Autumn budget 2025

Our takeaway

Salary sacrifice has become a widely used feature for workplace pensions, allowing employers and employees to reduce their National Insurance contributions. Capping the amount that can be sacrificed will simply result in reduced pension saving, increased employer costs, or both.

Pensions essentially operate as deferred pay, which in turn allows the taxation to be deferred. Salary sacrifice was an additional enhancement to this, but as pensioners don’t pay National Insurance, it was always a potential target.

Workplace pensions continue to be the best way for most people to save for retirement, with full income tax relief, employer contributions, and a quarter of the fund available tax-free at retirement.

Income tax 

The personal allowance will stay at £12,570 and is set to remain frozen until 2031. Additionally, the income tax thresholds for the UK (excluding Scotland) will also be kept unchanged until April 2031. 

• Basic tax rate 20% on first £37,700 over the personal allowance.
• Higher rate 40% on earnings over £37,700 plus personal allowance.
• Additional rate 45% on earnings over £125,140.

The rates of income tax for Scottish taxpayers will be announced in the Scottish Government’s budget in January. 

National Insurance  

It was announced that all employer and employee National Insurance bands have been frozen until 6 April 2031.

Employee National Insurance 

From 6 April 2026, employee National Insurance will remain at: 

• Class 1 National Insurance contributions employees will pay 8% on their earnings between the primary threshold and the upper earnings limit; between £12,570 and £50,270. 
• Class 1 National Insurance contributions employees pay 2%, on their earnings above the National Insurance contributions upper earnings limit. 

 Employer National Insurance 

• Class 1A and 1B employer National Insurance contributions from 6 April 2026 will remain at 15.0% on earnings over £5,000.
• The Secondary Threshold, from which employer contributions start to be paid, will stay at £5,000 a year. 

The Employment Allowance, which allows employers who pay less than £100,000 in National Insurance contributions to reduce their National Insurance bill, will be unchanged at £10,500 from 6 April 2026. 

Voluntary National Insurance Contributions for overseas individuals

Voluntary National Insurance contributions for periods abroad from April 2026

Loopholes in the current Voluntary National Insurance contributions (VNICs) rules that allow those with a limited connection to the UK to build UK State Pension entitlement at a cheaper rate whilst overseas, are to be closed. To fix the most unfair elements of these rules, the Government is removing access to the cheapest Class 2 VNICs for individuals abroad and increasing the initial residency or contributions requirement for VNICs to 10 years. A wider review of VNICs is to be launched with a call for evidence to be published in the new year.

This will not affect voluntary National Insurance contributions for time abroad before 6 April 2026.

Pensions 

There were no announced changes to the:

• Lump sum allowance, currently £268,275
• Lump sum and death benefit allowance, currently £1,073,100
• Annual allowance, currently £60,000
• Money purchase annual allowance, currently £10,000
• Tapered annual allowance, currently applies when an individual has ‘adjusted income’ over £260,000 and 'threshold income' of not more than £200,000.

Collective Money Purchase (CMP) Schemes

Collective money purchase: registration of unconnected multiple employer schemes

The Government will allow unconnected, multi-employer CMP schemes to apply to HMRC for registration as a pension scheme. Currently, CMP schemes are only available to single or connected employers.

CMP schemes, like Master Trusts, must be authorised by the Pensions Regulator to operate legally. Currently, HMRC could be required to register a CMP scheme even if it fails Pensions Regulator authorisation. New legislation will give HMRC the power to refuse registration or de-register unauthorised CMP schemes.

In addition, the Government will take a regulation-making power enabling HMRC to legislate for CMP schemes more efficiently in the future.

These changes will be introduced in the Finance Bill 2025/26.

Inheritance tax treatment of unused pension funds and death benefits

Inheritance Tax — unused pension funds and death benefits

Starting 6 April 2027, most unused pension funds and death benefits will be subject to inheritance tax, according to the Autumn Budget 2024. However, any death-in-service benefits paid from a registered pension scheme will not count towards an individual's estate for inheritance tax purposes from that date.

Personal representatives will be responsible for reporting and paying any inheritance tax due on unused pension funds and pension-related death benefits. If they expect tax to be owed, they can instruct pension scheme administrators to:

• Withhold up to 50% of the taxable benefits for a maximum of 15 months from the date of death.
• Pay the owing Inheritance Tax to HMRC before releasing the remaining benefits to beneficiaries.

If these instructions are withdrawn or the 15-month period ends, the withheld funds can then be distributed.

These rules do not apply to:

• exempt benefits
• funds under £1,000
• continuing annuities

Additionally, personal representatives will no longer be liable for taxes on pensions discovered after HMRC clearance has been granted.

