Chancellor Rachel Reeves announced the budget on 26th November 2025. We analyse the changes, increases, caps and freezes, and the implications on who it affects and how.
Income tax & National Insurance — Freezes and mechanics
What was announced
– The Government will maintain the Personal Allowance and basic-rate limit and equivalent National Insurance thresholds from 6 April 2028 for a further multi-year period (the OBR and ministers describe this as a three-year freeze from 2028). That means thresholds are not being uprated with earnings/inflation during that window.
– The Chancellor reaffirmed no increase in the headline rates of Income Tax, VAT or National Insurance.
Implications for working people
– A threshold freeze is a form of stealth tax: as wages rise (even slowly), more of workers’ pay is pushed into higher tax bands — average-earners and middle-earners can see real-terms take-home pay squeezed even without rate rises. Independent analysts (IFS etc.) note the freeze is one of the biggest single revenue raisers in the package.
– Low earners on or near the Personal Allowance are protected while they remain below thresholds; however, modest pay rises over the next few years will push many people into higher effective average tax rates.
Income tax on dividends, savings and property income — rate rises
What was announced
– Dividend tax rates increase by 2 percentage points (basic & higher rates moved up; precise timing: staged with the tax year changes — dividend rise set to take effect in the coming April depending on the announcement timeline). Reuters/OBR give figures (e.g. basic dividend rate to 10.75% and higher to 35.75%). Property and savings income rates are also increased by 2pp.
Implications for working people
– Most salaried workers do not receive significant dividend income. The direct impact is concentrated on shareholders and investment income holders. But there are second-order effects: pension schemes, small landlords and some gig-economy workers with mixed income may see higher tax bills.
– Revenues are modest relative to the freeze effect, but the increases narrow the preferential treatment of non-earned income (income not subject to NI), a stated fairness objective by the Chancellor.
Capital Gains Tax (CGT) & reliefs — tighter reliefs
What was announced
– The government is restricting Employee Ownership Trust (EOT) capital-gains relief — the relief will be cut from 100% to 50% (official impact notes and tax documents published today list this). Separately, prior scheduled increases in the Business Asset Disposal Relief (BADR) effective rates (14% then 18% phased in earlier announcements) remain in force/confirmed.
Implications for working people
– Founders, entrepreneurs and owner-managers selling businesses will face higher effective CGT bills; this reduces the after-tax proceeds available to reinvest or retire on.
– EOT changes reduce a tax incentive to transfer companies into employee ownership structures — this affects employees only indirectly (slower growth in those ownership conversions than previously expected).
– For ordinary employees the direct impact is limited, but those planning to exit a small business or part-own a property used for business will see higher liabilities.
Business taxes & corporation tax
What was announced
– Corporation Tax settings were reiterated; commentary from advisers notes corporation tax effectively capped at the levels set at the start of the parliament (part of the business tax stability message). Specific administrative and anti-avoidance measures were announced in the tax documents (multinational top-up taxes, domestic top-up amendments, changes to R&D reliefs administration, etc.).
Implications for working people
– For workers employed by large firms the main immediate effect is signalling of business-tax stability that could influence investment and hiring. The detailed administrative changes may raise compliance costs for small businesses and accountants, which can indirectly affect take-home pay/payroll practices.
Pensions — salary sacrifice cap, inheritance charges, State Pension uplift
What was announced
– Salary-sacrifice advantages for NI are to be limited: only up to £2,000 of earnings exchanged for pension contributions will remain NIC-exempt from April 2029; excess salary-sacrifice will be treated as ordinary earnings for NICs (raising £4–5bn estimates reported).
– Unused pension funds and death benefits will be brought into the Inheritance Tax estate from 6 April 2027 (reporting and payment rules set out in policy papers).
– State Pension will be uprated under the triple lock next April — 4.8% increase from April 2026 (Government confirmation).
