In the run-up to the Autumn Budget, speculation reached fever pitch about how your finances would be affected by the announcements.
How would the Chancellor plug the ‘black hole’ in the public purse? What taxes would she increase, considering the government had already committed to no tax hikes for ‘working people’?
On the day there was some good news, with Reeves confirming that the freeze on personal tax allowances will end in 2028. Savings accounts also escaped unscathed.
It can be difficult to work out whether the news is positive for the pounds in your pocket. Here we examine five points you may have missed and how you can make the most of what was – and wasn’t – announced.
1. Frozen tax thresholds will still hit your take-home pay
Personal tax allowances have been frozen since April 2021. The freeze was originally set to end in 2026, but the previous Chancellor, Jeremy Hunt, extended it until 2028.
Reeves has committed to ending the freeze in 2028, which is good news after rumours before the Budget suggested she was considering extending it even further.
The freeze has been called a ‘stealth’ tax rise because tax thresholds don’t rise in line with inflation. As a result, you end up paying more tax on your earnings as wages increase, and you may be pushed into a higher tax band as you earn more.
Once the freeze ends, you’ll have missed out on seven years of inflationary increases to personal tax allowances.
Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, told NerdWallet UK there’s “no guarantee” on how the thresholds will rise from 2028.
“Rachel Reeves mentioned inflationary rises, but there has never been any suggestion that there will be a bumper rise to make up for the missed years.”
The Office for Budget Responsibility estimates that because of the freeze, there are expected to be four million extra taxpayers from 2027/28 onwards.
According to the Bank of England’s inflation calculator, here’s what income tax thresholds could look like now if they’d gone up in line with inflation:
- personal tax allowance – £15,124 (currently £12,570)
- higher rate threshold – £60,484 (currently £50,270)
- additional rate threshold – £150,565 (currently £125,140 – this threshold fell from £150,000 to £125,140 in 2023)
2. The ISA allowance has been frozen until 2030
There was speculation before the Budget about whether the government would target Individual Savings Accounts (ISAs) to help raise tax revenues.
In the past, Reeves has floated an overall limit on the amount that someone can save in ISAs – £100,000, for example. The £20,000 annual ISA allowance may have also been in her crosshairs.
In the event, Reeves left ISAs largely untouched but buried in the Budget document is the announcement that the ISA allowance will be frozen until 2030, which is mixed news for savers.
The ISA allowance hasn’t gone up since 2017, so the real value of your allowance has eroded because of inflation – and isn’t due to increase any time soon. However, only around 7% of ISA holders currently make full use of their annual allowance.
Do you at least have certainty that you can enjoy a yearly £20,000 allowance for the next six years? Jason Hollands, managing director at wealth advisers Evelyn Partners, isn’t sure.
He told NerdWallet UK that Reeves hasn’t ruled out further tax rises. “No changes to ISAs for the remainder of this parliament certainly cannot be guaranteed, even if the annual allowance is to be frozen until 2030,” he said.
“For now at least, ISAs remain unchanged and savers and investors should make as much use of them as possible,” said Hollands, given we’re now in an environment of higher taxes.
3. Capital gains tax rise – but you can still save tax-free
The Budget has left ISAs untouched for now, so it’s important to make the most of these tax-efficient accounts while you still can.
Both Sarah Coles from Hargreaves Lansdown and Jason Hollands from Evelyn Partners believe ISAs should be a core part of your savings plans.
This is especially the case now capital gains tax on investment growth has gone up from 10% to 18% for basic-rate taxpayers and 20% to 24% for higher-rate taxpayers. Stocks and shares ISAs can shield any growth on your investments from tax – including capital gains tax, dividend tax and income tax on interest.
When it comes to cash savings, interest rates on regular accounts are still paying up to 5%. However, higher interest rates can lead to a savings tax trap, where income tax becomes due on interest you earn outside of ISAs.
In a cash ISA your savings can grow over time completely free from tax, and the best interest rates currently available on cash ISAs pay more than 5%.
4. Minimum wage rise falls short of ‘real’ living wage
The national living wage for people 21 and over is going up from £11.44 to £12.21 an hour in April 2025.
The national minimum wage, which applies to those aged 18 to 20, is going up in April too, increasing to £10 an hour from £8.60.
However, the Living Wage Foundation works out a ‘real’ living wage based on the cost of living. It suggests this wage for everyone over 18 is currently £12.60 an hour across the UK and £13.85 in London.
People earning the minimum wage may still struggle to meet their living costs from April 2025, even when their pay increases – with young people in London missing out the most:
- people aged 21 and over across the UK fall short of living costs by 39p an hour
- people aged 21 and over in London fall short of living costs by £1.64 an hour
- people between 18 and 20 across the UK fall short of living costs by £2.60 an hour
- people between 18 and 20 in London fall short of living costs by £3.85 an hour
Combined with the increase in employers’ National Insurance, the minimum wage rise could harm businesses already struggling with costs. According to UK Hospitality, the trade body for the hospitality industry, venues may be more likely to cut hours and scale back recruitment.
5. No change to inheritance tax gifting ‘loopholes’
The Chancellor made a few changes to inheritance tax, but not as many as had been expected.
In particular, Reeves didn’t close the so-called loophole around gifting that allows families to make regular payments to loved ones tax-free. This could be used to help with living costs or to save for their future, for example.
The rule is known as ‘regular expenditure out of income’. It’s possible to give as much as you like under this rule, but only if it’s from normal monthly income – not savings – and you can maintain your normal standard of living.
Most estates aren’t subject to inheritance tax. However, for those that are, families may want to consider financial advice to navigate the rules around gifting, including the £3,000 annual gifting allowance.
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