Rachel Reeves’ 2025 Autumn Budget was a record breaker, but not for all the right reasons.
The chancellor chose to raise taxes by £26 billion — a new all-time high.
Alongside these tax tweaks were sweeping ISA reforms.
Luckily, not all the tax changes are going to hit us at once, meaning there’s still time to get your finances in order to avoid paying more than you need to.
If you’re a top-rate taxpayer, it all made for pretty miserable reading. Here’s a summary of the main Autumn Budget changes, plus what you can do to help soften the blow.
Key Autumn Budget dates you need to know
- April 2026: A 2% rise in property, savings and dividend tax
- April 2027: Cash ISA allowance cut to £12,000 for under 65s
- April 2028: Mansion tax on properties worth over £2 million
- April 2028: New electric and plug-in hybrid vehicle tax of 3p and 1.5p per mile
- April 2029: Salary sacrifice tax benefit capped at £2,000
- April 2031: Frozen income tax thresholds freeze ends
Extension of frozen income tax thresholds
Rachel Reeves made the call to extend frozen income tax thresholds by another three years to 2031, with the hope of bringing in an extra £8.3 billion a year by the end of the decade.
What this also means is more people paying higher tax.
That’s because if income tax bands don’t go up in line with inflation like your wages do, more and more workers creep up into higher tax brackets — there’s a reason they call it the ‘stealth tax’.
In fact, the new policy is expected to push up the total number of higher-rate taxpayers to over 10 million — up from a predicted 7 million by the end of 2025.
The dreaded £100k tax trap
It’s been estimated that half a million more people will be dragged into the £100,000 tax trap by 2029, where they face the dreaded 60% effective tax rate.
This is where your finances can get really squeezed.
That’s because for every £2 you earn over £100,000, you start to lose £1 of your £12,570 personal allowance. So, once you start earning between £100,000 and £125,140, you’ll effectively be paying 60% tax on that income.
The added cost of losing your childcare allowance
If your child is between 9 months and 3 years old, working parents can typically get up to 30 hours of free childcare a week.
However, as soon as one parent starts earning a net adjusted income above £100,000, you lose out on the 30 hours free childcare altogether.
If your child is between 3 and 4 years old and you earn over £100,000, then can you get up to 15 hours of free childcare. You still won’t be able to claim the extra 15 hours on offer for those on below £100,000, however.
This means that, on top of paying even more tax and losing your personal allowance, you also lose out on valuable childcare benefits.
In fact, the Financial Times has reported that a parent with two children in a London nursery whose pay goes even £1 over £100,000 would have to earn more than £149,000 to compensate for the value of lost childcare support.
Don’t forget the student loan threshold freeze
If you went to university in England between 2012 and 2022, and Wales from 2012, you’ll start paying more of your student loan back.
While the threshold at which you start to pay it back will rise to £29,385 in April 2026, Reeves confirmed it will then freeze until 2030.
It means you’ll be paying back 9% for any income above this threshold.
Salary sacrifice capped at £2,000
Reeves also confirmed that the amount you can put into your pension through your workplace before you start paying National Insurance (NI) will be capped at £2,000 from 2029.
The estimated difference is that, if you earn £105,000 and you’re sacrificing £10,000 to your pension, you’d pay about £160 a year in NI. For a worker earning £120,000 and sacrificing £20,000, this number rises to £320.
This may seem relatively minor each year but, over time and when investment growth is taken into account, this can have a major impact on how much you have in retirement.
The real issue is for employers. Those same workers would cost their employers about £1,200 a year and £2,700 a year more respectively. It is, then, more likely than employers would be the ones to scale back contributions. This could lead to lower employer contributions and have a significant impact on retirement savings over time.
2% tax hike on property income, savings and dividends
Among the tax hikes was a 2% rise in tax on property and savings income from April 2027, and dividends from April 2026.
This means for any investments outside of an ISA, you’ll be paying more tax if you go over your personal savings and dividend allowances.
Higher-rate taxpayers currently get a personal savings allowance of £500, while additional-rate taxpayers don’t get any. Anything over that and you’ll be paying even higher tax.
The current dividend allowance is £500, no matter how much you earn. So that means if you’re a higher earner and go over your dividend allowance, you’ll start paying 35.75% from April.
