2025 Budget Summary

Here, we break down all the key announcements designed to tackle the public finance deficit and what they mean for your pocket.

Pensions – Salary sacrifice pension contributions capped

Salary sacrifice pension contributions above £2,000 will face National Insurance from April 2029.

Salary sacrifice is a vital and valuable feature of many workplace pension schemes. If your employer offers a salary sacrifice pension scheme, you can agree to give up a portion of your salary. Instead of paying that money to you as income, your employer pays it straight into your pension as an employer contribution. Because the money goes directly into your pension before tax and National Insurance are deducted, you’ll only pay these on your reduced salary, not the full amount. This means you could end up with a higher take-home pay than if you made standard pension contributions from your salary, and a larger total pension contribution, depending on whether your employer passes on their own NIC savings.

More positively, pension tax relief and tax-free cash escaped reform in this year’s Budget, despite plenty of speculation that they might be targeted.

State Pension

The Chancellor confirmed prior to the Budget that the State Pension will increase by 4.8% in the 2026/27 tax year, in line with the government’s triple lock guarantee. 

This means that the new full State Pension will rise from £230.25 a week in the current 2025/26 tax year to £241.30 next April, representing an annual increase of an extra £575 a year, although the amount you’ll personally receive will be based on your National Insurance Contribution record.

The full basic State Pension is currently £176.45 a week, and this will rise to £184.90 at the start of the new tax year on April 6, adding around £440 to annual payments.

The new state pension will now take up almost 100% of pensioners’ annual personal tax allowance. If you have other sources of income in retirement, a considered approach will be needed to ensure you’re being tax efficient.

Tax and National Insurance

The Chancellor has frozen income tax thresholds for another two years until 2030, meaning that most people will end up paying more tax due to what’s known as ‘fiscal drag’.

This effectively means that any pay rise will push you ever closer to crossing a tax threshold. As a result, some people’s incomes will exceed the personal allowance, forcing them to pay income tax and National Insurance for the first time, while others will find themselves paying higher or additional rate tax.

The current income tax thresholds are £12,570 (basic rate), £50,270 (higher rate), and £125,140 (additional rate). 

Dividend tax and Capital Gains Tax

The rate of dividend tax for basic and higher rate taxpayers will rise by 2 percentage points next April. The change means it will rise from 8.75% to 10.75% for basic rate taxpayers, and 33.75% to 35.75% for higher rate taxpayers. To work out your dividend tax rate, you need to add dividends to your other income to work out the income band you’re in. You may pay dividend tax at more than one rate if it pushes you over a tax threshold.

Capital gains tax relief on business sales made to employee ownership trusts will be reduced to 50% from 100%. No other changes to CGT rates or allowances were announced.

Inheritance tax

No changes to Inheritance Tax were announced by the Chancellor, although last year’s Budget decision to make pensions part of people’s estates for inheritance tax purposes from 2027 has the potential to make many more people liable for the tax. The current £325,000 Inheritance tax threshold remains frozen for another two years, to 2030.

If you’re concerned about inheritance tax, you may want to consider making the most of current gifting allowances, which haven’t been altered. For example, you can give away £3,000 worth of gifts each tax year without them being added to the value of your estate. If you don’t use this annual exemption one year, you can carry it forward to the next tax year. As well as your £3,000 annual exemption, you can give as many £250 gifts per person as you want during the tax year, provided you haven’t used another exemption on the same person.

Savings – Cash ISA allowance cut to £12,000

The cash ISA annual allowance will be cut to £12,000 with effect from April 2027, although savers aged 65 and over will retain their £20,000 allowance.

The aim of this reduction is that it will persuade more savers to invest more of their allowance in stocks and shares and other assets, which might hopefully provide them with higher returns over the long term.

Property and housing

Despite weeks of speculation that the Chancellor would reform Stamp Duty in the Budget, no changes we announced.

However, a new ‘mansion tax’ will be introduced in April 2028, applied through a council tax surcharge.

From April 2028, anyone owning a property assessed by the Valuation Office as being worth more than £2m (in 2026 prices) will pay an annual charge on top of their existing council tax bill.

Safe savings limit to rise to £120,000 From 1 December 2025 – how to make sure your money’s protected

All UK-regulated savings currently get up to £85,000 per person, per institution savings safety protection. This has been in place since 2017. But the Bank of England, which oversees the scheme, has decided to increase this limit to account for inflation. From 1 December 2025, the first £120,000 saved per person, per UK-regulated financial institution (not per account) will be protected. The change is automatic – you don’t need to apply or do anything to benefit from the higher limit, provided your savings are covered by the scheme in the first place. 

Got a joint account? It will soon get up to £240,000 of protection. The FSCS limit applies to each eligible person, so money held in an account under two names gets two lots of protection. But it’s important to understand this isn’t an extra allowance – if you have an individual account and a joint account with the same institution, you still only get one limit of £85,000 (soon to be £120,000) to cover both.

If you have more cash than usual due to a specific life event – such as selling your main home, an inheritance, or an insurance payout, for example – this may be protected by the FSCS as a ‘temporary high balance’. The limit on this cover, which lasts for up to six months after the relevant event, is currently £1 million. From 1 December 2025, it will rise to £1.4 million, also protected for up to six months. You don’t need to do anything to activate this protection, though if your bank fails you would need to prove where the funds came from.

But the investment protection limit is NOT changing Investments are also protected by the FSCS to the same level as safe savings – £85,000 per person, per UK-regulated institution. This applies if your firm failed or were to fail after 1 April 2019. However, this limit WON’T change from 1 December to match the new safe savings rate – investment protection will remain at £85,000.

How to make sure your savings are protected. Here are the key need-to-knows:

1. Use the FSCS’s online tool to check whether your bank or savings provider is covered by the scheme. Take care to get the firm’s name right, and check that the six-digit registration number (‘FRN’) under the bank name matches the one the bank lists on its own website. You’ll typically find this at the bottom of the bank’s homepage – or you could contact it to ask.

A new badge will also be rolled out across FSCS-protected firms by May 2026 – so you should start seeing it on savings providers’ websites and in their apps and branches over the coming months.

2. Check if your bank shares protection with another bank. For savings safety purposes, an ‘institution’ isn’t necessarily the same as a bank. If your bank is part of a larger group, the protection may be split between each brand. For example, First Direct is part of HSBC and the two share protection – so cash saved with those two banks is only covered up to a combined total of £85,000 (rising to £120,000).

3. Want to save in total safety? Consider spreading your cash.
There are a number of techniques you can use, but the basic one is to split money across different UK-regulated accounts, reducing risk. (Money Saving Expert Nov 2025)

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