What is the pension salary sacrifice cap announced in the 2025 Budget?

From April 2029, the amount of salary that can be given up for pension contributions while attracting National Insurance relief through salary sacrifice will be capped at £2,000 per year. Contributions above this will still be possible but the NI saving will not apply to amounts over the cap. This primarily affects higher earners and those in schemes with generous employer arrangements above this level.

What is fiscal drag and how does it affect my income tax?

Fiscal drag occurs when income tax thresholds are frozen while wages and prices rise. As earnings increase, a larger share of income falls into higher bands, raising your effective tax rate without the government announcing a rate increase. With thresholds frozen through to April 2031, the cumulative effect on anyone whose income grows over that period can be significant, particularly for higher rate and additional rate taxpayers.

When do the new dividend tax rates take effect?

Dividend tax rates for basic and higher rate taxpayers are set to rise by two percentage points from April 2026. From April 2027, higher and additional rate tax on savings interest will also rise by two percentage points. Investments held within ISAs and pensions remain unaffected, which underlines the value of maximising tax-efficient wrappers before these changes come into force.

Are pensions still outside Inheritance Tax after this Budget?

This Budget did not address pension Inheritance Tax directly, but the October 2024 Budget announced that pension assets would come within the scope of Inheritance Tax from April 2027. This represents a significant change to how pensions fit into estate planning, and it is an important reason to review pension nominations and overall estate plans well ahead of that date.

Autumn Budget Statement 2025 | Burlington Financial Solutions

Q: What is happening to the Cash ISA limit from April 2027?

From April 2027, savers under 65 will face a reduced Cash ISA limit of £12,000 within the overall £20,000 annual ISA allowance, with the remaining £8,000 ring-fenced for investment ISAs such as Stocks and Shares ISAs. Savers aged 65 and over are expected to retain a £20,000 Cash ISA capacity. The total annual ISA subscription limit of £20,000 is not changing.

On Wednesday 26 November 2025, Chancellor Rachel Reeves delivered her second Autumn Budget Statement alongside updated economic forecasts from the Office for Budget Responsibility (OBR). The government set out its plans for tax, spending and borrowing, balancing its manifesto commitment not to raise headline rates of income tax, VAT or National Insurance with a series of more targeted measures designed to raise revenue over the Parliament.

This article summarises the main announcements most relevant to personal finances, pensions and savings. It is not personalised advice, and measures are subject to legislation and any subsequent changes.

Economy and OBR projections

The OBR published revised forecasts alongside the Statement. Key points from the updated projections include GDP growth expectations revised relative to earlier forecasts, inflation expected to continue easing toward the 2 per cent target over the forecast horizon, and public borrowing on a declining path in the central case, with the government projecting surpluses in the later years of the projection period.

Economic figures evolve with each forecast round. For the most current numbers, the OBR’s published tables remain the authoritative source.

Wages, benefits and pensions

The government announced the abolition of the two-child limit on Universal Credit and child tax credit from April 2026, with projections suggesting significant reductions in child poverty over time.

The National Living Wage for workers aged 21 and over is set to rise from April 2026, with younger age bands also increasing as part of a longer-term move toward a single adult rate. Confirm the exact figures against the government’s final tables as the Budget material is updated.

The State Pension is due to rise from April 2026 under the triple lock, with the increase described in the Budget material as exceeding the inflation rate at the time of publication. The Help to Save scheme is to be extended and expanded in scope beyond 2027.

Income tax and NI thresholds

Income tax and National Insurance thresholds are to remain frozen for longer than previously planned. As pay and prices rise while thresholds stay fixed, more taxpayers are gradually pulled into higher marginal rates without any change to the headline rates themselves. This is fiscal drag in practice, and its effects compound quietly over time.

Higher marginal income tax bands also affect how capital gains and dividend income are taxed, since those rates are linked to income tax position. Assets held outside ISAs and pensions are particularly exposed to this.

Cash ISA allowance from April 2027

One of the more significant longer-term announcements for savers was a planned restructuring of the ISA allowance from April 2027. The total annual ISA subscription limit of £20,000 is to remain, but for savers under 65 the amount that can go into a Cash ISA is expected to fall to £12,000, with £8,000 ring-fenced for investment ISAs such as Stocks and Shares ISAs.

Savers aged 65 and over were described as retaining a £20,000 Cash ISA capacity, recognising greater reliance on accessible cash in retirement.

The practical implication for anyone currently holding a significant Cash ISA is worth thinking through before the change takes effect. Time horizon, risk tolerance and income needs all bear on whether moving a portion of cash savings into investments makes sense for a given person. It is not a one-size-fits-all answer.

Pension salary sacrifice cap from April 2029

The Budget announced that from April 2029, the amount of salary that can be given up for pension contributions while still attracting National Insurance relief through salary sacrifice will be capped. The material referenced a £2,000 annual cap, with the OBR estimating this would generate additional NICs revenue of around £4.7 billion over the scorecard period.

Income tax relief on pension contributions and the principle of tax-free cash were described as continuing under existing rules in relation to this specific measure, though tax rules are always subject to future change.

Employers and payroll teams will need to review arrangements before 2029. Individuals currently benefiting from salary sacrifice well above that level may want to consider their overall contribution strategy ahead of the change.

Dividend and savings tax rates

From April 2026, dividend tax rates for basic and higher rate taxpayers are to rise by two percentage points, bringing the basic rate to around 10.75 per cent. From April 2027, higher and additional rate tax on savings interest is also to rise by two percentage points.

ISAs remain the primary retail tool for sheltering interest, dividends and gains. Married couples and civil partners may use both sets of annual allowances, which can be a meaningful advantage where savings and investments are distributed across both.

Other measures

The Statement touched on a broad range of other areas. A council tax surcharge on higher-value properties in England is planned from April 2028. Fuel duty changes, electric vehicle excise adjustments from 2028, and frozen rail fares in England were among the transport measures. Business announcements covered investment reliefs, business rates adjustments and changes to stamp duty for UK listings. Gambling duty rates for online operators are to increase.

If a specific measure affects your situation, the official policy paper and Finance Bill clauses are the most reliable source of detail.

A note on planning

Budgets create both pressure and opportunity. Some of the changes announced will not take effect for two or three years, which means there is time to review how your current arrangements hold up and whether adjustments are worth making.

If you would like to talk through how the 2025 Autumn Budget affects your own position, we are happy to help. We work with individuals and families across Worcestershire and Warwickshire, and the kind of planning that makes a difference often starts well before a change comes into force.

This article reflects our understanding of the 2025 Autumn Budget Statement and is for general information only. It does not constitute personal financial advice. Tax rules, rates and allowances can change, and their value depends on individual circumstances. The value of investments can fall as well as rise, and you may receive back less than you invested. Tax rates and bands differ for Scottish taxpayers.

Autumn Budget Statement 2025