UK Autumn Budget 2025: what it means for your money

The UK Autumn Budget for 2025, delivered by Chancellor Rachel Reeves, has introduced several significant changes that will affect millions. From income tax and savings to property ownership, the new measures are designed to reshape the UK’s financial landscape. Understanding these updates is the first step toward making informed decisions about your money.

While budget announcements can often feel complex, the core changes centre on tax thresholds, investment income, and property. These adjustments will have a direct impact on your take-home pay, savings, and wealth-building strategies for years to come.

This article breaks down the key announcements from the UK Autumn Budget 2025. We will explain what they mean for you and offer practical guidance on how to navigate this new financial environment.

The big freeze: tax thresholds and fiscal drag

One of the most significant announcements is the decision to freeze income tax and National Insurance thresholds for an additional three years, extending the freeze until the 2030-31 tax year. While this may not sound like a direct tax increase, it has a similar effect through a process known as “fiscal drag.”

What is Fiscal Drag?

Normally, tax thresholds – the points at which you start paying a higher rate of tax – increase each year with inflation. This ensures that as your pay rises, you don’t automatically get pushed into a higher tax bracket.

When thresholds are frozen, any pay rise you receive could tip your earnings into the next tax band. This means a larger portion of your income is taxed at a higher rate, reducing your take-home pay. For example, a basic-rate taxpayer whose salary increases could find themselves paying the higher rate of 40% on part of their earnings.

The current thresholds have now been frozen until 2031, and are as follows:

Personal allowance: £12,570 (0% tax)
Basic rate: £12,571 to £50,270 (20% tax)
Higher rate: £50,271 to £125,140 (40% tax)
Additional rate: over £125,140 (45% tax)

This freeze means more people will be drawn into higher tax bands over the next few years, making tax-efficient planning more important than ever.

Article image: House of Commons where the UK Autumn Budget for 2025 was announced. Photo obtained from UK Parliament.

Changes to savings and investment taxes

The budget also introduced changes to taxes on savings, dividends, and capital gains, which are set to take effect from April 2026.

Savings income tax

From April 6 2026, the tax rates on savings income will increase by 2%. This applies to interest earned from bank accounts and other savings vehicles that exceeds your Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers).

New basic rate: 22% (up from 20%)
New higher rate: 42% (up from 40%)
New additional rate: 47% (up from 45%)

This change makes tax-efficient savings wrappers, such as ISAs, even more valuable, as any interest earned within them remains tax-free.

Dividend income tax

Investors and company directors who receive dividends will also see a 2% increase in tax rates from April 2026.

New basic rate on dividends: 10.75% (up from 8.75%)
New higher rate on dividends: 35.75% (up from 33.75%)

The tax rate for additional-rate taxpayers remains unchanged. This highlights the need for careful planning around how profits are extracted from a business and how investments are structured.

Capital Gains Tax

While there were no direct changes announced to the main rates of CGT, the rates for Business Asset Disposal Relief and Investors’ Relief will increase to align with the main lower rate of 18%. This change, combined with the continued freeze on tax bands, means careful timing of asset disposals and use of your annual CGT allowance will be crucial.

New rules for property owners

The property sector was another key focus of the UK Autumn Budget, with two major changes announced for landlords and owners of high-value homes.

New “Mansion Tax”

A new High-Value Council Tax Surcharge, often called a “mansion tax,” will be introduced in April 2028. This will apply to residential properties in England valued at £2 million or more. It is an annual flat-rate charge paid by the owner in addition to existing council tax.

Properties valued £2m – £2.5m: £2,500 per year
Properties valued over £5m: capped at £7,500 per year

The government will hold a consultation to finalise the details, including its application to properties held within companies.

Increased tax on property income

Individual landlords will face higher tax bills from April 2027. The income tax rates on property rental income will increase by 2%.

New basic rate: 22%
New higher rate: 42%
New additional rate: 47%

This measure is intended to align the taxation of rental income more closely with earned income. For landlords, this adds another layer of financial pressure and makes strategic tax planning essential.

How RHJ Accountants can help you plan ahead

The changes announced in the UK Autumn Budget 2025 require everyone to review their financial strategy. Whether you are an employee, an investor, a business owner, or a landlord, proactive planning is the best way to protect and grow your wealth.

At RHJ Accountants, we specialise in helping individuals and businesses navigate the complexities of the UK tax system. Our team can assist you with:

Personal tax planning: we can help you structure your finances to minimise the impact of fiscal drag and make the most of tax-efficient allowances for savings and investments.
Business tax strategy: for business owners, we can advise on the most tax-efficient ways to manage profits and structure your company in light of the new dividend tax rates.
Property tax advice: we provide expert guidance for landlords and property investors on how to manage the new tax on rental income and plan for future changes.
Financial health checks: our team can conduct a review of your financial situation to identify opportunities for tax savings and ensure you are prepared for the upcoming changes.

The financial landscape is shifting. Don’t wait until the new rules take effect.

Contact our team today for a chat and let us help you build a clear and effective financial plan for the years ahead.

Frequently asked questions

What is the biggest change to income tax in the UK Autumn Budget 2025?

The most significant change is the extension of the freeze on income tax and National Insurance thresholds until the 2030-31 tax year. This means the points at which you start paying basic, higher, and additional rates of tax will not increase with inflation for several more years.

What is “fiscal drag” and how does it affect me?

Fiscal drag is what happens when tax thresholds are frozen while wages rise. As you receive pay increases, more of your income can get pushed into higher tax brackets. For example, if your salary rises from £50,000 to £52,000, the extra £2,000 will be taxed at the higher rate of 40% instead of the basic rate of 20%. In short, it means you pay more tax on your earnings over time, even if your pay rise is only meant to keep up with inflation.

Will my take-home pay decrease because of the threshold freeze?

Your take-home pay won’t necessarily decrease, but the amount of tax you pay is likely to increase, especially if you get a pay rise. The freeze effectively reduces the value of your earnings in real terms, as a larger portion of your income becomes subject to tax at higher rates.

How are the taxes on my savings changing?

From 6 April 2026, the tax rates on savings income (such as interest from a bank account) will increase by 2%. The new rates will be 22% for basic-rate taxpayers, 42% for higher-rate taxpayers, and 47% for additional-rate taxpayers. This change applies to interest earned above your Personal Savings Allowance.

What is happening to the tax on dividends?

The tax rates on dividend income are also increasing by 2% from April 2026. The new rate will be 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers. This will primarily affect investors and business owners who draw income from their companies through dividends.

How do these changes impact my investments?

With higher taxes on both savings and dividends, it is more important than ever to use tax-efficient investment wrappers. Investing through an ISA remains one of the best ways to protect your returns. As any interest, dividends, or capital gains earned within an ISA are completely tax-free.

What is the new “mansion tax” and who will pay it?

The government is introducing a High-Value Council Tax Surcharge, which is a new annual tax on owners of residential properties in England valued at £2 million or more. It is a flat-rate charge that will be paid in addition to council tax, starting from April 2028. The charge begins at £2,500 per year for properties valued between £2 million and £2.5 million and is capped at £7,500 for properties over £5 million.

I am a landlord. How will the budget affect me?

From April 2027, the income tax rates on property rental income will increase by 2% for all taxpayers. This means you will pay more tax on the profits you make from renting out property. Landlords should review their financial projections and consider structuring their property portfolios as tax-efficiently as possible to mitigate the impact of this increase.