5 Key Changes in the 2025 UK Budget for Taxpayers to Consider

Rachel Reeves’ second budget as Chancellor of the Exchequer has arrived, and with an estimated £26 billion tax hike expected by the 2029/30 tax year across 43 different measures, more UK residents and businesses are looking at how they’ve been affected by the changes. 

Changes affecting income tax, property tax, pension salary sacrifice schemes, and welfare changes have carried implications for many taxpayers, but what do they mean for residents? Let’s take a deeper look at five headline announcements in the recent budget and how they could affect you: 

1. Income Tax Threshold Freeze

Perhaps the most talked-about announcement in Rachel Reeves’ budget was the extended freeze on income tax thresholds, which will now continue at their current levels until the 2030-31 tax year. 

This means that the personal allowance (PA) afforded to earners will stay at £12,570, while the basic rate limit is frozen at £50,270 in England, Wales, and Northern Ireland. 

For additional rate taxpayers, the freeze means that £125,140 will remain the threshold until the beginning of the next decade. 

National Insurance Contributions (NICs) are also aligned with income tax thresholds and will remain frozen over the same period. 

Before the budget, income tax thresholds had been frozen until April 2028, and extending the freeze will see more higher-rate payers emerge to generate substantial additional revenue over the years ahead.

Extending the threshold freeze has been regarded as a ‘stealth tax’ by critics of the Chancellor, but at a time when significant fiscal shortfalls need to be addressed, extending thresholds could be a less jarring strategy than announcing steeper income tax hikes. 

2. Cash ISA Allowance Cut

Reeves has announced that the Cash ISA allowance for savers will be cut to £12,000 per year for adults under 65 years of age. 

Cash ISAs are a much-loved means of building savings for UK residents, and government data shows that 9.94 million adults subscribed to a Cash ISA in the 2023/24 tax year. 

Saving with a Cash ISA, rather than investing with a Stocks and Shares ISA, is largely preferred by the public, but the chancellor has lowered the annual tax-free allowance for Cash ISAs in a bid to encourage more residents to begin investing in more domestic stocks by switching to Stocks and Shares ISAs. 

The change will come into place at the beginning of the 2027/28 tax year, which means that you’ll have plenty of time to plan your next steps. The 2025/26 tax year ends on April 5th, 2026, so it could be the perfect time to adapt your saving strategy to prepare for changes over the year ahead. 

3. Welfare Changes

As of April 2026, the two-child benefit cap will be removed as part of measures to help lift families out of poverty in the United Kingdom. The removal of the cap would cost £2.3 billion in 2026-27 and £3 billion in 2029-30. 

Many Labour MPs have suggested that the chancellor scrap the two-child limit for benefit uplifts, which has paved the way for fundamental Universal Credit changes to boost financial support for families with more than two children. 

Previous rules stipulated that households on Universal Credit can gain support for the first two children but no additional help for any subsequent children. Reeves herself has acknowledged that this leaves children in larger families “penalised” through no fault of their own.

4. Mansion Tax for £2m Homes

In a tax change that affects owners of tens of thousands of homes throughout the United Kingdom, a surcharge of at least £2,500 will be applicable for properties valued at more than £2 million.

The move to implement a tax on high-value properties has been labelled a ‘mansion tax’ by analysts and will be payable in addition to existing council tax obligations. 

The changes will come into effect in 2028, and the highest rate payable by homeowners will be £7,500 for properties worth in excess of £5 million. 

While some property owners have criticised the move, suggesting that a high-value property doesn’t necessarily mean high liquidity, the Institute for Fiscal Studies (IFS) claimed that the changes don’t go far enough in applying an appropriate level of taxation to wealthy homeowners. 

5. Electric Vehicle Taxation

Electric vehicles (EVs) have traditionally been highly tax-efficient due to their key role in building towards national climate goals. However, Reeves opted to introduce a new charge of 3 pence per mile (ppm) for zero-emission vehicles on top of existing road taxes from April 2028. 

The Treasury has claimed the decision was made in the interest of fairness to petrol and diesel drivers, and was likely implemented in response to the rapid growth in the adoption of EVs in the United Kingdom. 

Preparing for the Budget

The budget is likely to impact most UK taxpayers in one way or another over time. However, the most important thing to keep in mind is not to panic. Many major changes won’t come into effect immediately, allowing you plenty of time to adapt. 

If you begin selling ISA holdings or looking for ways to keep your self-employed NI contributions lower, for instance, you may create unnecessary stress. 

Be sure to explore alternative options to keep your tax efficiency high in preparation for the future, and if you’re concerned about any investments or savings, be sure to seek out financial advice.