Chancellor Rachel Reeves has announced tax increases on dividends, savings and property income, alongside changes to ISA rules and pension tax relief, in today's Budget, which market experts have described as "a political Frankenstein".
An unprecedented leak before the Budget by the Office for Budget Responsibility was a big talking point, which the chancellor called “deeply disappointing”, adding that the fiscal watchdog had taken “full responsibility” for the mistake.
But it did not diminish from a Budget that was expected to be one of the most significant in recent history. Below, Trustnet rounds up the key policy changes (or lack thereof) that will impact finances moving forward.
Economic activity
On the economy, real GDP is expected to rise 1.5% this year, up from the previously expected 1%, according to OBR forecasts. However, it has revised down its forecast for medium-term productivity growth by 0.3 percentage points to 1% over five years.
Meanwhile, inflation is expected to be 3.5% this year, falling to 2.5% in 2026 and 2% from 2027 onwards – in line with the Bank of England’s target.
Dividends, savings and property
The chancellor announced a "shocking" 2 percentage point increase on tax payable on dividends as well as savings and property.
From April 2026, investors on the ordinary rate will pay 10.75% in dividend tax rather than the current 8.75%. The upper rate will rise to 35.75% from 33.75%, although the additional rate will remain unchanged at 39.35%.
For savers, interest will be taxed at 22% (up from 20%) for basic rate payers, while the higher rate has been upped from 40% to 42% and the additional rate from 45% to 47%. These changes will come into effect one year later in April 2027.
Meanwhile, property income will have its own tax rates. From April 2027, the basic rate will be 22%, the higher rate will be 42% and the property additional rate will be 47%. Property income of less than £1,000 does not need to be reported to HMRC and is tax-free.
ISAs
Reeves announced that the annual allowance on ISA savings will remain at £20,000, but the cash allocation will be reduced to £12,000 starting from April 2027.
The remaining £8,000 will be ringfenced for stocks and shares in a bid to encourage a more people to start investing. However, savers over 65 will keep the £20,000 cash allowance in full.
Allowances remained the same elsewhere, however, with a £4,000 cap for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds. These will remain in place until April 2031.
But the Lifetime ISA will be replaced with a new product, the Budget documents revealed. The government will publish a consultation in early 2026 on implementing a new, simpler ISA product to help first-time buyers purchase a home.
Changes for investors: Stamp duty and VCTs
Currently, investors with stocks and shares ISAs pay a 0.5% levy when they buy UK-listed shares. As part of her initiative to get the country investing in the UK, Reeves has introduced a stamp duty holiday on shares for newly listed UK companies.
This means the usual 0.5% tax on buying shares will be waived for three years after a company’s IPO. It will only apply to new listings, with all other shares still subject to the stamp duty.
It was not all good news for investors, however. To better balance the amount of upfront tax relief offered by VCTs compared to the Enterprise Investment Scheme (EIS) and incentivise funds to support high-growth companies, the government is reducing the upfront VCT Income Tax relief from 30% to 20% – a "stupid" and "utterly nonsensical" move, according to industry experts.
Private pensions: Salary sacrifice and the tax-free lump sum
On the private side of pensions, tax relief benefits such as the 25% tax-free lump sum and salary sacrifice benefits have been hot-button issues.
On the former, Reeves confirmed she would not be slashing the allowance from 25% of a private pension pot up to £268,275.
However, pension savers contributing to their retirement pot through auto-enrolment salary sacrifice schemes offered by their employers will now be capped on how much they can pay in before paying National Insurance (NI).
Salary sacrifice enables employees to exchange part of their salary for employer pension contributions in a bid to reduce their income tax and NI liabilities. The chancellor said this benefit is “not sustainable” for public finances.
As such, Reeves has confirmed a £2,000 annual cap which will come into effect from April 2029 and is estimated to raise £4.7bn for the Treasury.
The moves have faced immediate industry backlash.
The state pension
Reeves maintained the commitment to the triple lock, with the state pension still set to rise by the highest of the following three figures: earnings growth in May to July, September’s inflation figure or 2.5%.
In April 2026 the state pension will rise by 4.8% in line with earnings growth, meaning pensioners will receive an extra £575 per year.
The government is also launching the third independent review of the state pension age and limiting access to voluntary national insurance contributions (VNICs) to prevent people living abroad from building entitlement to the state pension.
Income tax
The chancellor did not increase the headline rates of income tax, National Insurance (NI) contributions or VAT. However, she maintained income tax thresholds and the equivalent NI thresholds for employees and the self-employed at their current levels for a further three years from April 2028 to April 2031.
The income tax Personal Allowance is therefore frozen at £12,570, the higher-rate threshold at £50,270 and the additional-rate threshold at £125,140 from April 2028 to April 2031.
Inheritance tax (IHT)
Inheritance tax thresholds have been frozen for a further year to April 2031. By maintaining the nil-rate band, residence nil-rate band, and allowance for 100% rate of agricultural property relief and business property relief for a further year from April 2030 until April 2031 Reeves is expecting to add £130m to government coffers by 2031.
The upcoming combined allowance for the 100% rate of agricultural property relief and business property relief will also be fixed at £1m for a further year until 5 April 2031.
Any unused £1m allowance for the 100% rate of agricultural property relief and business property relief will be transferable between spouses and civil partners, including if the first death was before 6 April 2026.
Child benefit
One of the highest profile moves in the Budget was to scrap the two-child benefit cap. The policy – which was introduced in April 2017 and limits child tax credit and universal credit payments to the first two children in a family – had cross-party critics and the government faced significant internal and external pressure to abolish it.
The OBR said the removal of the two-child limit within universal credit will cost £3bn by 2029-30 but increase benefits for 560,000 families by an average of £5,310. The Joseph Rowntree Foundation has argued that the cap contributes to child poverty, particularly in households that already face economic challenges.
In the Budget speech, Reeves said: “Because I am tackling fraud and error in our welfare system, because I am cracking down on tax avoidance, because I am reforming gambling taxation, I can announce today – fully costed and fully funded – the removal of the two-child limit in full from April.”