Implications for working people
– The salary-sacrifice cap hits higher earners hardest (they benefit most from large salary-sacrifice arrangements). Most low- and middle-income auto-enrolled savers are unaffected because the cap is intended to clamp down on wealthy-or-high-earner use of the scheme. However employers and payroll teams must rework pay arrangements and communications — some workers could face higher employee NICs if their employer keeps their pension contributions unchanged in net terms.
– Bringing pensions into IHT affects estate planning — wealthier households that rely on passing pension pots tax-free will see larger future IHT bills, and the effective tax on some pensions in combinations of IHT+income tax at death can be substantial. This is more relevant to older workers and those with large defined contribution pots.
– State Pension rises help pensioners’ incomes and will directly benefit lower-income households reliant on the state pension.
Benefits — two-child cap removed and other benefit measures
What was announced
– The Chancellor announced the removal of the two-child limit in Universal Credit (the “two-child cap”), starting April 2026, which the OBR forecasts will lift hundreds of thousands of children out of poverty (Government and OBR figures published today cite around 450,000 children being lifted out of poverty).
– Other “cost-of-living” measures: a targeted move to reduce household energy bills by about £150 (by moving some policy costs off bills), freezing rail fares for a year and keeping the £3 bus fare cap and prescription fee freezes.
Implications for working people
– Low-income families with three or more children will see material increases in income — this is the largest explicit anti-poverty measure in the package and will reduce hardship for working families on Universal Credit. Analysts emphasise this is a major distributional reversal compared with the prior policy.
– The energy-bill cut and fares freezes blunt near-term cost-of-living pressures; however funding for these measures comes from the wider revenue package (i.e., paid for partly by the tax measures listed above).
Fuel duty, EVs and pay-per-mile
What was announced
– Fuel duty remains frozen (no increase from current rates) for the short term. The Chancellor confirmed a new mileage-based charge for electric vehicles to be introduced from 2028 (reported around 3p per mile for pure EVs, with plug-in hybrids at a lower ~1.5p per mile). The government will maintain the temporary 5p cut introduced in 2022 then reverse it later in the timeline as part of planned changes.
Implications for working people
– Drivers of petrol/diesel cars benefit from the continuing fuel duty freeze (short-term relief at the pump). However, the EV mileage charge reduces one of the financial advantages of switching to electric vehicles — a potential disincentive for lower-income drivers if they were relying on running-cost savings to move to EVs. The Government pairs the new charge with some targeted EV support (raising thresholds for luxury EV tax and extending grants) but the net effect is to raise road funding from EV users.
Council tax / property / “mansion tax”
What was announced
– A new high-value property levy (described in coverage as a “mansion tax” or high-value council tax surcharge) on homes worth over £2 million will be introduced from April 2028 (estimated revenues in the hundreds of millions). Inheritance Tax thresholds (nil-rate bands) remain frozen further out to 2031.
Implications for working people
– This is targeted at high-net-worth property owners; most working households are unaffected. For those who rent, some landlords may pass on costs, but the direct incidence is concentrated at the top of the housing distribution.
Savings & ISAs
What was announced
– Cash ISA allowance for most under-65s will be reduced from £20,000 to £12,000 from 2027 (over-65s keep full allowance). The Government says this aims to nudge spare cash into investment ISAs (shares/stock ISAs) to boost capital market participation.
Implications for working people
– Savers who prefer cash ISAs (risk-averse, often older savers) will lose a chunk of their tax-free cash allowance — they’ll either need to accept taxable interest outside ISAs or move money into stocks/ISAs, which many may not want to do. This measure is likely to be unpopular with moderate savers and with building societies dependent on retail cash deposits.
Other consumer/indirect taxes and duties
– Alcohol/gambling/tobacco duties: increases and administrative changes announced to raise additional revenue (details and rates in the tax documents).
– VAT loophole closures and VAT changes (e.g., taxis outside London VAT fix) and other targeted anti-avoidance measures are also included in the tax documents
Implications
– These duty changes hit consumers directly (costlier gambling, alcohol, tobacco) and are intended to be partly redistributive (affecting discretionary spending).
