Autumn Budget 2025: UK Tax Changes Explained - What You'll Actually Pay
Chancellor Rachel Reeves announced £26bn in tax changes in Autumn Budget 2025. From frozen thresholds to 2031 to new property taxes and pension limits, here's what it means for your take-home pay.
Chancellor Rachel Reeves delivered the Autumn Budget 2025 on November 26, introducing £26 billion in tax changes by 2029-30. No sugar-coating here: most people will pay more tax, but the methods are subtle—frozen thresholds, new property charges, and increased rates on savings and dividends.
Here's what actually matters to your take-home pay.
The Headlines: What Changed
Income Tax Thresholds: Frozen until April 2031 (three more years) Mansion Tax: New annual charge on properties over £2 million Savings Tax: Rates increase by 2% from April 2026 Dividend Tax: Rates up by 2% from April 2026 Pension Salary Sacrifice: Capped at £2,000 annually from April 2029 Electric Vehicle Tax: New charges of 3p per mile (1.5p for hybrids) Property Income Tax: New higher rates from April 2027
The government promised not to raise income tax rates, National Insurance, or VAT. They kept that promise—technically. Instead, they're using fiscal drag (frozen thresholds during inflation) and new targeted taxes to raise revenue.
Clever. Frustrating.
Income Tax Freeze Extended to 2031
What This Means
The personal allowance (£12,570) and higher-rate threshold (£50,270) won't increase until April 2031. That's six more years of frozen thresholds.
Why does this matter? Inflation. Wages typically rise 3-5% per year. When thresholds don't rise with wages, more people get dragged into higher tax brackets—without technically getting "richer" in real terms.
This is fiscal drag. It's how governments increase tax revenue without raising tax rates.
The Math
2025: Earn £50,000 → Pay £7,486 in income tax (20% basic rate) 2028: Earn £55,000 (after 3% annual raises) → Pay £9,286 in income tax (mix of 20% and 40% rates)
You've had a 10% pay rise, but your tax bill increased by 24%. Your "raise" barely keeps up with inflation, yet you're paying significantly more tax.
That's the point.
Who Gets Hit Hardest
Scenario 1: Just Below the Higher Rate Threshold Earn £48,000 in 2025. After a few years of 4% pay rises, you're earning £54,000 by 2028. Congratulations—you're now a "higher-rate taxpayer" paying 40% on everything over £50,270.
You didn't get promoted. You didn't change careers. Inflation just pushed you into a higher bracket.
Scenario 2: The £100k Tax Trap Earn £95,000 today. By 2029, you're earning £110,000 (modest raises). Now you're losing £1 of personal allowance for every £2 earned over £100k. That creates an effective 60% tax rate on income between £100k-£125k.
More people will hit this brutal zone without realizing it.
The Mansion Tax: Properties Over £2 Million
How It Works
From April 2028, homeowners with properties valued over £2 million face an annual council tax surcharge:
- £2m-£3m: £2,500 per year
- £3m-£4m: £5,000 per year
- £4m-£5m: £7,500 per year
- £5m+: £7,500 per year (flat rate)
This is in addition to standard council tax. If you already pay £3,000 in council tax for a £2.5m home, you'll now pay £5,500 total.
Who This Affects
London: 31,000 properties (most in Kensington, Chelsea, Westminster) South East: 8,000 properties (Surrey, Berkshire, Oxfordshire) Rest of UK: 4,000 properties
Total: About 43,000 homes (0.2% of UK housing stock).
The Controversy
Supporters say: Wealthy property owners can afford it. Progressive taxation.
Critics say: Many are asset-rich, cash-poor pensioners who bought decades ago. Property values rose; their income didn't. They'll be forced to sell family homes to pay annual taxes.
Example: Retired couple bought a £250k London terraced house in 1985. It's now worth £2.1m. They live on £30k pension income. Now they owe £2,500 per year just to live in their own home.
This will push some into downsizing or equity release schemes.
Savings and Dividend Tax Rate Increases
Savings Tax Changes (April 2026)
Current rates on savings interest:
- Basic rate: 20%
- Higher rate: 40%
- Additional rate: 45%
New rates from April 2026:
- Basic rate: 22% (+2%)
- Higher rate: 42% (+2%)
- Additional rate: 47% (+2%)
Personal Savings Allowance unchanged:
- Basic rate taxpayers: £1,000 tax-free
- Higher rate taxpayers: £500 tax-free
- Additional rate taxpayers: £0 tax-free
Real Impact
Example: You're a higher-rate taxpayer with £20,000 in savings earning 5% interest (£1,000).
2025: You pay 40% tax on £500 (after £500 allowance) = £200 tax 2026: You pay 42% tax on £500 = £210 tax
Small difference for most people. But with interest rates higher than they've been in years, this affects more people than before.
