Chancellor Rachel Reeves announced a wide range of changes affecting personal finances, businesses, investors, families and pension planning. Some measures welcome short-term support, while others quietly increase the long-term tax burden through policy tightening and frozen thresholds.
Below is a clear breakdown of all major announcements, including what they mean in real terms. You can scan to the sections most relevant to you or read in full for a whole picture.
FROZEN THRESHOLDS
INCOME TAX & NATIONAL INSURANCE
Personal tax allowances and high-rate thresholds will remain frozen till 2031. Whilst the Chancellor avoided a u-turn on previous Labour promises to not increase Income Tax, the frozen thresholds still strike a cut for many.
As wages rise over time due to inflation and pay reviews, more income will be pulled into higher tax bands without headline tax rates increasing. This creates a gradual but persistent reduction in real take-home pay, often referred to as fiscal drag or stealth tax.
STUDENT LOAN (PLAN 2) REPAYMENT
A similar sentiment exists for Graduates who will now repay a growing portion of their income as salaries rise.
Most affected will be younger professionals in the earlier stages of their career. A further hurdle as they continue to strive for home ownership, investing and long term financial security. In effect, it's an additional stealth tax on earnings.
PENSION & STATE SUPPORT
SALARY SACRIFICE CONTRIBUTION CAPPED AT £2K
From April 2029, only the first £2,000 per year contributed through salary sacrifice will retain full Income Tax & National Insurance relief. Contributions above this level will be taxed as normal earnings.
It's a significant reduction in the pension tax efficiency for high earners and those who currently use salary sacrifice as a core planning tool. For those affected, maximising contributions before the change takes effect and alternative saving strategies i.e. ISAs will be worth exploring.
STATE PENSION TO RISE TO 4.8% FROM APRIL 2026
Pensioners continue to benefit from protection against inflation and earnings growth. The measure is in place to stabilise retirement income at a time of ongoing cost-of-living pressures.
Whilst it's good news for pensioners, the funds must come from somewhere… so good news for some, less positive for others.
SAVING & INVESTMENT CHANGES
HIGHER TAX ON SAVINGS, DIVIDENDS & PROPERTY INCOME
From April 2027, the tax on savings interest, dividends and rental income will rise by 2 percentage points (in this case, equivalent to 2%).
For savers, investors and landlords, it means reduced post tax returns. Tax-efficient planning becomes increasingly important as holding assets outside of protected wrappers will become more costly.
If there was ever a time to pay attention to asset & income structure, it's now.
REDUCTION ON CASH ISA ALLOWANCE
From April 2027, the maximum amount that can be held in a Cash ISA will fall to £12,000 for under-65s. The overall ISA allowance remains at £20,000.
The limit is an attempt to drive younger individuals towards investing. For cash-heavy savers… it means less scope to shelter their income from tax.
FAMILIES & HOUSEHOLDS
REMOVAL OF THE TWO-CHILD BENEFIT CAP
From April 2026, the two-child limit on Child Benefit and the child element of Universal Credit will be removed.
It's good news for larger families as they will now receive full support for every child. The impact looks like a meaningful boost to annual income and provides a relief at a time of extended cost of living pressure.
NATIONAL LIVING WAGE INCREASE
From April 2026, the National Living Wage will rise to £12.71 per hour. For 18-20 year olds, an 8.5% increase to £10.85.
Millions of workers will see higher take-home pay. For employers however, especially in retail and hospitality, it means bills pertaining to wages will rise. It could result in pressure on margins and a knock on impact into consumer pricing.
TRANSPORT & ENERGY
ELECTRIC VEHICLES EXCISE DUTY INTRODUCED
From 2028/29, a new mileage based charge will apply to EVs and plug-in hybrids to replace the falling fuel duty revenues.
What was once an incentive for many has taken a u-turn. The long term cost advantage of EV ownership will narrow as the annual running cost will increase.
VAT FOR PRIVATE HIRE TAXIS
Avid Uber user? That's about to get a tad more expensive.
VAT will now apply to the likes of Uber, Bolt and other app-based operators. Previously rates were reduced but with the new hike, those who are most reliant on taxi's will feel up to 15% increase in costs overtime.
PROPERTY & WEALTH
MANSION TAX ON HIGH-VALUE PROPERTIES
From April 2028, a new annual surcharge will apply to properties valued above £2million. For properties above £5million, £7,500.
For high-net-worth homeowners, they'll face an annual cost of ownership, likely to influence long-term holding strategies, property investment choices & estate planning.
BUSINESS MEASURES
PERMANENT SMALL BUSINESS RATE RELIEF
The temporary business rates discount for small retail and hospitality businesses just got a status upgrade to permanent.
For local businesses, it means long-term cost support and greater certainty to aid survival. The tax burden shifts across to larger warehouse and logistic-type businesses i.e. Amazon and larger Supermarkets.
FINAL OBSERVATIONS
The Budget combines a short-term household support strategy with longer-term structural tax tightening. Whilst lower-income workers and families receive direct assistance, higher earners, savers and asset-holders face a steady erosion of tax efficiency through freezes, caps and new charges.
For individuals and businesses alike, this greatly increases the important of strategic financial planning, particularly in relation to pensions, saving structures and long-term cash flow.
It's not a shocking Budget. The Chancellor revealed plans to focus on reducing national debt and easing cost of living pressures long before yesterday's announcement. However, in an ongoing tough economy, support feels minuscule in the face of the direct (& indirect) tax hikes.
As always, the changes highlight the growing need for individuals to be more deliberate and strategic in managing their finances.
Fisayo Martins | Finance Matters UK
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