At a glance:

• Productivity challenges mean uncertainty lingers around the UK’s ability to achieve sustained, strong growth in the coming years.
• The freeze on Income Tax thresholds is to be extended to 2030/31.
• Contributions to pensions via salary sacrifice, in excess of £2,000 a year, will attract National Insurance Contributions (NICs) as of 2029.
• The Cash Individual Savings Account (ISA) allowance will be cut to £12,000 per tax year from 2027.

The Autumn Budget sets out the government's plans to adjust tax and spending each year. It is delivered by the Chancellor of the Exchequer, currently Rachel Reeves, to the House of Commons. Treasury policy is that the Autumn Budget should be the only fiscal event of the year, so it is closely watched.

Chancellor Reeves laid out a series of ambitious targets when she took the wheel of HM Treasury in July 2024. Among them, the chancellor sought to balance investment goals with pledges to keep a lid on key taxes and reduce borrowing. While debt reduction has remained a key priority for the chancellor since then, headwinds facing the UK economy have led to questions around how it might be funded.

Today’s Budget has provided some answers, but many questions remain. We explain how markets have reacted, and what the most important changes mean for you.

If you are unsure how any of the Budget changes could affect you, you can speak to one of our wealth experts.

The state of the UK economy

Scott Gardner, Investment Strategist at J.P. Morgan Personal Investing, breaks down the economic backdrop for the Budget, as well as the possible implications of changes announced and the initial market reaction.

“Many watching the chancellor’s Budget will be wondering how the measures announced will impact household finances and the UK economy over the next five years. The answer lies in the workings of the leaked Office for Budget Responsibility (OBR) economic and fiscal outlook, which has given a painful verdict on the state of the UK economy.

“The fiscal watchdog has clearly been spooked by the UK’s weakened productivity this year and has downgraded its growth projections for the economy accordingly. The OBR had expected growth in 2025 and 2026 to come in at 1% and 1.9%, respectively. New forecasts suggest GDP growth will increase to 1.5% this year but fall to 1.4% next year while levelling off at 1.5% in 2027 and beyond. Britain’s productivity funk continues to provide a challenge for the chancellor.

“The chancellor’s decision to restore and materially increase the government’s headroom is a smart move, but some will be sceptical of the sequencing of tax and spend decisions. Spending has been front-loaded in the short term, but savings and tax rises will take place later in the Parliament. This will be driven by hopes in the Treasury that the economy outperforms so that back-loaded tax and spending cuts in the Parliament don’t need to be made.

“If interest rates fall further in the year ahead and that filters through into lower government borrowing costs, this could boost the nation’s finances later in the Parliament. There is some merit in this view, but as we have seen in recent years, the economic outlook remains uncertain and can change quickly for better or for worse. We see this in the OBR’s projections which have sharply shifted in the last six months.

“Increased investment, greater productivity and turbocharging the housing market are, in our view, the building blocks to decent growth throughout this Parliament. The jury is still out on whether the UK economy can turn a corner and deliver sustained, strong growth.

“Despite some volatility in trading, investors have broadly reacted positively to the Budget. Closely-watched UK government bonds, or ‘gilts’, have moved in the right direction, with prices buoyed by increased fiscal headroom. While equity markets initially whipsawed in response to the leak from the Office for Budget Responsibility, they have made up ground in the following hours. Sterling also edged higher as the chancellor reaffirmed the Government’s commitment to fiscal restraint. Piecing this all together, the Treasury should be satisfied with the market reaction so far, given the breadth of changes announced and speculation since the summer.”

Key changes announced in the Budget

Income Tax, Value Added Tax (VAT) and National Insurance (NI)

Despite speculation ahead of the Budget, Income Tax rates were not increased. The decision means the government has technically held to its election pledge on tax increases. The chancellor has however decided to extend the freeze on Income Tax thresholds, the income levels at which the rates kick in, until 2031.

The move will still see an increase in Income Tax paid to the government, because as wages rise while tax thresholds stay the same, more people fall into the higher tax bands.

VAT and NI rates did not change.

Expert opinion:

“While the headline news that Income Tax rates aren’t going up might be good news, some workers may get caught by the so-called ‘fiscal drag’ phenomenon. By extending the freeze on Income Tax thresholds, more workers may find that they are pulled into paying a higher rate of tax. For some, particularly pensioners, the changes may mean an increase in Income Tax for which their liability was previously low or zero.

