What does the 2025 Budget mean for you?

27th November 2025

Budget Statement 2025

On 26 November 2025, Chancellor Rachel Reeves delivered her Budget to the House of Commons. Once again speculation and leaks were rife before the announcements, so some came as no surprise. Others, however, could have a significant impact – particularly for younger generations. Here are the key points that you’ll need to be aware of.

Income Tax

The Chancellor announced that tax thresholds will remain frozen until 2031 – three years longer than previously planned. The tax-free Personal Allowance will remain at £12,570, with basic rate taxpayers paying 20% on earnings from £12,571 to £50,270. The higher rate remains at 40% for salaries between £50,271 and £125,140 and the additional rate of 45% applies to earnings of over £125,140.

The freezing of these thresholds results in what’s known as fiscal drag. This is where, as wages increase but tax thresholds remain the same, more people are ‘dragged’ into a higher tax bracket.

In addition, a higher tax rate on rental income will apply from April 2027. The basic rate will increase to 22%, while the higher and additional rates will increase to 42% and 47% respectively.

Tax on dividends will also increase by two percentage points, with the ordinary rate rising from 8.75% to 10.75% and the upper rate rising from 33.75% to 35.75% from April 2026. The tax-free dividend allowance will remain at £500 for 2026/27.

Minimum wages

Increases in minimum wage will apply as follows from April 2026:

Eligible workers aged 21+ on the National Living Wage will receive a 4.1% increase from £12.21 to £12.71 per hour.
Eligible workers aged 18-20 on the National Minimum Wage will receive an 8.5% increase from £10.00 to £10.85 per hour.
Workers aged 16 or 17 will receive a minimum wage increase from £7.55 to £8 per hour.

Energy bills

Energy bills have been a big issue for many households in recent years, and the Chancellor announced that the energy company obligation (ECO) scheme will be abolished, saving households an average of £150 per year.

Pensions

From April 2029 those making salary-sacrifice pension contributions will stop benefitting from the National Insurance exemptions after reaching a £2,000 threshold. This is expected to affect a third of private sector workers and a tenth of public sector workers.

Savings

The annual cap on cash ISA savings will be reduced from £20,000 to £12,000 per year from April 2027. A full £20,000 ISA allowance remains, but the remaining £8,000 must be invested into stocks and shares. This only affects savers under 65 years old. The move is intended to encourage younger generations to invest, thereby providing a boost to the economy.

Driving

The 5p cut in fuel duty on petrol and diesel will be extended to September 2026, after which there will be a staged increase.

For drivers of electric and plug-in hybrid vehicles, a charge per mile will be levied on top of other road taxes from 2028. EV drivers will pay 3p per mile, while PHEV drivers will pay 1.5p per mile. However, it is uncertain how the government plans to verify the number of miles that drivers cover.