Dividend Tax Changes (April 2026)
Current dividend tax rates:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
New rates from April 2026:
- Basic rate: 10.75% (+2%)
- Higher rate: 35.75% (+2%)
- Additional rate: 41.35% (+2%)
Dividend Allowance: Still £500 (unchanged)
Who This Hits
Business owners: Those taking dividends instead of salary will pay more. On £40,000 in dividends above the allowance, you'll pay an extra £800 in tax.
Investors: People with significant share portfolios outside ISAs. If you're taking £10,000 in dividends as a higher-rate taxpayer, that's an extra £200 in tax.
Not catastrophic for most, but it adds up.
Rental Property Tax Increases (April 2027)
New property basic rate and property higher rate for rental income and REIT distributions:
- Property Basic Rate: 22% (vs 20% standard basic rate)
- Property Higher Rate: 42% (vs 40% standard higher rate)
- Property Additional Rate: 47% (vs 45% standard additional rate)
This specifically targets landlords. If you have £15,000 in rental profit as a higher-rate taxpayer:
Current (2025): Pay 40% tax = £6,000 From April 2027: Pay 42% tax = £6,300
That's £300 extra per year. Multiply across multiple properties, and landlords will see significant increases.
Combined with Section 24 mortgage interest restrictions (fully phased in since 2020), being a landlord is getting increasingly expensive from a tax perspective.
Pension Salary Sacrifice Cap (April 2029)
What's Changing
Currently, salary sacrifice for pension contributions has no limit. From April 2029, contributions via salary sacrifice will be capped at £2,000 per year.
Any salary-sacrificed pension contributions over £2,000 will incur National Insurance contributions.
Why This Matters
Salary sacrifice allows you to redirect gross pay into your pension before income tax and NI are calculated. This saves both employee and employer NI.
Example (current system):
- Gross salary: £50,000
- Salary sacrifice £10,000 to pension
- Taxable income: £40,000
- Savings: Employee NI (2%) + Employer NI (13.8%) on £10,000 = £1,580
From April 2029:
- First £2,000 sacrificed: No NI
- Next £8,000 sacrificed: NI applies
- Extra cost: £1,264 in NI on the £8,000
This will make salary sacrifice less attractive for high earners planning aggressive pension contributions.
Who's Affected
High earners: Those using salary sacrifice to maximize the £60,000 annual pension allowance Professionals: Doctors, consultants, engineers with generous employer schemes Business owners: Those funding pensions through company structures
Lower earners contributing £100-£200 per month? You're fine. This targets high-contribution strategies.
Electric Vehicle Tax (New Charges)
From a future date (exact timing TBD), electric vehicle owners face new road usage charges:
- Battery Electric Vehicles (BEVs): 3p per mile
- Plug-in Hybrids (PHEVs): 1.5p per mile
This ends the "free ride" for EV drivers who've avoided fuel duty and VED (Vehicle Excise Duty).
The Math
Average UK mileage: 7,400 miles per year Annual EV tax: 7,400 × £0.03 = £222
High mileage (15,000 miles): £450 per year
Compare to petrol cars paying fuel duty: At 50 MPG and 53p/liter fuel duty, driving 7,400 miles costs about £475 in fuel duty. EV drivers will still pay less—just not zero.
This levels the playing field as EV adoption grows and fuel duty revenue declines.
Business Rates Changes (April 2026)
Relief for Small Businesses
750,000 retail, hospitality, and leisure properties will see business rates reductions starting April 2026.
This helps high-street shops, pubs, cafes, and small hotels.
Increased Rates for Large Properties
Properties valued over £500,000 face increased business rates to fund the relief for small businesses.
This hits:
- Large retail chains (supermarkets, department stores)
- Major hotels
- Big restaurant chains
Revenue-neutral overall, but redistributes the burden from small to large.
Capital Allowances Changes
Main Writing-Down Allowance Reduction
From April 2026, the main writing-down allowance (capital allowances on equipment, machinery) decreases from 18% to 14%.
This makes it less attractive to invest in business equipment from a tax perspective.
New First-Year Allowance (Temporary)
To offset this, a 40% first-year allowance will be available for companies from January 2026.
This is a short-term incentive to encourage investment before the main rate drops. Use it or lose it.
What These Changes Mean for You
Low Earners (£20,000-£30,000)
Bad News: Frozen thresholds mean inflation-driven pay rises push you into paying more tax. Good News: Mansion tax, savings rate increases, rental property taxes don't affect you.
Action: Focus on ISAs for savings (still tax-free), consider salary-sacrificed pension contributions (still beneficial up to £2,000).
Middle Earners (£30,000-£50,000)
Significant: Frozen thresholds will push many into higher-rate tax by 2028-2029. Watch For: Crossing the £50,270 threshold means jumping from 20% to 40% on additional income.
Strategy: Max out ISA allowance (£20,000), consider pension contributions to stay under higher-rate threshold.
