It’s the end of the rumour mill and we can now start to digest the actual effects of the budget on our lives.
After weeks of speculation, Rachel Reeves has delivered her second budget. The overall message is that “ we all have to contribute”, which means a further £26 billion raised in tax by 2029/30 to cover increased spending and trying to decrease the deficit.
Why is this needed? The UK’s deficit is increasing and bond investors are watching. She was caught between a rock and a hard place; give anything away and there would be drama in the bond markets á la Liz Truss. Hike taxes too much and she would strangle growth.
As a result, there are lots of small measures to try and get the UK finances back on track. But what does that mean for you?
Tax thresholds freeze
The chancellor was keen to keep the promise of not increasing income tax or national insurance (NI). Instead she has extended the freeze on thresholds until April 2031. This will mean that as people get pay rises, more will drift into higher tax paying bands. The pain will be particularly felt by those who are on the edge of tax bands.
Rises for dividend, property and savings tax
Tax rates on dividends, property and savings tax have been raised by 2% each. This means that, from April 2026, dividends will be taxed at 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers.
From April 2027, savings interest and rental income will be taxed at 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers.
ISA reform
From April 2027, those under the age of 65 will only be able to contribute £12,000 to cash ISAs. You can still pay £20,000 into a stocks and shares ISA (or pay £12,000 into a cash ISA then £8,000 into a stocks and shares ISA). Over 65s will still be able to contribute the full £20,000 into a cash ISA.
Salary sacrifice pension contributions capped
From April 2029, the government will charge employer and employee NI on pension contributions over £2,000 a year made via salary sacrifice.
Mansion tax
This will be called the High Value Council Tax Surcharge (HVCTS) and will be charged on properties worth over £2 million. The rate starts at £2,500 and will rise to £7,500 for properties worth over £5 million.
State pension
The triple lock remains in place, with the state pension rising by 4.8% in April 2026.
VCT tax relief cut
VCT income tax relief drops to 20% from April 2026.
Pensions
Surprisingly, considering all the pre-budget speculation, there were no changes to annual allowances, the pension commencement lump sum (tax free cash) and tax relief. This is a welcome relief.
Overall this was a budget of lots of small increases dripped in gradually. We’re facing an increasingly high tax take. However, the hope is that she’s done enough to keep the bond markets happy whilst not stifling growth. Fingers crossed!
If you have any questions, please do get in touch.
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