Quick tabular digest (what to watch for in your wallet)
– Income tax / NI rates — unchanged (no headline rate rises).
– Income tax & NI thresholds — frozen from 6 April 2028 for multiple years → raises tax take through fiscal drag.
– Dividend / property / savings tax — +2 percentage points → affects investors and some landlords.
– Salary-sacrifice pensions — cap £2,000 NIC-exempt from April 2029 → reduces tax perks for higher earners.
– Pensions & IHT — unused pension funds into IHT from 6 April 2027.
– Two-child cap — scrapped, from April 2026 → significant benefit increase for large low-income families.
– Fuel duty — frozen; EV mileage charge from 2028 (c. 3p/mile).
– Cash ISA allowance — cut to £12,000 for most under-65s from 2027.
Who gains and who loses? (practical winners/losers)
Likely winners:
– Low-income families with >2 children (removal of the two-child cap) — immediate cash boost and child-poverty reduction.
– Pensioners on State Pension — above-inflation rise under the triple lock next April (4.8%).
– Those who benefit from the £150 energy bill cut and the rail/bus fares freezes — modest near-term relief.
Likely losers / hit hardest:
– Middle earners facing fiscal drag as thresholds are frozen — pay rises translate into higher tax bills over time. (Analysts say freezes are among the largest revenue raisers in the package.)
– Investors, landlords and savers: dividend/property/savings tax rises + ISA cash cut hit households holding non-earned income or cash savings.
– Higher-earners using large salary-sacrifice schemes — the £2,000 cap reduces a popular tax/NI planning route.
– Owners of very expensive homes (new high-value property levy) and those planning to pass large pension pots as tax-free inheritances (IHT change).
The Chancellor’s stated rationale (and analysis)
Rachel Reeves presented the package as balancing short-term cost-of-living relief (energy bill cut, fares freezes, state pension rise) with medium-term fiscal repair — freezing thresholds and targeted tax rises to hit non-earned income and high-value assets. The Government frames changes (e.g., EOT/CAP changes) as closing loopholes and ensuring fairness.
Independent fiscal commentators (IFS, think tanks, market coverage) highlight trade-offs: the package reduces near-term inflation and helps some households while shifting a heavier tax burden onto labour via the threshold freeze, hitting many working families over time. The OBR’s (prematurely released) forecast and subsequent attention emphasised that these measures raise the tax burden to record levels by the end of the decade.
Practical next steps for working people (what you can do now)
– Check your payroll/pension statements — if you use salary-sacrifice arrangements for pension contributions, watch employer communications (changes apply from April 2029). Ask HR how your net pay will be affected.
– If you hold large cash ISAs and are risk-averse, start thinking about where to hold cash above the new ISA cap (from 2027) or whether a portion of longer-term savings could move into stocks ISAs — but only after considering risk and advice.
– If you’re a parent affected by the two-child cap, expect extra Universal Credit support from April 2026 — check DWP guidance and prepare any documentation needed for claims.
– If you’re planning to sell a business or transfer to an employee ownership trust, speak to your accountant/tax adviser quickly — the CGT reliefs are changing and timing may matter.
Bottom line
Today’s Budget mixes targeted help (energy bill cut, fares freezes, removal of the two-child cap) with broad, back-loaded revenue measures (threshold freezes, 2pp rises on dividends/property/savings, pension/salary-sacrifice limits, CGT relief tightening). The big distributional story is that many working people will feel pressure over time from the threshold freeze (fiscal drag), while low-income families with multiple children receive meaningful support. Higher earners and those with unearned income face more direct, visible tax increases. The full picture depends on the Finance Bill and implementing regulations that will be published alongside the Budget documents (the Government’s Budget collection lists all measures and impact notes).
