As Rachel Reeves delivered her second Budget, months of speculation have come to an end. Many of the rumoured changes have not come to fruition but the devil is often in the detail. The headline announcements which may impact you are as follows:

Income Tax
Freeze in income tax thresholds extended for a further three years until April 2031 (a year longer than expected). With the freeze first announced by Rishi Sunak in 2021, thresholds will have been frozen for nearly a decade.

No change to Income Tax rates on “Earned Income”, but an increase on “Passive Income”:

• Property and Savings Income – From April 2027, a 2% increase on all tax bands – 22% for Basic rate, 42% for Higher rate and 47% on Additional rate.

•Dividend Income – From April 2026, a 2% increase for Basic rate taxpayers (up to 10.75%) and Higher rate taxpayers (up to 35.75%). Additional rate unchanged at 39.35%.

Capital Gains Tax
No changes to tax rates or allowances. Reduced CGT relief on disposals to Employee Ownership Trusts from 100% to 50% relief.

ISA Allowances
Annual subscription limits remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs until 5 April 2031.
From April 2027, although the £20,000 allowance will remain, £8,000 of this will be designated exclusively for investment purposes. The Cash ISA allowance will therefore be reduced from £20,000 to £12,000, although over-65s will retain the full £20,000 Cash ISA allowance.

Lifetime ISAs will be subject to consultation in early 2026 with the likelihood of a new, simpler ISA product to support first time buyers.

Pensions
No change to the Lump Sum Allowances (tax-free cash) – with limits remaining as they were (£268,275 or 25% of any Protected Lifetime Allowance). No change to the Annual Allowance or tax relief on contributions (remains at full marginal rate).
New limit for Salary Sacrifice with National Insurance now levied on contributions over £2,000. To be introduced from April 2029.

Inheritance Tax
Nil rate bands will remain at current levels until April 2031. No changes to gifting rules which had been widely rumoured.
The £1m “Personal Allowance” for Business and Agricultural Relief can now be transferred between spouses and civil partners.

EIS & VCT Investments
Initial VCT income tax relief reduced to 20% from April 2026 in conjunction with the announced increased investment limits which may reduce the associated risk.

No change to initial EIS income tax relief remaining at 30%.

Property
“Mansion Tax” or “High Value Council Tax Surcharge (HVCTS)” introduced from April 2028 and to be levied on houses valued at more than £2m. Properties in Council Tax bands F, G & H will be revalued with HVCTS levied in four bands from £2,500 to £7,500 per annum.

This is payable by the Property Owner, not the tenant. This is subject to consultation with a deferral scheme potentially included.

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