Autumn Budget: Sweeping up the Budget announcements

Freezing income tax thresholds

National insurance (NI) and income tax thresholds have been frozen for an extra three years beyond 2028, dragging more people into higher bands over time. 

The decision to freeze income tax thresholds for a further three years – until April 2031 - is expected to raise £23 billion for the government over the period, according to the Office for Budget Responsibility (OBR).

The move creates fiscal drag, which means as people’s wages go up, they will be pulled into paying higher rates of income tax. It also means more workers will be caught in the so-called “60% tax trap”.

Freezing the inheritance tax (IHT) threshold

Reeves also opted to put the IHT threshold in the deep freeze for a further year. This means the nil-rate band remains at £325,000 and the residence nil-rate band is unchanged at £175,000 until April 2031.

According to the OBR, IHT will raise £9.1 billion for the Treasury in 2025-26.¹ These revenues are expected to rise every year given that assets tend to go up in value – while the tax-free allowances remain static.

Reducing tax relief on venture capital trusts (VCTs)

The government is reducing the income tax relief that can be claimed by a VCT investor from 30% to 20%, from April 2026. The measure is expected to save the government £315 million from 2027-28 to 2029-30.² Critics of the move are concerned that cutting tax relief could undermine the incentive to invest in VCTs and therefore slow investment in start-ups and small companies.

Alongside this, the government also announced it was introducing higher limits for investing in VCTs and enterprise investment schemes (EISs) to allow investment into more mature businesses.

Ending the lifetime ISA

As part of a reform of the individual savings account (ISA) landscape, the government will publish a consultation early next year on a new, simpler ISA product to support first-time buyers.

This ISA will replace the existing lifetime ISA, which offers a £4,000 annual allowance for people saving to buy their first home or for retirement.

The Budget document revealed that annual subscription limits will remain at £20,000 for ISAs, £4,000 for lifetime ISAs and £9,000 for Junior ISAs and child trust funds until 5 April 2031.

Note that there will be a new cash ISA limit for the under-65s from April 2027.

Hiking savings, property and dividend taxes

Reeves also chose to hike wealth taxes in her Budget, by increasing the tax rates on dividends, property and savings income by two percentage points.

From April 2026, the ordinary tax rate on dividend income will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%.

A year later - from April 2027 - savings and property income tax will rise for each band of taxpayers. So, basic-rate taxpayers will pay 22%, higher-rate taxpayers will pay 42% and additional-rate taxpayers will face a 47% levy.

The move could hit savers, investors and buy-to-let landlords hard. It means pensions and ISAs will become even more important at protecting people’s money from the taxman, while another tax hike on landlords could give them another reason to sell up and quit the property market.

Transferring unused IHT agricultural and business property reliefs

The £1 million allowance for the 100% rate of agricultural property relief and business property relief will be transferrable to surviving spouses and civil partners from April 2026, even if the first death occurred before then.

This announcement follows last year’s change to business and agriculture IHT rules, where the government cut the rate of relief on assets qualifying for business property relief or agricultural property relief from 100% to 50%.

The latest move means one half of a couple could now benefit from relief of £2 million.

Reeves said in her Budget speech: “I reformed inheritance tax on agricultural and business assets… and this year I am aligning those reforms with wider inheritance tax rules by allowing the transfer of the 100% relief allowance between spouses.”

Cutting tax breaks for home workers

Employees who work from home will no longer be able to claim tax relief on expenses related to additional household costs not reimbursed by the employer. This rule takes effect on 6 April 2026.

The government said it was removing the tax break due to concerns around non-compliance, given that half of the claims were ineligible for relief.

Imposing electric car taxes

Drivers of electric and plug-in hybrid cars will face higher bills from April 2028. In a move that had been widely expected, the government is introducing a new mileage charge for electric and plug-in hybrid vehicles, where drivers will pay for their mileage alongside their existing vehicle excise duty.

Electric car drivers will pay an extra 3p per mile and hybrid car drivers will pay 1.5p per mile.

Get to grips with the Budget changes

The government has published a huge number of tax reviews, policy papers and consultations as part of Autumn Budget 2025. A financial adviser can shine a light on which changes are relevant to you – and help you protect and grow your wealth tax-efficiently.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Sources

¹Office for Budget Responsibility - Inheritance tax, March 2025
²Gov.UK - Budget 2025 policy paper 5.1 Table 4.1, November 2025