients with large cash or bond portfolios in taxable accounts may want to revisit wrappers (ISAs, pensions) and consider rebalancing.

 

2.3 Cash ISA limit cut for under-65s

From April 2027, the annual cash ISA allowance for those under 65 will fall from £20,000 to £12,000. Over-65s keep the full £20,000 cash ISA allowance. 

The overall ISA limit stays at £20,000, but at least £8,000 of that (for under-65s) will have to go into stocks & shares ISAs or other investments, not cash.

Implications:

• Heavy cash savers (often higher-income households) will lose some tax-free shelter for interest. 
• It nudges long-term savers towards investment risk, which might benefit those with long horizons but won’t suit everyone’s risk appetite.

 

2.4 Pension salary sacrifice perk capped at £2,000

From April 2029, the National Insurance advantage of paying into a pension via salary sacrifice will be capped: 

• The first £2,000 per year of employee pension contributions via salary sacrifice will still be exempt from both employee and employer NI. 
• Any sacrifice above £2,000 will again attract NI at the normal rates.

The OBR expects this to raise around £4.7bn a year by 2029/30.

For Cutts & Co clients:

• Middle and higher earners who sacrifice more than £2,000/year (for example, 5–10% of a £50k+ salary) will see lower net pay once this starts. 
• Employers using salary sacrifice as part of a reward or retention strategy will face higher NI costs and may need to redesign benefit packages.

 

2.5 Lifetime ISA and other savings tweaks

The Budget also:

• Signals the end of the Lifetime ISA for new savers, with a consultation to design a simpler replacement product. 
• Keeps 25% pension tax-free lump sums unchanged (something many feared might be cut).

For younger clients saving for a first home and retirement, product choice will change over the next few years – advice on the best mix of workplace pensions, ISAs and any successor to the Lifetime ISA will be vital.

3. Property & wealth: the “mansion tax” arrives

3.1 High Value Council Tax Surcharge (“mansion tax”)

From April 2028, England will see a new High Value Council Tax Surcharge on homes worth £2m+. 

Key points:

• Applies to owners, not occupiers, of residential property valued at £2m or more.
• Charged annually, on top of normal council tax. 
• It will be banded, with:
  • £2m–£2.5m: £2,500 per year
  • £5m+: £7,500 per year (intermediate bands in between). 
• Expected to raise around £0.4bn a year once fully up and running.

For Cutts & Co clients:

• High-value homeowners and landlords need to budget for a recurring annual charge. 
• This is in addition to existing stamp duty and capital gains tax – and many commentators expect the £2m threshold may eventually be lowered, bringing more properties into scope over time.

3.2 What didn’t happen

The Budget did not introduce:

• A general wealth tax
• An exit tax on emigrating
• Changes to principal private residence relief on your main home
• New limits on lifetime gifting or a wholesale overhaul of inheritance tax

These possibilities had been heavily trailed in the press, but Reeves opted for more targeted measures instead.

 

4. Cost-of-living, welfare & pensions

4.1 £150 off energy bills and freezes on key household costs

The government’s cost-of-living package includes:

• Energy bills: 
  • Certain “green levies” are being taken off electricity bills and funded through general taxation instead. 
  • Typical dual-fuel households are expected to save around £150 a year from April 2026, with up to £300 for some lower-income households. 
• Transport & healthcare (mainly England): 
  • Rail fares freeze for one year – the first freeze in decades.
  • £3 bus fare cap extended.
  • Fuel duty frozen again until August 2026, with the temporary 5p cut maintained until then and then phased out. 
  • Prescription charges frozen.

For many households this is a modest but welcome easing of pressure, though largely offset by tax rises elsewhere.

4.2 Two-child benefit cap scrapped

From April 2026, the controversial two-child limit in Universal Credit and tax credits will be removed.

• Around 560,000 families are expected to gain, with an average boost of about £5,300 a year. 
• The government estimates around 450,000 children will be lifted out of poverty. 

For clients:

• Families on Universal Credit or legacy benefits should see a substantial increase in support, which may interact with other income and tax planning decisions.

 

4.3 Benefits and State Pension uprating

• Working-age benefits will rise in line with inflation, preserving real value for many claimants.  
• The State Pension will increase by 4.8% from April 2026, in line with wage growth under the triple lock.

Indicative numbers:

• Full new State Pension: from £230.25 → £241.30 per week.
• Full basic State Pension: from £176.45 → £184.90 per week.

For pensioner clients:

• Income will rise in cash terms, but the frozen tax thresholds mean more pensioners may start paying income tax on their State Pension alone over time.

 

4.4 National Living Wage and Minimum Wage rises

From 1 April 2026:

• National Living Wage (21+):
• From £12.21 → £12.71 per hour (+4.1%, about £900 more a year for a full-time worker). 
• 18–20 year olds:
  • From £10.00 → £10.85 (+8.5%, around £1,500 more a year full-time). 
• 16–17 year olds & apprentices:
  • From £7.55 → £8.00 (+6%).

For Cutts & Co business clients:

• Labour costs will rise again, particularly in retail, hospitality and care, and will need to be factored into budgeting, pricing and staffing plans.

 

5. Motoring, EVs & green measures

5.1 EV “pay-per-mile” tax from 2028

A headline environmental measure is the new Electric Vehicle Excise Duty (eVED) – effectively a pay-per-mile road tax for electric vehicles, starting April 2028. 

Key details:

• Battery EVs: 3p per mile
• Plug-in hybrids (PHEVs): 1.5p per mile
• Paid in addition to standard Vehicle Excise Duty.
• Rates will rise annually with inflation.
• The OBR and others estimate initial costs of ~£240–£255 per year for the average EV driver, rising over time.

This is designed to replace falling fuel duty revenues as more drivers switch to EVs – but industry groups warn it may slow EV adoption. 

