ISA allowances
We got what we thought on the ISA front but with an age condition (age 65). Those above this age have an ISA allowance as normal. Those below can only allocate £20,000 to a stocks and shares ISA, or £12,000 to a cash ISA and £8,000 to a stocks and shares ISA.

On the ISA front, there was no word on the Lifetime ISA. There was also no word on the limit which sticks at £450,000 and remains therefore increasingly irrelevant for London and parts of the south east.  

VCT  
There are changes to the qualifying limits for the underlying companies, which will in theory bring in more businesses that can qualify for inclusion. With the aim of balancing the trade-off between VCT and EIS, the VCT income tax relief benefit for investors will fall to 20% from 6^th April 2026. 

‍Tax – Rental income, dividend income and savings income
There were some changes to income tax rates, but not on income in the main. From 6^th April 2027, the rate of income tax applied to savings income will increase by 2 percentage points, meaning the following rates:

• Basic: 22%

• Higher: 42%  

• Additional: 47%  

As Scotland only has the power to set non-savings and non-dividend income, this will apply to Scotland.  

New tax bands will also be created for property rental income (again from April 2027). These are to mirror the new rates for savings income. The UK Government will work with the Scottish Government on varying the rate applied in Scotland as this falls within the devolved remit. Wales will also have the opportunity to set property tax rates independent of the rest of the UK.

Dividend tax rates will also increase though the additional rate will not be increased and the increase in tax will apply a year earlier, 6^th April 2026. This brings rates to:

• Basic: 10.75%

• Higher: 35.75%  

• Additional: 39.35% (unchanged)

One change happening from 6^th April 2027 is that the personal allowance will by default be set against the lowest types of income first. This will mean employment / pension income first uses the allowance, leaving the higher rental / savings / dividend income to be taxed after.  

The order of tax beyond this becomes slightly more important here. Onshore (before dividends) and offshore (after dividends) bond gains will need to be considered carefully. Similarly both onshore and offshore bond gains are now subject to a higher level of tax then they previously were being that they are savings income for tax purposes.  

If a bond gain is going to be subject to tax and surrender is intended soon, bringing it forward make bring some savings.

National insurance and salary sacrifice
We also got the national insurance limitation on salary sacrifice contributions, to £2,000, not happening until 6^th April 2029. This figure is set at a higher level then the amount that is contributed under standard auto enrolment rates. In practice it is only likely therefore to affect those sacrificing amounts beyond what auto enrolment requires as a contribution.

For basic rate taxpayers, it would be quite a tax difference (8%) while for those at higher/additional rates, it would represent less of a saving (2%). A basic rate taxpayer sacrificing £40,000 (unlikely but possible) would now pay NI of £3,200. A higher/additional rate taxpayer would pay £800.

Someone who salary sacrifices the full £60,000 to get below the £100,000 threshold would see an NI cost of £1,160 from previous years. The loss of NI saving will harm employers more than they will employees. For the employer, the cost goes from nothing to £8,700.

What is unclear at the moment is whether the sacrificed earnings are brought back into the fold for student loan repayments, which would represent another charge of 9% for those affected.

Class 2 national insurance contributions
Those based abroad will lose the ability to make national insurance top ups under class 2. Those retiring abroad should really look at their NI record before leaving.

IHT – business relief
In good news, business relief is now transferrable between spouses (from 6^th April 2026 but can apply where death was before). This stops the scenario where these assets need to be carved up in ownership and left outside the household on the first death to make full use of the allowance.

One person in the household can own all business relief assets with both spouses able to benefit from the full allowance for both parties.

Tax thresholds
We also know that all the tax thresholds are frozen until 2030/31. This gives us a planned 5 more years of tax bands staying as there are. Inflation will continue to reduce the value of all these thresholds, particularly those associated with IHT.

Previously announced - state pension increase
A 4.8% increase brings the new state pension to £241.30 a week, or £965.20 every 4 weeks. This brings the total over the year, 13 pay periods, to £12,547.60 which is just below the personal allowance of £12,570. It is important to note that from April 2027 this income will use the personal allowance before any dividend income, rental income or savings income.

We’re still processing. Stick around for the next installment of ‘deep dive’ thoughts on the 2025 budget. If you have any burning questions in the meantime, do feel free to book a chat!