Budget 2025: what it means for your money

Savers and earners bear the brunt of a big tax-raising Budget from the Government.

The announcements detailed a prolonged future squeeze on thresholds, rising taxes on investment income and property, tighter ISA rules and a new levy on high value homes. This  marks a big shift toward higher long term taxation on wealth and assets.

The Budget contains significant changes in how both middle earners and savers are taxed, particularly those with investment income, larger savings pots, rental properties and high value homes. 

Rather than hiking headline rates, Chancellor Rachel Reeves announced a mix of long term freezes and targeted tax rises that gradually increase the government’s take over time.

Note, the changes to pension salary sacrifice we have covered in a separate article.

Tax thresholds frozen for longer

The Government is extending the freeze on the main income tax thresholds for another three years. The personal allowance will stay at £12,570 and the higher rate threshold at £50,270 from April 2028 until April 2031, while the additional rate threshold remains at £125,140 over the same period. 

National Insurance thresholds for employees and the self-employed are also held at current levels, including the primary threshold at £12,570 and the upper earnings and profits limits at £50,270.

On top of that, the Plan 2 student loan repayment threshold is being frozen at £29,385 for three years from April 2027. For graduates on those loans, any pay rises during this period will bring more of their income into repayment sooner.

These freezes matter because inflation and nominal wage growth are expected to continue. As pay packets rise while thresholds stand still, more people are pulled into paying income tax at all, and more basic rate taxpayers drift into the higher rate band. 

This “fiscal drag” is a central way the Budget raises money without increasing headline income tax rates. The Treasury’s own costings show substantial extra revenue from holding thresholds flat through to 2031.

Higher taxes on dividends, savings and property income

Alongside the threshold freezes, the Budget directly targets income from assets. The Government is explicit that people who live off wages pay National Insurance, while those who receive investment, savings or rental income do not, and that it wants to narrow that gap.

From April 2026, the ordinary and upper rates of dividend tax rise by two percentage points. There is no change to the additional rate on dividends, but anyone receiving significant dividend income outside tax shelters will see a higher bill. 

Savings income tax rates rise by two percentage points across all bands from April 2027, increasing the basic, higher and additional rates applied to interest on money held outside ISAs and other tax sheltered accounts.

For landlords and others with rental or other property income, there is a new structure of property specific tax rates. From 2027 to 28, property income will be taxed at 22% for the basic rate, 42% for the higher rate and 47% for the additional rate, above the current income tax rates on earnings at those levels. This is a clear signal that rental and similar property income is being singled out for a tougher regime.

The Treasury emphasises that most taxpayers and most pensioners have no taxable savings, dividend or property income and will not be affected by these specific measures. It also notes that over 90% of taxpayers do not currently pay any savings tax at all, and that allowances and ISAs will still protect smaller investors. 

In practice though, anyone with substantial investments held outside ISAs and pensions, as well as higher earning landlords, should expect to contribute more.

Reforms to ISAs

Against this backdrop of higher taxes on investment income, the Government has announced some changes to ISAs.

From 6 April 2027, the annual cash ISA limit will be set at £12,000 within the existing overall ISA allowance of £20,000. That effectively encourages more of the allowance to be used for stocks and shares rather than cash, although savers aged 65 and over will still be allowed to put the full £20,000 into cash each year. 

The overall ISA allowance stays at £20,000 until at least April 2031, while the annual limits for Lifetime ISAs (LISAs), Junior ISAs (JISAs) and Child Trust Funds (CTFs) are also frozen at their current levels for the same period.

Separately, the Government has announced a consultation in early 2026 on replacing the LISA with a new, simpler home buying focused ISA product for first time buyers. Details are still to come, but the direction of travel is towards using ISA reforms to support retail investment and home ownership while leaving the overall tax privileged envelope unchanged in cash terms.

For ordinary savers, the message is blunt. As tax on interest and dividends outside wrappers rises and allowances are effectively eroded by inflation, sheltering money in ISAs is more important than ever. Those who have not used them heavily to date may find that in later years, holding investments outside a tax shelter becomes significantly more expensive.

A new mansion tax by another name

On property wealth, the Budget introduced something very close to a ‘mansion tax’, but branded as the High Value Council Tax Surcharge (HVCTS). 

From April 2028, owners of residential properties in England worth £2 million or more will pay an additional annual charge on top of their normal council tax bill.

The surcharge will apply on a sliding scale. Charges start at £2,500 per year and rise to £7,500 for homes valued above £5 million. It is levied on the property owner rather than the occupier, which matters for those who own such properties but rent them out. Less than 1% of properties are expected to fall into scope, according to the government’s estimates.

Valuations will be updated to identify which properties are above the £2 million threshold. There will be a consultation on exactly how the charge will work and who may need additional support to pay it, but the principle is already set. 

Revenue from the surcharge is intended to help fund local services, although precise allocations will be decided at the next spending review.

Who is most affected

Taken together, the measures point to clear targets for raising revenue. Workers on typical earnings are affected indirectly through ongoing threshold freezes, which gradually increase their tax bills as wages and inflation rise. Graduates with Plan 2 loans will see more of their income diverted to repayments for longer.

The most direct and immediate impact falls on those with higher levels of financial and property wealth. People with large portfolios held outside pensions and ISAs face higher taxes on dividends and savings income within a few years. 

Landlords and others with significant property income are hit by the new higher property tax bands, while owners of very expensive homes face an additional recurring levy that did not previously exist.

ISAs and pensions are the main shelters the system leaves intact. Limits are frozen rather than expanded, but their relative value increases as tax rates on income from assets outside wrappers rise and fiscal drag pulls more people into higher tax bands.