Pension Protection Fund and Financial Assistance Scheme

From January 2027, the Government will introduce CPI-linked increases, capped at 2.5% a year, on pre-1997 pension accruals for members of the Pension Protection Fund and Financial Assistance Scheme, where their original schemes included this benefit. This measure aims to help pensions keep pace with the cost of living and protect members from the impact of inflation.

Salary sacrifice 

Changes to salary sacrifice for pensions from April 2029

The Government has confirmed that the National Insurance (NI) exemption on salary sacrifice for pensions will be partially removed. Under the new rules, employees can still sacrifice up to £2,000 a year without incurring additional NI charges. However, any amount above this threshold will now attract both employer and employee NI contributions. For example, an employee earning £45,000 who sacrifices 5% of their salary will pay approximately £20 more in NI annually, while their employer will pay an additional £37.50. This change will come into effect from 6 April 2029. The income tax saving will not be affected.

National Minimum Wage

Prior to the budget, the Government announced an increase to the National Minimum Wage (NMW) and National Living Wage (NLW). This may affect the amounts some individuals can sacrifice using salary sacrifice. 

State pensions 

Proposed benefit and pension rates 2026/2027

The Government is keeping the triple lock. The Basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2026 by 4.8%, in line with earnings growth in September 2025. 

• The new State Pension will rise by £574.60 to £12,547.60 a year.
• The Basic State pension will rise by £439.40 to £9,614.80 a year. 

Simple Assessment

From 2027/28, the Government plans to reduce the administrative burden for pensioners whose only income is the basic or new State Pension without any increments. These individuals will no longer need to pay small amounts of tax through Simple Assessment if their State Pension exceeds the Personal Allowance. Further details will be provided next year once the Government has considered the best approach to deliver this change.

Savings and investments

Individual savings account 

Subscription limits remain the same from 6 April 2026 so are: 

• Adult ISA annual subscription - £20,000
• Child Trust fund - £9,000
• Junior ISA - £9,000
• Lifetime ISA - £4,000 

Starting April 2027, the amount you can pay into a cash ISA has reduced from £20,000 to £12,000 for individuals under 65. This does not affect an individual’s overall ISA allowance. Anyone over the age of 65 can choose to continue paying up to £20,000 into a cash ISA.

The intention behind this change is to nudge savers towards Stocks & Shares ISAs and bolster investment in UK equity markets. 

Lifetime ISA Reform

In early 2026, the Government will launch a consultation on introducing a new simpler ISA product designed to support first-time buyers in purchasing a home which will replace the existing Lifetime ISA.

Tax on savings 

Changes to tax rates for property, savings & dividend income - GOV.UK

The basic and higher rates of dividend tax have increased by 2%. This means the basic rate (dividend ordinary rate) has increased from 8.75% to 10.75%, whilst the higher rate (dividend upper rate) has gone up from 33.75% to 35.75%. There is no change to the dividend additional rate.

In addition, from April 2027, separate tax rates will be introduced for property income. The property basic rate will be 22%, the property higher rate will be 42%, and the property other rate will be 47%

There will also be a 2% increase across all savings income tax bands from April 2027. The basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from April 2027. The starting rate for savings will remain at £5,000 until tax year 2030/31. This allows individuals with less than £17,570 in employment or pensions income to receive savings income of up to £5,000 income tax-free.

Inheritance tax 

The nil rate band (£325,000) and the residential nil rate band (£175,000) will remain frozen until April 2031. 

The £1 million 100% allowance on qualifying business and agricultural assets that’s being introduced from April 2026 will now be transferable, even if first death occurs before 6 April 2026.

It has also been announced that the £1 million allowance will be frozen until April 2031.

Trusts 

Employee ownership trusts

Capital gains tax - Employee ownership Trusts relief reduction

Capital gains tax relief on disposals to employee ownership trusts (EOT) will be reduced from 100% to 50% from 26 November 2025. Previously, company owners who made a qualifying disposal of shares to the trustees of an EOT benefited from 100% relief of CGT, but under this measure, 50% of gains will be treated as chargeable gains and subject to CGT.

The Government will legislate to close certain loopholes, one of which is where a non-UK trust holds UK agricultural property. It will be treated as UK-situated addressing changes in status of trust assets before and exit charge and restricting charity exemptions to direct gifts to UK charities and clubs. This will be legislated for in Finance Bill 2025/26 and will take effect for trust exit charges from 26 November 2025, gifts to charities in lifetime from 26 November 2025 or on a death from 6 April 2026, and for UK agricultural property from 6 April 2026.

The Government will also introduce a cap of £5 million on relevant property trust charges for pre-30 October 2024 excluded property trusts. 

Capital Gains Tax 

From 6 April 2026 the lower rate of CGT remains at 18%, with the higher rate also staying unchanged at 24%.