UK Budget 2025: What It Means for Your Financial Plan

Introduction

The Chancellor has delivered the Autumn Budget against a difficult backdrop. With the UK economy having slowed in the third quarter: Q3 GDP growth came in at 0.1%, compared with growth of 0.3% in Q2[1]. As the government’s fiscal headroom has looked increasingly pressured, the headlines today were somewhat anticipated. Here is a summary of the key changes and what they could mean for your financial plan.

Income tax held for an additional three years

The headline rates of income tax remain unchanged, but the freeze on personal allowances and thresholds has been extended for a further three years from 2028. This means more people will move into higher tax bands over time, a phenomenon known as fiscal drag. If your income rises, you may pay more tax even though rates have not increased. Reviewing your tax position and considering tax-efficient wrappers such as ISAs and pensions is now more important than ever. 

ISAs and savings

The annual ISA allowance stays at £20,000, but from 2027, the amount that can be held in cash ISAs has been cut to £12,000. The government hopes this will encourage more investment in stocks and shares ISAs. If you rely heavily on cash ISAs, you may need to rethink how you allocate savings to maintain tax efficiency.

Over 65s, though, will retain the full cash allowance of £20,000.

Pension allowances and tax-free lump sum left alone  

As the government has made considerable changes to pension legislation, it is with a sigh of relief that we see pension taxes left alone. Pensioners have flagged that they would feel more confident saving into their pensions if the goal posts stopped changing, and maybe the Chancellor has listened to this[2]. As we discussed recently, tax free cash has remained a key concern for many clients, so there is significant relief in this remaining unchanged. 

Pensions and salary sacrifice

Salary sacrifice arrangements for pension contributions have been restricted. From April 2029, only the first £2,000 of contributions made through salary sacrifice will be exempt from National Insurance. This change could reduce the tax advantage for higher earners and may require adjustments to contribution strategies.

Property taxes

There will be a high-value council tax surcharge for properties worth more than £2m of £2,500 a year, rising to £7,500 for properties worth more than £5m. This change comes into effect in 2028.

Inheritance tax and capital gains

Inheritance Tax thresholds remain frozen, but the government has signalled a review of gifting rules, which could lead to tighter limits in future. Capital Gains Tax rates are unchanged for now, but the allowance remains at £3,000, reinforcing the importance of planning asset disposals carefully.

Dividend tax

The dividend tax rate will rise by 2% from April 2026. Investors relying on dividend income may wish to review their portfolios and consider using tax wrappers to mitigate the impact.

Electric vehicles

A new mileage-based charge on battery electric and plug-in hybrid cars is coming into effect from 2028.

Conclusion

As they say the devil is in the detail and we are continuing to digest information as it becomes available.

The Budget is a reminder of why financial planning matters. Tax rules and allowances can change, but a well-structured plan helps you stay on track. If you are unsure how these measures affect you, speak to your financial planner for tailored advice.

For your financial plan, staying informed and remaining calm are critical during more volatile periods. The changes announced could have implications for income, investments, and long-term goals. However, this doesn’t mean you should panic. Taking action now could have long term implications and might not deliver the results you want. Your financial planner is here to help you navigate any challenges and can help you adjust your strategy if needed.

This article is designed to provide you with information only. It is not designed to provide you with financial advice. Please seek financial advice if you are still unsure about your options. There may be a charge for this. Remember, tax treatment depends on your individual circumstances and may be subject to change in the future. And the value of investments can go down as well as up, and could be worth less than what was paid in. This information is based on our understanding in November 2025. Aberdeen is not responsible for the information, accuracy and views of external sources.