5.2 Fuel duty & transport

As noted above:

• Fuel duty remains frozen (including the 5p cut) until August 2026, then will be gradually restored – a temporary help for drivers now, but a future tax increase baked in. 
• Combined with rail and bus fare measures, this package is also expected to trim inflation by around 0.4 percentage points next year. 

6. Business: rates relief, VAT tweaks and capital markets

6.1 Business rates – help for high street, higher bills for “big boxes”

From April 2026, there is a significant reshaping of business rates multipliers: 

• Retail, hospitality and leisure (RHL) sectors get permanently lower business rates multipliers, billed as the lowest since 1991 for many high-street premises. 
• To pay for this, a new “high-value” multiplier will apply to properties with rateable values of £500,000+, increasing their rates bills.

For Cutts & Co business clients:

• Smaller shops, cafés, pubs and visitor-facing venues may benefit from lower rates and more generous reliefs.
• Larger warehouses, supermarkets and distribution centres will see higher rates.

6.2 VAT & other indirect taxes

Key changes include:

• VAT on private ride-sharing / hire platforms: the government will treat more private hire vehicle operators as principal rather than agent from January 2026, bringing more of their supplies into the VAT net and raising about £1bn a year by 2029-30. 
• A new VAT relief is introduced for business donations of goods to charity, removing a barrier to giving away unsold stock rather than scrapping it.
• Duties on gambling, alcohol, tobacco and vaping products are increased.

There are also reforms to tax reliefs in the Motability scheme to limit generous VAT/IPT treatment to less expensive vehicles, aimed at fairness and value for money.

6.3 Support for investment, AI and the stock market

To try to offset the “tax-heavy” feel of the Budget, Reeves announced several pro-investment measures: 

• UK Listing Relief: 
  • A three-year exemption from Stamp Duty Reserve Tax (0.5%) on share purchases in companies listing on a UK exchange, starting immediately. 
  • Aim: to make London a more attractive place to list and deepen domestic capital markets. 
• Venture capital schemes (EIS/VCT): 
  • Higher investment limits and relaxed gross-asset tests from April 2026, so investors can support scale-ups for longer. 
  • Partly offset by a cut in VCT income tax relief, raising some revenue back. 
• Enterprise Management Incentive (EMI) expansion so more growth companies can use tax-advantaged share options to attract and retain staff. 
• Increased public investment in digital and AI-related infrastructure and innovation programmes, although some commentators note the lack of a coherent, long-term digital strategy.

For clients:

• Scale-ups and tech businesses may find it easier and cheaper to raise equity and incentivise staff. 
• Investors gain more opportunities in EIS/VCT and new listings, but must navigate changed relief levels and higher taxes on dividends and savings overall.

 

While every household is different, the broad pattern is:

Likely winners

• Low-income families with more than two children – from the end of the two-child cap. 
• Households struggling with bills, thanks to energy levy changes, fare and prescription freezes and higher minimum wage (though inflation effects matter). 
• Many high-street businesses – from lower business rates multipliers.

Likely losers

• Higher earners and those with significant savings, investments or rental income, hit by higher rates on dividends, savings and property income and the extended threshold freeze. 
• Landlords – facing higher tax on rental income and, for some, the new mansion-style surcharge. 
• Heavy cash ISA savers under 65, who will see their tax-free cash shelter cut from £20k to £12k. 
• Drivers of electric vehicles, due to the new pay-per-mile levy from 2028.

8. What Cutts & Co clients should be thinking about now

Without giving individual advice, there are some clear planning themes:

1. Check your exposure to the threshold freeze 
   • If your salary is close to the basic/higher-rate boundary, pay rises over the next few years may push more of your income into higher bands. 
   • Consider timing of bonuses, salary vs dividend mix (for company owners), and pension contributions. 
2. Review dividend and rental strategies 
   • Higher tax on dividends and property income makes wrapper use (ISAs, pensions) and ownership structures more important. 
   • Landlords may want to revisit whether properties should be held in personal vs company structures and how heavily geared portfolios are. 
3. Re-design salary sacrifice and benefits 
   • Employers should model the impact of the £2,000 NI cap on salary sacrifice from 2029 and consider alternative benefits or contribution structures. 
4. Plan ahead if you own high-value property 
   • Owners of homes worth £2m+ should budget for the new surcharge from 2028 and consider whether any broader estate-planning is appropriate. 
5. Business owners: model labour & rates changes together 
   • Rising wages plus changing business rates will hit different sectors differently – hospitality and retail get rate relief but face wage pressure, for example. A joined-up forecast is essential. 
6. Stay flexible 
   • Many of the biggest measures (ISA cut, eVED, mansion tax, salary sacrifice changes) do not bite until 2026–2029. There is time to plan – and also time for future Budgets to adjust course.

This Budget marks one of the most significant shifts in UK tax policy for a decade. While the government has kept its pledge not to raise the main rates of income tax, VAT or National Insurance, the combination of frozen thresholds, higher taxes on savings, dividends and rental income, and new charges on high-value property means millions will feel the effects over the coming years. At the same time, support for families, targeted relief for high-street businesses, and measures designed to steady living costs signal an attempt to rebalance the system and strengthen long-term stability.

For households and businesses alike, the message is clear: planning ahead matters more than ever. Many of the biggest changes don’t come into force until 2026 or later, giving individuals and companies a valuable window to review their finances, assess tax exposure and explore new strategies. Whether you are managing investments, running a business, or thinking about the impact on your family, understanding these shifts early will put you in the strongest position as the landscape evolves.

Cutts & Co will continue monitoring developments closely and will be ready to help clients navigate the new rules as more detail emerges. If you’d like tailored guidance on how the Budget’s measures may affect you or your business, our team is here to support you.