UK Budget 2025: Key Changes Explained

The 2025 Budget delivered a mix of support for lower-paid workers alongside substantial increases in taxes on wealth, savings and investment income. Below is a breakdown of the major changes and how they may affect employees, employers, homeowners, savers and investors.

Employee Wage Changes

Minimum / Living Wage Rises (from April 2026)

Workers across all age groups will see an uplift in statutory wage rates:

• 21 and over: National Living Wage rises from £12.21 → £12.71 per hour 

• 18–20-year-olds: National Minimum Wage increases from £10.00 → £10.85 per hour (an 8.5% rise)

• 16–17-year-olds & eligible apprentices: Minimum wage increases to £8.00 per hour 

  
  

These changes form part of the Government’s push to raise living standards and support those on lower incomes. However, they also present challenges for small businesses, which must absorb higher payroll costs.

Pension Changes: Salary Sacrifice Cap

From April 2029, NI-free salary sacrifice pension contributions will be capped at £2,000 per year. This significantly reduces the tax advantage of larger salary sacrifice arrangements—particularly affecting higher earners and employers who use these schemes as part of remuneration packages.

Income, Savings & Dividend Tax Changes

Frozen Income Tax Thresholds

The personal allowance and higher-rate thresholds remain frozen. As wages increase, more workers will be pushed into higher tax bands—a classic form of “fiscal drag.”

Dividend Tax Increase (from April 2026)

Dividend tax rates will rise to:

• 10.75% (basic rate)

• 35.75% (higher rate) 

This makes dividends less tax-efficient for company owners and investors.

Savings & Property Income Tax (from April 2027)

A new higher set of rates will apply to savings interest and property income:

• 22% basic rate

• 42% higher rate

• 47% additional rate

This significantly increases the tax burden on investors, landlords and savers.

Cash ISA Limit Change

• The annual tax-free allowance for cash ISAs will be reduced from £20,000 → £12,000 for under-65s, from April 2027.

• Over-65s will retain the full £20,000 cash ISA allowance.

This change effectively limits how much savers can shield in cash from tax, pushing some to consider investment-based ISAs (e.g. stocks & shares) instead of risk-free cash savings.

Property & Wealth Taxes

High-Value Property Surcharge (“Mansion Tax”)

A new annual surcharge applies to homes worth over £2 million, starting April 2028:

• Properties £2m: Additional £2,500 per year

• Scaling up to properties over £5m (or in higher bands): Up to £7,500 per year (uprated by inflation)

This measure targets wealthier property owners and aligns with the Government’s broader strategy of taxing assets rather than income.

Electric & Hybrid Vehicles: New Pay-Per-Mile Tax (From April 2028)

To replace lost fuel-duty revenues as more drivers switch to EVs, the Budget introduces a mileage-based tax on electric vehicles:

• Fully electric vehicles (EVs): 3 pence per mile

• Plug-in hybrids: 1.5 pence per mile 

This aims to ensure that EV drivers contribute fairly to road maintenance costs. As of 2028, even EV and hybrid owners will face extra costs — though still generally lower than traditional fuel duty — especially if they drive many miles.

What The Budget 2025 Means for You

Low-Paid Workers

The minimum wage rise and preserved allowance for under-65s in some areas may improve take-home pay and help offset rising costs — but the squeeze on benefits, tax rises elsewhere, and pressure on small businesses may dampen economic growth.

Savers & Investors

With a lower cash ISA limit and higher taxes on dividend, savings and property income, returns from traditional savings and passive investment could shrink. Many may need to revisit investment strategies or consider riskier investments to maintain returns.

Homeowners With High-Value Properties

Owners of properties worth £2 million+ will face a recurring annual surcharge, adding to ongoing maintenance and ownership costs.

Electric/Hybrid Vehicle Owners

EVs and plug-in hybrids are now subject to a per-mile tax from 2028 — a cost that increases the more you drive. While EVs remain cleaner and often cheaper than petrol equivalents, this new tax narrows some of their financial advantage.

Businesses & Employers

Higher wage requirements, reduced pension-scheme advantages, and potentially higher employment costs may squeeze margins — particularly for small businesses and sectors with many low-paid staff (e.g. retail, hospitality, care).

Capital Allowances

from April 2026 the tax relief on pooled assets via writing down allowance is reducing from 18% to 14% meaning relief will be given over a longer period of time. Full expensing, AIA and FYA are all still available.

Final Thoughts — A Budget of Redistribution + Transition

The 2025 Budget seeks to “reward work” (via minimum wage increases) and to shift more of the tax burden onto wealth, savings, assets and usage, rather than only income.

• For many workers, especially younger and lower-paid, there is a small but meaningful boost.

• But for savers, landlords, investors, property-owners, high-asset individuals and EV-owners, the tax and cost burden rises — often quietly, via freezes, incremental tax changes, or new usage-based charges.

Overall, the Budget reflects a clear policy direction: move from taxing income to taxing wealth, assets, usage and unearned income.

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