The property tax is a double whammy.
That’s because if you earn income from any properties you own and you go over your annual property income allowances then you’ll be paying more in tax.
Renters might not be safe either. Your landlord could well pass these extra costs on through higher rent, especially if they’re also hit with the extra 2% ‘mansion tax’ rise.
Cash ISA allowance cut to £12,000
Another big change in the Autumn Budget was the confirmation of a Cash ISA allowance cut to £12,00 for under 65s, from April 2027.
The government is hoping that by cutting the Cash ISA allowance by almost half, savers will now be incentivised to invest more of their overall ISA £20,000 allowance in the stock market — using a Stocks and Shares ISA.
The concerns are that a lot of these savers use the Cash ISA allowance for things like home deposits or short-term spending needs. So, by cutting the allowance, it could just mean these groups end up paying more tax on their savings, especially with the 2% hike we mentioned above.
What can higher earners do?
A silver lining is the upcoming tax changes will be staggered, so you still have time to get your finances in order and prepare for higher taxes.
1. Revisit your pension contributions
The £2,000 cap on salary sacrifice makes it harder for higher earners to bring their net income down through higher pension contributions, and therefore get benefits like the full childcare allowance.
Some might be even considering working fewer hours or even going part-time.
Unfortunately the answer for many will just be to keep paying in what you are already and take the tax hit so your pension doesn’t fall behind and you don’t lose certain benefits.
However, it’s important to remember that the cap doesn’t kick in until 2029, so you’ve still got crucial years ahead to make the most of your pension.
It means it’s now more important than ever to make sure you’re leveraging the benefits you get through your workplace pension while you still can, and making the most of your extra tax relief.
An easy way to claim back tax relief
You normally have to fill in a self-assessment tax return each year to get your extra tax relief, which can feel like a headache.
That’s why we’ve partnered with PIE. Instead of wrestling with forms, you can:
- Log in to PIE through your InvestEngine dashboard
- Enter how much you’ve contributed (clearly shown in your transactions)
- PIE reclaims your extra relief from HMRC on your behalf
No forms. No hassle. Just money back.
2. The importance of using your ISA allowances
If anything, the Budget is just another reminder of the importance of using all of your £20,000 ISA allowance.
With income tax thresholds frozen, property income, savings and dividend tax all being hiked by 2%, it means sheltering your money in ISAs should be high up on your priority list.
The Cash ISA allowance cut won’t help those who are holding cash for a house deposit or short-term savings. However, the new proposed changes still need to go through industry consultations first, where there will likely be some pushback, and also some more clarity on how these changes will be policed.
In the meantime, before any proposed changes come in, it’s a good opportunity to revisit your overall ISA split.
Are you comfortable with how much cash you’re holding, or are you perhaps holding too much that could otherwise be invested to help grow your wealth for the long term?
Top 5 ETFs for 2025: Top picks leading the market
When your finances are squeezed, ISA fees also become more important as they can eat into those all-important tax-free returns.
Luckily you don’t pay a penny in withdrawal or platform fees with the InvestEngine ISA. It’s also a flexible ISA, too, which means you can deposit and withdraw without affecting your yearly allowance.
3. Use any spouse or civil partner allowances
With taxes rising, your tax allowances, like your personal savings and dividend allowances, are becoming even more important.
If you have a spouse or civil partner, it makes a lot of sense to plan your finances as a couple, especially if one of you pays less, or no tax at all.
Not only do you both get ISA and SIPP allowances, but you could be making more of other allowances as a couple — for example the personal allowance, personal savings allowance, capital gains and dividend allowances too.
Make sure you’re both using these as best as you can.
And if one of you isn’t using all of yours, then you could think about gifting investments (without worrying about capital gains tax from gifting), so you can shelter more from tax using any allowances you have left.
How to make the most of your tax allowances
Important information
Capital at risk. The value of your investments may go down as well as up, and you may get back less than you invest.
Remember, because ISA, pension and tax rules change, any benefits will depend on your personal circumstances. Scottish tax rules are also different.
ETF costs apply. If in doubt, you may wish to consult a professional adviser for guidance.
Tax treatment depends on your personal circumstances and may change in future. This article is for general information only and does not constitute financial advice.