Higher Earners (£50,000-£100,000)
Multiple Hits: Frozen thresholds, increased savings/dividend taxes, rental property taxes if applicable. Opportunity: Pension contributions still offer 40% relief (for now).
Plan: Salary sacrifice up to £2,000 (before 2029 cap), maximize ISAs, consider tax-efficient investments.
Very High Earners (£100,000+)
Complex: Personal allowance taper (60% effective rate £100k-£125k), potential mansion tax, all rate increases apply. Pension Cap: From 2029, salary sacrifice over £2,000 loses NI benefits.
Advanced Strategy: Pension contributions to drop below £100k, consider relocation if Scottish tax rates diverge further, review property holdings.
Property Owners (£2m+ homes)
New Tax: Annual charges from 2028. Consider: Downsizing, equity release, or planning for ongoing annual cost.
Reality Check: If you can afford a £2m+ property, you can likely afford £2,500-£7,500 per year. But it's still annoying.
Planning Actions Before April 2026
Immediate (Before April 2025)
- Maximize ISA contributions - £20,000 limit still applies, and returns are tax-free (unaffected by rate increases)
- Review pension strategy - Current rules still apply; salary sacrifice unlimited until 2029
- Consider dividend timing - If you own a business, plan dividend distributions before rate increases
2025-2026 Tax Year
- Capital gains planning - Annual exempt amount is only £3,000 (reduced from £6,000)
- Property decisions - If considering buy-to-let, factor in higher property tax rates from 2027
- EV budgeting - Plan for future road charges if you drive electric
Long-Term (2026-2031)
- Threshold awareness - Track your income relative to £50,270 (higher rate) and £100,000 (allowance taper)
- Pension contributions - Use salary sacrifice up to £2,000 from 2029; consider alternatives for larger contributions
- Investment structure - Prioritize ISAs and pensions over taxable savings/dividends
How Our Tax Calculator Helps
Our UK Tax Calculator is updated with Autumn Budget 2025 changes, including:
- Frozen threshold projections - See how pay rises affect tax through 2031
- Savings and dividend tax increases - Calculate your exact liability from April 2026
- Pension salary sacrifice modeling - Optimize contributions before and after 2029 cap
- Property tax scenarios - Estimate impact of rental property rate increases
Plug in your numbers. See what you'll actually pay.
Winners and Losers
Winners
Pensioner households: Likely to benefit more than working-age families (56% vs 33%) Small businesses: Lower business rates on retail/hospitality properties under £500k Low-income families (with 2+ children): Scrapping of two-child benefit limit (separate policy, but relevant) EV drivers (for now): Still cheaper than petrol, but advantage shrinking
Losers
Middle earners approaching higher-rate threshold: Fiscal drag pulls you into 40% bracket Higher-rate taxpayers with savings/dividends: 2% rate increases on both Landlords: New property tax rates add to existing Section 24 pain High-earning pension savers: £2,000 salary sacrifice cap limits tax efficiency £2m+ property owners: New annual mansion tax from 2028
No Change
Most basic-rate taxpayers: Savings allowance (£1,000) unchanged, low dividend/rental income unaffected ISA savers: Still fully tax-free regardless of rate changes State pension recipients: Unaffected by income tax changes if below personal allowance
The Office for Budget Responsibility's View
The OBR projects:
- Nearly 1 in 4 taxpayers will pay higher-rate tax by 2031 (up from 1 in 6 today)
- Tax burden will reach 38% of GDP by end of parliamentary term (highest on record)
- Growth forecast: Modest, with inflation remaining a concern
Translation: More people will pay more tax. Economic growth won't offset it.
Key Takeaways
- Frozen thresholds are the real tax rise - They'll pull millions into higher brackets by 2031
- Targeted taxes hit specific groups - Mansion tax, property rates, pension caps affect high earners/landlords
- Savings/dividend increases are marginal - 2% rate increases matter for large portfolios, less so for average savers
- Planning opportunities still exist - ISAs, pensions (up to £2,000 salary sacrifice), and timing strategies can mitigate impact
- This is "stealth taxation" - Income tax rates unchanged, but you'll pay more anyway
The Autumn Budget 2025 is classic have-your-cake-and-eat-it politics. The government kept manifesto promises not to raise income tax, NI, or VAT rates. But through frozen thresholds, new charges, and targeted rate increases, they're raising £26 billion by 2029-30.
You'll pay more. It'll just be less obvious how.
Need to calculate your exact tax position under Autumn Budget 2025 changes? Use our comprehensive tax calculator to see how frozen thresholds, savings rate increases, and pension caps affect your specific situation from 2025 through 2031.
Disclaimer: This article provides general guidance on the Autumn Budget 2025 for informational purposes only. Tax rules change frequently and individual circumstances vary. For official tax calculations or advice on your specific situation, consult HMRC or a qualified tax advisor.
Last Updated: November 28, 2025 | Reviewed for Autumn Budget 2025 announcements
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