The Chancellor has kept the main pension allowances unchanged but has confirmed a new cap on salary sacrifice arrangements that will apply from April 2029.

There had been heated speculation that the Chancellor would change the pension rules to help the government raise taxes, but no changes were announced to the annual allowance (which remains at £60,000) or to the carry-forward rules which can use up previous year’s annual allowances. The lump sum allowance has also remained unchanged at £268,275.

However, the Chancellor announced changes to the salary sacrifice arrangements for pension contributions. Salary sacrifice allows employees to reduce part of their salary or bonus in exchange for pension contributions, which is tax-efficient and helps save for retirement. However, this arrangement has disproportionately benefited higher earners with salary sacrifice costs expected to rise from £2.8 billion in 2016-17 to £8 billion by 2030-31.

From April 2029, the government plans to introduce a cap on salary sacrifice contributions which will limit the amount that can be sacrificed without incurring National Insurance Contributions (NICs) to £2,000 per employee. Salary sacrifice contributions above this amount will be subject to employer and employee NICs. Pension contributions that are not part of a salary sacrifice will remain unchanged.

The Chancellor reaffirmed the government’s commitment to maintaining the Triple Lock on the State Pension throughout this parliament. This means that in April 2026, the State Pension will increase by 4.8%. The Triple Lock ensures that the State Pension rises by the highest of three measures: inflation, wage growth, or 2.5%, helping to protect pensioners’ income against rising costs of living.

Also, starting from 6 April 2027, the government will close a loophole that allows individuals to use pensions for inheritance tax (IHT) planning. Under the new rules, any unspent pension pots will be brought within the scope of IHT.

The Chancellor of the Exchequer, Rachel Reeves announced increases to the Minimum Wage rates on the eve of the Budget. The Chancellor confirmed that the government has accepted in full the proposals of the Low Pay Commission (LPC) for increasing minimum wage rates from 1 April 2026.

The National Living Wage (NLW) rate will increase from £12.21 to £12.71 on 1 April 2026 and represents an increase of 50p or 4.1%. The NLW is the minimum hourly rate that must be paid to those aged 21 or over. The increase represents a pay rise of £900 a year for someone working full-time and earning the NLW.

It was also announced that the National Minimum Wage (NMW) – for 18-20 year olds – will increase from £10.00 to £10.85 an hour. This is an 8.5% increase and will see younger workers having their pay boosted by up to £1,500 next year. This increase is part of moves to narrow the gap in wage rates for 18-20 years olds and the NLW and ultimately create a single adult wage rate for all those aged 18 and up.

The NMW rates for 16 to 17 years old will increase from £7.55 to £8.00 – an increase of 45p or 6% per hour – from next April. The Apprentice Rate will mirror this increase in line with earlier recommendations by the LPC.

At the Budget, the government also announced two new measures aimed at supporting young people’s employment and skills development.

The Youth Guarantee: Jobs Guarantee Scheme will provide a six-month paid work placement for eligible 18-21 year group, who have been on Universal Credit and searching for work for at least 18 months. This scheme will cover 100% of employment costs for 25 hours a week at the minimum wage, alongside other support measures.The Youth Guarantee and Growth and Skills Levy will allocate more than £1.5 billion over the spending review period to improve employment and skills support. This funding will help ensure that young people have access to high-quality training opportunities and streamline the apprenticeship system to make it more efficient.

The chancellor Rachel Reeves announced as part of the Autumn Budget measures that the Income Tax thresholds will be maintained at their current levels for a further three years until April 2031. This will see the personal tax allowance frozen at £12,570 through to April 2031 across the UK. In addition, the higher rate threshold will remain at £50,270 (there are differences in Scotland). National Insurance thresholds will also remain frozen until 2031.

This means that more taxpayers will be pushed into paying higher taxes as income increases at a far faster rate than the frozen tax bands. This phenomenon is known as fiscal drag. The freezing of most of the Income Tax allowance and rates at current levels until 2031 means that many taxpayers will pay more Income Tax as their income increases with no corresponding increases in their allowances and more taxpayers will see their taxable income boosted into the 40%, or 45%, Income Tax bands.

The existing thresholds for the basic rate, higher rates and additional rates of tax have also been frozen where income is derived from employment or self-employment. However, the government will create separate tax rates for property, savings & dividend income.

Tax on most dividend income will increase by 2% from April 2026. The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%.

The changes to the tax rates for property and savings income will take effect from April 2027.

From 2027-28, the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%. These rates will apply across England, Wales and Northern Ireland.From 2027-28, the savings basic rate will be increased to 22%, the savings higher rate will be increased to 42% and the savings additional rate will be increased to 47%.

The current rules that allow Basic Rate taxpayers to receive £1,000 of interest without paying tax, and Higher Rate taxpayers to receive £500 without paying tax are set to remain as is the Starting Rate for Savings of up to £5,000 for lower earners.

The Chancellor’s Autumn Budget, delivered on November 26, 2025, sets the stage for a period of considerable fiscal change over the coming years. While headline income tax rates on earned income remain unchanged for now, the extensions of existing tax threshold freezes, and the introduction of targeted tax increases elsewhere, amount to a significant tax-raising event through “fiscal drag”.

For individuals and businesses, the key takeaway is a need for proactive financial planning. The measures announced create specific windows of opportunity and highlight the growing importance of using tax-efficient structures. Here are the immediate planning opportunities to consider.

1. Revisit Your Pension Strategy

Significant changes to pension rules are on the horizon. From April 2029, National Insurance relief on salary sacrifice pension contributions will be capped at £2,000 annually per employee. Additionally, from April 2027, most unused defined contribution pension funds will be subject to Inheritance Tax (IHT).

Action Point: Higher earners using salary sacrifice should review contribution levels and potentially accelerate contributions before the cap. To mitigate future IHT, consider withdrawing the tax-free lump sum during your lifetime to spend or gift.

2. Optimise Your ISA and Savings Strategy

Changes to savings rules encourage a move towards investments over cash. From April 2027, the annual cash ISA allowance for those under 65 will be reduced from £20,000 to £12,000, although the overall £20,000 ISA limit remains. Tax rates on savings interest and property income will increase by two percentage points across all bands from April 2027, with dividend tax rates increasing for basic rate and higher rate tax payers by the same amount, two percentage points, from April 2026. Dividend income falling into the additional rate band is unchanged.

Action Point: Consider low-risk investments within a Stocks and Shares ISA to utilize the full allowance. Maximize contributions to ISAs and pensions to shield savings from rising taxes, and business owners may consider bringing forward dividend payments before the rate increase.

3. Review Business and Property Structures

Immediate changes impact business owners and property investors. Capital Gains Tax relief on selling a business to an Employee Ownership Trust (EOT) was immediately halved from November 26, 2025. A new annual surcharge on properties in England valued over £2 million will apply from April 2028. Capital allowances are also changing, with a new 40% First-Year Allowance for plant and machinery in January 2026 and a decrease in the main Writing Down Allowance rate from April 2026.

Action Point: Business owners considering an EOT exit should seek immediate advice. Owners of high-value properties should consider the long-term impact of the surcharge. Businesses should review capital expenditure plans to align with the new allowances.

Conclusion

The Autumn Budget 2025 signals a strategic shift in the tax landscape over the medium term, with the freeze on income tax thresholds until 2031 expected to bring more individuals into higher tax brackets. Effective financial planning requires adapting strategies to this new multi-year reality, making it crucial to consult with your qualified financial or tax advisor.