Budget 2025

Thanks to the OBR, I had an extra hour to prepare this today.

Thoughts are with the over-keen office junior who had prepped the press release and accidentally pressed ‘publish’. No doubt that person can be found in some Whitehall pub now after a tough day.

A quick refresher of the fiscal rules which underpin tax and spend policy in the UK.

• Day-to-day spending should be funded by tax revenues, not borrowing, by 29-30

• National debt should be falling by 29-30

• Welfare spending should be subject to a pre agreed cap

We were expecting to come into this announcement having to make up another budget shortfall, however due to higher-than-expected tax revenues, no fiscal repair job was required.

Therefore this was a classic case of tax and spend, with a little more fiscal headroom in the back pocket.

Let’s focus on tax rather than spend, perhaps in order of expected revenue:

NICs on salary sacrifice pensions

Previously when investing in salary sacrifice pensions, your contributions were deducted from the taxable amount subject to Class 1 National Insurance.

Now, contributions over £2,000 per year, will be subject to NI. This is expected to raise significant tax revenue, as much as £5bn. Income tax relief is unaffected, so don’t be too put off saving towards your retirement.

Extension to fiscal drag

It must reach a point when a stealth tax is no longer stealth, given everybody knows what a money spinner fiscal drag is.

By way of a reminder, fiscal drag refers to the freezing of tax thresholds, meaning more of us pay higher rates of tax as wages increase through inflation. 3.1% of the populus paid higher rates of tax in 1992/93, now it’s 14%.

Tax thresholds for income tax and National Insurance were already frozen until 2028, this has been extended for 3 more years.

Dividends

A 2% increase in basic and higher rates of dividend tax. Basic rate from 8.75% to 10.75%, higher rate from 33.75% to 35.75% with additional rate remaining at 39.75%

This means that for someone drawing £50,000 from their company, with the taxable element in the form of dividends, your 26-27 personal tax bill will increase from £3,255 (25-26) to £3,999.

I will be in touch with Ltd Company Directors in the new year with withdrawal recommendations and personal tax provisions.

Savings

A classic measure to free up savings and get people spending.

A 2% increase in all rates of savings tax. Basic rate from 20% to 22%, higher rate from 40% to 42% and additional rate from 45% to 47%.

This means for a basic rate taxpayer with £2,000 of interest income from savings, the tax bill will increase from £400 to £440.

Property

Exactly the same for property income.

A 2% increase in all rates of savings tax. Basic rate from 20% to 22%, higher rate from 40% to 42% and additional rate from 45% to 47%.

For basic rate taxpayers earning £10,000 of income from UK land and property will pay an additional £200 in the 26-27 year.

Other

The national minimum wage (NMW) continues to be simplified as we work towards a single adult rate. For over 21s the rate is now £12.71 per hour and for 18 to 20 year olds its £10.85.

Cash ISA annual allowance cut from £20,000 per year to £12,000, and the triple lock for the state pension is maintained with a 4.8% increase from Apr-26.

More corporation tax incentives were introduced to stimulate capital investment but no changes to rates or allowances.

Summary

So in summary, to coin a crass term, it’s ‘death by a thousand cuts’ as every political commentator in the country has been keen to say.

So rather than the chancellor backed into headline grabbing income tax reform, Rachel Reeves was able to dig out £29bn from smaller taxes.

For savers, you’re being encouraged to spend. For Landlords you’re being asked to pay a bit more. For Ltd Company Directors, it makes tax strategy and wealth and retirement planning even more important. And for employees and the self-employed, you can expect more of your earnings taxed at the higher rates over the coming years.

I will publish a full rates and allowances schedule along with an details of the spring statement in March prior to the start of the new tax year.

If you have any questions or observations you’d like to share please do let me know.