Rachel Reeves Budget Implications
Chancellor Rachel Reeves announced the budget on 26th November 2025. We analyse the changes, increases, caps and freezes, and the implications on who it affects and how.
Income tax & National Insurance — Freezes and mechanics
What was announced
– The Government will maintain the Personal Allowance and basic-rate limit and equivalent National Insurance thresholds from 6 April 2028 for a further multi-year period (the OBR and ministers describe this as a three-year freeze from 2028). That means thresholds are not being uprated with earnings/inflation during that window.
– The Chancellor reaffirmed no increase in the headline rates of Income Tax, VAT or National Insurance.
Implications for working people
– A threshold freeze is a form of stealth tax: as wages rise (even slowly), more of workers’ pay is pushed into higher tax bands — average-earners and middle-earners can see real-terms take-home pay squeezed even without rate rises. Independent analysts (IFS etc.) note the freeze is one of the biggest single revenue raisers in the package.
– Low earners on or near the Personal Allowance are protected while they remain below thresholds; however, modest pay rises over the next few years will push many people into higher effective average tax rates.
Income tax on dividends, savings and property income — rate rises
What was announced
– Dividend tax rates increase by 2 percentage points (basic & higher rates moved up; precise timing: staged with the tax year changes — dividend rise set to take effect in the coming April depending on the announcement timeline). Reuters/OBR give figures (e.g. basic dividend rate to 10.75% and higher to 35.75%). Property and savings income rates are also increased by 2pp.
Implications for working people
– Most salaried workers do not receive significant dividend income. The direct impact is concentrated on shareholders and investment income holders. But there are second-order effects: pension schemes, small landlords and some gig-economy workers with mixed income may see higher tax bills.
– Revenues are modest relative to the freeze effect, but the increases narrow the preferential treatment of non-earned income (income not subject to NI), a stated fairness objective by the Chancellor.
Capital Gains Tax (CGT) & reliefs — tighter reliefs
What was announced
– The government is restricting Employee Ownership Trust (EOT) capital-gains relief — the relief will be cut from 100% to 50% (official impact notes and tax documents published today list this). Separately, prior scheduled increases in the Business Asset Disposal Relief (BADR) effective rates (14% then 18% phased in earlier announcements) remain in force/confirmed.
Implications for working people
– Founders, entrepreneurs and owner-managers selling businesses will face higher effective CGT bills; this reduces the after-tax proceeds available to reinvest or retire on.
– EOT changes reduce a tax incentive to transfer companies into employee ownership structures — this affects employees only indirectly (slower growth in those ownership conversions than previously expected).
– For ordinary employees the direct impact is limited, but those planning to exit a small business or part-own a property used for business will see higher liabilities.
Business taxes & corporation tax
What was announced
– Corporation Tax settings were reiterated; commentary from advisers notes corporation tax effectively capped at the levels set at the start of the parliament (part of the business tax stability message). Specific administrative and anti-avoidance measures were announced in the tax documents (multinational top-up taxes, domestic top-up amendments, changes to R&D reliefs administration, etc.).
Implications for working people
– For workers employed by large firms the main immediate effect is signalling of business-tax stability that could influence investment and hiring. The detailed administrative changes may raise compliance costs for small businesses and accountants, which can indirectly affect take-home pay/payroll practices.
Pensions — salary sacrifice cap, inheritance charges, State Pension uplift
What was announced
– Salary-sacrifice advantages for NI are to be limited: only up to £2,000 of earnings exchanged for pension contributions will remain NIC-exempt from April 2029; excess salary-sacrifice will be treated as ordinary earnings for NICs (raising £4–5bn estimates reported).
– Unused pension funds and death benefits will be brought into the Inheritance Tax estate from 6 April 2027 (reporting and payment rules set out in policy papers).
– State Pension will be uprated under the triple lock next April — 4.8% increase from April 2026 (Government confirmation).
