This year’s budget was highly anticipated, arriving later than usual and following leaks from the Office for Budget Responsibility (OBR). Here’s a clear breakdown of the major announcements and what they mean for individuals and businesses.
1. Tax Thresholds Frozen Until 2031
Tax thresholds were already set to remain frozen until 2028, but the latest budget extends this freeze for an additional three years until 2031.
- The higher-rate tax threshold stays at £50,270.
- As incomes rise while thresholds remain static, more people will fall into higher tax bands, a phenomenon known as fiscal drag.
- Although tax rates haven’t increased, this freeze effectively acts as a stealth tax.
2. Changes to Cash ISAs
Currently, you can invest £20,000 per year into ISAs (cash, stocks, or a mix). From 2027, the annual limit for cash ISAs will drop to £12,000 for those under 65.
- Stocks and shares ISAs remain at £20,000.
- Over-65s retain the full £20,000 cash ISA limit.
3. Higher Taxes on Savings, Property and Dividends
From 2027, tax rates on savings, property investments and dividends will rise by 2%:
- 20% → 22%
- 40% → 42%
- 45% → 47%
This makes ISAs even more attractive for tax-efficient saving.
4. Energy Bill Relief
From April 2026, energy bills will decrease as the government shifts certain levies into general taxation and removes the ecosystem charge. Expect lower unit rates for electricity and gas, which is a welcome change for households.
5. Salary Sacrifice Cap
From April 2029, a cap of £2,000 per tax year will apply to National Insurance savings via salary sacrifice for pension contributions.
- Higher-rate taxpayers and those using salary exchange to reduce child benefit tax charges remain unaffected.
- Employers and employees should maximize savings before the cap takes effect.
6. State Pension Increase
From April 2026, the state pension will rise by 4.8%, bringing the full amount to £12,547.
- This is edging closer to the personal allowance, meaning pensions may become taxable in the near future.
7. Universal Credit Changes
The two-child limit for Universal Credit ends in April 2026, providing additional support for families with more than two children. (Note: This applies to Universal Credit, not standard child benefit.)
8. Student Loan Threshold Freeze
For Plan 2 loans (England: 2012–2022 starters; Wales: 2012 onward), the repayment threshold will rise to £29,385 in April 2026, then freeze until 2031.
- As incomes grow, repayments will increase automatically.
9. ISA Developments
The Lifetime ISA cap of £450,000 remains, but the government will consult on a new First-Time Buyer ISA to replace it in the future.
10. High-Value Property Surcharge
From April 2028, England will introduce a council tax surcharge for properties over £2 million:
- £2M–£2.5M: £2,500/year
- £2.5M–£3.5M: £3,500/year
- £3.5M–£5M: £5,000/year
- £5M+: £7,500/year
11. Electric Vehicle Mileage Tax
From April 2028, EV owners will pay:
- 3p per mile for pure electric vehicles
- 5p per mile for plug-in hybrids
Details on how this will be monitored and collected are yet to be confirmed.
Final Thoughts
This budget brings a mix of positives and challenges. With frozen thresholds, rising taxes and new caps, careful planning is essential to remain tax-efficient. Review your savings strategy, pension contributions and energy usage to make the most of the opportunities available.
Please contact one of our Employee Benefits team on 02920 853788 or eb@thomas-carroll.co.uk, should you have any questions or would like to find out more.