“If you’re close to the threshold – especially between basic and higher rate tax – you may want to consider options to reduce your taxable income that could keep you just below the threshold.”

Claire Exley, Head of Financial Advice and Guidance

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ISAs

After months of speculation, the chancellor has decided to reduce the Cash ISA allowance to £12,000 per tax year. The changes will come into effect from the 2027/28 tax year and aim to strengthen retail investment participation. Over 65s maintain their full Cash ISA allowance.

The government hopes that limiting the amount that can be saved in Cash ISAs will encourage a balance between savers having sufficient cash savings for short-term needs, and investing for the future. However, separating the allowances risks introducing additional complexity that could discourage good savings habits. Stocks and Shares ISA allowances are unchanged at £20,000 per tax year.

There may be some implications for transfers between ISAs and transferring previous years' ISAs. These are still being assessed, and we will be monitoring developments here closely.

The Budget suggests a review of the Lifetime ISA will begin in 2026, including a potential replacement for this type of account. Details are currently lacking, but we will continue to monitor developments.

Expert opinion:

“Tax-efficient cash savings, such as cash ISAs, are an important part of any financial plan. If you’re saving for a goal within the next three years the chances are investing may not be right for you. However, UK consumers' tendency towards cash has meant some are stashing too much in cash, which may be preventing them from reaching their goals over the medium to long term. It’s important to find the right balance between having access to appropriate cash savings options that meet short-term needs, and risk-appropriate investment options for longer timeframes.

“Part of the appeal of the ISA regime when it launched was its simplicity. If there is to be success for consumers in using both cash and investment ISAs to meet their financial needs, the government and industry must ensure no unnecessary friction or complexity for people trying to save or invest for their future.”

Holly Graham, Senior Wealth Manager & Financial Planner

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Pensions

The chancellor has announced one of the biggest shake-ups to salary sacrifice schemes in recent years, impacting those who are building their retirement savings and using tax reliefs. The Budget announced that contributions to pensions via salary sacrifice over £2,000 per tax year will no longer be exempt from NICs, as of 2029.

A cap on salary sacrifice is not new. Currently, you will pay tax on pensions contributions above the amount you earn, up to an annual limit. However, this new policy will limit how much you can add into your pension through salary sacrifice without it being subject to National Insurance. Note: tax relief not affected.

Expert opinion:

“Unfortunately, the vast majority of UK adults face a considerable shortfall between the amount they are putting away for retirement and the amount they will need to live the lifestyle they want. Research from J.P. Morgan Personal Investing suggests that just one in four (24%) people feel they are saving enough for a comfortable retirement. Of those who are putting money away for life after work, workplace pensions are the most popular method – with 47% of people using these.

“Changes to the current workplace pension regime that may discourage people from taking advantage of generous employer workplace pension contributions and employee matching schemes, further risks increasing the levels of pensioner poverty.”

Sebastian Steyne, Senior Wealth Manager

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Dividend, savings and property income

The chancellor announced an increase to tax on property, dividend and savings income.

Chancellor Reeves said in her speech that the adjustment was introduced so the amount of tax paid on income from work is closer to tax paid on income from assets.

According to the UK government website, tax on dividend income will increase. This means from April 2026 the ordinary rate on dividend income will rise from 8.75% to 10.75% and the upper rate will rise from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%.

Tax on savings income will also rise by 2% on all bands. This means the basic rate will increase to 22% from 20% and the higher rate will move to 42% from 40%. The additional rate band for savings income will rise to 47% from 45% from April 2027.

The government is creating separate tax rates for property income. Income Tax is already charged on property income. These separate rates mean property income will have its own individual tax rates (as already occurs for the taxation of savings and dividend income). From April 2027, the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%. Finance cost relief will be provided at the separate property basic rate (22%).

Expert opinion:

“Changes to dividend tax rates highlight the importance of using your tax allowances and wrappers, such as your ISA and pensions, as returns earned on these investments will grow tax-efficiently. Financial advice or guidance could help you to understand the options you have and the best course of action to achieve your financial goals.”

Claire Exley, Head of Financial Advice and Guidance

If you are unsure about the impact of the Budget you can book a call with one of our experts.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. This is general information, not personalised tax advice. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.