Implications for working people
– The salary-sacrifice cap hits higher earners hardest (they benefit most from large salary-sacrifice arrangements). Most low- and middle-income auto-enrolled savers are unaffected because the cap is intended to clamp down on wealthy-or-high-earner use of the scheme. However employers and payroll teams must rework pay arrangements and communications — some workers could face higher employee NICs if their employer keeps their pension contributions unchanged in net terms.
– Bringing pensions into IHT affects estate planning — wealthier households that rely on passing pension pots tax-free will see larger future IHT bills, and the effective tax on some pensions in combinations of IHT+income tax at death can be substantial. This is more relevant to older workers and those with large defined contribution pots.
– State Pension rises help pensioners’ incomes and will directly benefit lower-income households reliant on the state pension.
Benefits — two-child cap removed and other benefit measures
What was announced
– The Chancellor announced the removal of the two-child limit in Universal Credit (the “two-child cap”), starting April 2026, which the OBR forecasts will lift hundreds of thousands of children out of poverty (Government and OBR figures published today cite around 450,000 children being lifted out of poverty).
– Other “cost-of-living” measures: a targeted move to reduce household energy bills by about £150 (by moving some policy costs off bills), freezing rail fares for a year and keeping the £3 bus fare cap and prescription fee freezes.
Implications for working people
– Low-income families with three or more children will see material increases in income — this is the largest explicit anti-poverty measure in the package and will reduce hardship for working families on Universal Credit. Analysts emphasise this is a major distributional reversal compared with the prior policy.
– The energy-bill cut and fares freezes blunt near-term cost-of-living pressures; however funding for these measures comes from the wider revenue package (i.e., paid for partly by the tax measures listed above).
Fuel duty, EVs and pay-per-mile
What was announced
– Fuel duty remains frozen (no increase from current rates) for the short term. The Chancellor confirmed a new mileage-based charge for electric vehicles to be introduced from 2028 (reported around 3p per mile for pure EVs, with plug-in hybrids at a lower ~1.5p per mile). The government will maintain the temporary 5p cut introduced in 2022 then reverse it later in the timeline as part of planned changes.
Implications for working people
– Drivers of petrol/diesel cars benefit from the continuing fuel duty freeze (short-term relief at the pump). However, the EV mileage charge reduces one of the financial advantages of switching to electric vehicles — a potential disincentive for lower-income drivers if they were relying on running-cost savings to move to EVs. The Government pairs the new charge with some targeted EV support (raising thresholds for luxury EV tax and extending grants) but the net effect is to raise road funding from EV users.
Council tax / property / “mansion tax”
What was announced
– A new high-value property levy (described in coverage as a “mansion tax” or high-value council tax surcharge) on homes worth over £2 million will be introduced from April 2028 (estimated revenues in the hundreds of millions). Inheritance Tax thresholds (nil-rate bands) remain frozen further out to 2031.
Implications for working people
– This is targeted at high-net-worth property owners; most working households are unaffected. For those who rent, some landlords may pass on costs, but the direct incidence is concentrated at the top of the housing distribution.
Savings & ISAs
What was announced
– Cash ISA allowance for most under-65s will be reduced from £20,000 to £12,000 from 2027 (over-65s keep full allowance). The Government says this aims to nudge spare cash into investment ISAs (shares/stock ISAs) to boost capital market participation.
Implications for working people
– Savers who prefer cash ISAs (risk-averse, often older savers) will lose a chunk of their tax-free cash allowance — they’ll either need to accept taxable interest outside ISAs or move money into stocks/ISAs, which many may not want to do. This measure is likely to be unpopular with moderate savers and with building societies dependent on retail cash deposits.
Other consumer/indirect taxes and duties
– Alcohol/gambling/tobacco duties: increases and administrative changes announced to raise additional revenue (details and rates in the tax documents).
– VAT loophole closures and VAT changes (e.g., taxis outside London VAT fix) and other targeted anti-avoidance measures are also included in the tax documents
Implications
– These duty changes hit consumers directly (costlier gambling, alcohol, tobacco) and are intended to be partly redistributive (affecting discretionary spending).
