26/11/2025
Today, Rachel Reeves delivered her second Autumn Budget as Chancellor in the House of Commons, announcing a freeze on income tax and national insurance thresholds for another three years, which is expected to push thousands more individuals into higher rate tax bands.
We asked Simon Claxton, Managing Director – Financial Services, for his immediate reaction to the key announcements:
▪️ National Insurance to be levied on salary sacrifice pensions - employee pension contributions made via salary sacrifice will eventually be subject to National Insurance, reducing the overall tax efficiency of these schemes. Reeves said salary-sacrificed pension contributions above an annual £2,000 threshold would no longer be exempt from NI contributions (NICs) from April 2029. The cap will mean that any pension contributions over the £2,000 level would result in an employee paying the full rate of NI of 8% on a salary of less than £50,000 and 2% on income above that. This could impact the working population and result in a reduction of money into pensions.
▪️ The inheritance tax (IHT) nil rate bands have been frozen for a further year until 2031.
▪️Mansion House tax on high-value properties - a new property levy will apply to homes valued over £2 million, projected to raise £0.4 billion.
▪️ ISA allowance maintained, with a shift toward investment ISAs - the overall £20,000 ISA allowance remains unchanged, but from April 2027, £8,000 of the allowance will be "reserved exclusively for investment", Reeves told MPs today. However, those aged over 65 will retain the full cash ISA allowance.
▪️ Dividend tax increase from April 2026 - Income tax on dividends will rise by two percentage points for both basic and higher rate taxpayers, increasing rates from 8.75% to 10.75% and from 33.75% 35.75% respectively. This measure is expected to generate an average of £1.2 billion annually from 2027–28.
Simon commented "Whilst raising dividend tax on entrepreneurship and business owners is the last thing the UK needs and is disappointing, the decision not to reform ISAs today will be welcomed by savers”.
