UK Budget 2025, What Rachel Reeves’ Changes Mean for Your Money
Rachel Reeves has looked at the public finances and found a twenty-billion-pound hole. To help fill it, she’s raising several taxes and increasing support for some households. It’s a mix of give and take that will show up in many people’s monthly budgets.
Who the 2025 Budget affects and how
💸 Working people, higher tax by stealth
The freeze on tax thresholds is being extended to 2031.
Thresholds are the income levels where you move into a higher tax rate.
When wages rise but thresholds do not, more of your income is taxed at higher rates. This is called fiscal drag. You can feel worse off even if your pay technically increases, because more of it is being taxed.
This affects:
Income tax
Inheritance tax
Capital gains tax
Anyone earning above the personal allowance will pay more tax over time, even if the cost of living is rising faster than their pay.
💷 Salary sacrifice, less tax efficiency over time
From 2029, a yearly cap will be introduced on how much you can put into your pension through salary sacrifice before National Insurance applies.
Anything above £2,000 a year will attract National Insurance from both you and your employer.
Salary sacrifice means giving up part of your salary and paying it straight into your pension before tax. It usually lowers both income tax and NI, making pensions more efficient.
This change quietly reduces one of the most powerful tools for building long-term wealth through work.
💛 Pensioners, a rise with a catch
The state pension rises by 4.8% under the triple lock.
If you receive the full new state pension, that equals roughly £550 a year more. Those on the older scheme receive about £440.
The full state pension becomes £12,547. The personal allowance remains frozen at £12,570. If the pension rises again but tax-free income does not, some pensioners will pay income tax on the state pension for the first time. That could happen as early as 2027.
🌱 People on benefits, more support in daily life
Several measures increase support for lower-income households:
The two-child benefit limit is removed
Universal Credit, PIP and Child Benefit rise by 3.8% from April
Free school meals extend to all families on Universal Credit by September 2026
Help to Save becomes available to all UC claimants
With Help to Save, the government adds 50p for every £1 saved over four years. Save the full £2,400 and you receive a £1,200 bonus.
This is one of the few areas where help flows directly into family budgets.
💼 Low-paid workers, genuine increases
The National Minimum Wage rises by 4.1% in April 2026 to £12.71 an hour.
That equals roughly £700 extra per year for a full-time worker.
For 18 to 20 year olds, pay rises 8.5% to £10.85 an hour.
The apprentice rate increases to £8.
This is one of the clearest wins in the Budget.
🏡 High-value homeowners, more council tax coming
A new council tax band starts in 2028 for homes worth over £2 million.
Properties worth more than £5 million will sit at the top of the scale.
Council tax has not been updated since 1991. This is the first major shake-up in over thirty years.
For homeowners in these bands, annual costs will rise.
💰 Savers, cash becomes less attractive
The overall ISA allowance stays at £20,000. What changes is how much of that you can hold in cash.
From the new rules:
You can put up to £12,000 into a Cash ISA
The remaining £8,000 must go into a Stocks and Shares ISA if you want to use your full allowance
Over-65s keep the ability to hold the full £20,000 in cash
Everything outside an ISA will also face higher tax from 2027:
Basic rate rises to 22%
Higher rate rises to 42%
Additional rate rises to 47%
This does not remove ISAs, but it pushes savers away from cash and toward investing.
🚆 Train passengers, a freeze on pain
Regulated rail fares will not rise in 2026.
Most season tickets and standard peak fares are included.
Prices remain high, but for commuters this brings temporary relief.
📈 Investors, higher taxes outside ISAs
Dividend tax rises from April on income above the dividend allowance. The dividend allowance is £500 for everyone. Dividends above this are taxed at your marginal dividend rate based on your income band.
Previous dividend tax rates in the UK, before this change:
Basic rate: 8.75%
Higher rate: 33.75%
Additional rate: 39.35%
New rates from April:
Basic rate: 10.75%
Higher rate: 35.75%
Additional rate: 47% (if you are including the top band)
So this is a 2 percentage point rise across the board.
🚗 Drivers, the cost of moving rises
Fuel duty rises next September for the first time in fifteen years.
From 2028, electric car drivers pay per mile:
3p per mile for EVs
1.5p per mile for plug-in hybrids
At 8,500 miles a year, that is around £255 for EV drivers.
This is how petrol taxes are replaced as usage declines.
🏘️ Landlords, pressure increases
Property income tax rises by two percentage points from April 2027.
New rates:
22% basic
42% higher
47% additional rate
This adds pressure to landlords already facing higher mortgage costs and may filter through into rents.
🌿 The story underneath the numbers
This Budget quietly reshapes pensions, pay, savings, housing and transport. Small changes add up fast when the system already feels tight. Understanding the rules before they bite is how financial confidence is built.
Disclaimer
This article is for information and education only. It is not financial advice. Budget measures may change as they are implemented. Check government updates or consult a regulated financial adviser for support specific to your situation.
Check the OBR for full release.