Quick tabular digest (what to watch for in your wallet)
– Income tax / NI rates — unchanged (no headline rate rises).
– Income tax & NI thresholds — frozen from 6 April 2028 for multiple years → raises tax take through fiscal drag.
– Dividend / property / savings tax — +2 percentage points → affects investors and some landlords.
– CGT / BADR / EOT — reliefs restricted (EOT 100%→50%; BADR moves already scheduled to higher rates).
– Salary-sacrifice pensions — cap £2,000 NIC-exempt from April 2029 → reduces tax perks for higher earners.
– Pensions & IHT — unused pension funds into IHT from 6 April 2027.
– Two-child cap — scrapped, from April 2026 → significant benefit increase for large low-income families.
– Fuel duty — frozen; EV mileage charge from 2028 (c. 3p/mile).
– Cash ISA allowance — cut to £12,000 for most under-65s from 2027.
Who gains and who loses? (practical winners/losers)
Likely winners:
– Low-income families with >2 children (removal of the two-child cap) — immediate cash boost and child-poverty reduction.
– Pensioners on State Pension — above-inflation rise under the triple lock next April (4.8%).
– Those who benefit from the £150 energy bill cut and the rail/bus fares freezes — modest near-term relief.
Likely losers / hit hardest:
– Middle earners facing fiscal drag as thresholds are frozen — pay rises translate into higher tax bills over time. (Analysts say freezes are among the largest revenue raisers in the package.)
– Investors, landlords and savers: dividend/property/savings tax rises + ISA cash cut hit households holding non-earned income or cash savings.
– Higher-earners using large salary-sacrifice schemes — the £2,000 cap reduces a popular tax/NI planning route.
– Owners of very expensive homes (new high-value property levy) and those planning to pass large pension pots as tax-free inheritances (IHT change).
The Chancellor’s stated rationale (and analysis)
Rachel Reeves presented the package as balancing short-term cost-of-living relief (energy bill cut, fares freezes, state pension rise) with medium-term fiscal repair — freezing thresholds and targeted tax rises to hit non-earned income and high-value assets. The Government frames changes (e.g., EOT/CAP changes) as closing loopholes and ensuring fairness.
Independent fiscal commentators (IFS, think tanks, market coverage) highlight trade-offs: the package reduces near-term inflation and helps some households while shifting a heavier tax burden onto labour via the threshold freeze, hitting many working families over time. The OBR’s (prematurely released) forecast and subsequent attention emphasised that these measures raise the tax burden to record levels by the end of the decade.
Practical next steps for working people (what you can do now)
– Check your payroll/pension statements — if you use salary-sacrifice arrangements for pension contributions, watch employer communications (changes apply from April 2029). Ask HR how your net pay will be affected.
– If you hold large cash ISAs and are risk-averse, start thinking about where to hold cash above the new ISA cap (from 2027) or whether a portion of longer-term savings could move into stocks ISAs — but only after considering risk and advice.
– If you’re a parent affected by the two-child cap, expect extra Universal Credit support from April 2026 — check DWP guidance and prepare any documentation needed for claims.
– If you’re planning to sell a business or transfer to an employee ownership trust, speak to your accountant/tax adviser quickly — the CGT reliefs are changing and timing may matter.
Bottom line
Today’s Budget mixes targeted help (energy bill cut, fares freezes, removal of the two-child cap) with broad, back-loaded revenue measures (threshold freezes, 2pp rises on dividends/property/savings, pension/salary-sacrifice limits, CGT relief tightening). The big distributional story is that many working people will feel pressure over time from the threshold freeze (fiscal drag), while low-income families with multiple children receive meaningful support. Higher earners and those with unearned income face more direct, visible tax increases. The full picture depends on the Finance Bill and implementing regulations that will be published alongside the Budget documents (the Government’s Budget collection lists all measures and impact notes).
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