What the Budget 2025 means for you: How Rachel Reeves’ tax hikes will hit

Chancellor Rachel Reeves rose to deliver her long-awaited Autumn 2025 Budget, amid an accidental leak of the Office for Budget Responsibility report.

The OBR report revealed the key measures in the Budget, their costs and expected revenues.

These included a permanent freeze on tax thresholds, a wage sacrifice raid, a council tax surcharge on homes worth £2 million or more, an extra tax on savers, a per kilometer charge for electric vehicles and an ongoing fuel duty freeze.

How the budget will affect you – essential reading

– Cash Isa allowance reduced to £12,000 for under 65s

– Rachel Reeves increased savings interest tax – and it hit investors too

– Salary sacrifice blow from the budget to retirement savers, what will it cost YOU?

– State pension will rise by 4.8 per cent to £12,548 per year next April, Chancellor confirms

– Exclusive to M+ What does Reeves’ devastating pension raid mean to you?

– Fuel duty frozen and 5p deduction extended as Chancellor books drivers for now

– Pension tax-free cash SAVED in the budget (for now)

– Britain faces five years of stagnant living standards as inflation and tax bite

– Green taxes on energy bills removed but Reeves opposes VAT reduction

– Reeves will expand plan that boosts savings for low-income earners

– Mansion tax: Council tax surcharge on homes worth more than £2 million

Budget at a glance

Rachel Reeves said she would double her margin to £21.7bn in breach of her financial rules.

The OBR raised its GDP forecasts for this year but lowered its growth expectations from 2026.

The British economy is expected to grow by 1.5 percent this year, up from 1 percent previously. Growth will slow to 1.4 percent in 2026, from previous forecasts of 1.9 percent.

The OBR reduced its growth forecasts for the next three years from 1.8 percent to 1.5 percent, from 1.7 percent to 1.5 percent and from 1.8 percent to 1.5 percent.

consumer price inflation The average is set at 2.5 percent in 2026; above previous forecasts of 2.1 per cent and well above the Bank of England’s 2 per cent target.

Income tax Thresholds will remain at their current levels for three years. The OBR says this will result in around 780,000 more basic rate, 920,000 more higher rate and 4,000 more additional rate taxpayers by 2029 than the March forecast.

A 2 percentage point increase in basic and higher tax rates on property, dividends and savings income. The Chancellor claims 98 per cent of Britons will pay no tax on their savings.

Mansion tax will be collected alongside council tax and will be increased by £400 million by 2031. Properties valued at more than £2 million will face an annual fee of £2,500. Homes valued at £5 million and above will owe tax of £7,500 a year.

Annual cash jesus For savers under 65, the allowance will be reduced to £12,000.

lifetime Jesus While the income tax deduction on venture capital fund investments will be reduced to 20 percent, this law will be canceled.

The Chancellor has announced a surprise 2 percentage point increase in the rates tax savers pay on savings interest from April 2027. The savings income tax increase will increase the level of savings tax paid above the levels of income tax currently paid on savings interest.

Some green taxes added to electricity bills will be canceled and transferred to general taxation.

The ‘Assistance to Save’ scheme, which is planned to end in 2027, will be made permanent from 2028 by the Budget Chancellor.

The Chancellor has claimed he will find additional savings of £4.9 billion by 2029 to help pay for this, including efforts to claw back benefits paid to those who are not legally entitled to them.

Pensions: Tax-free lump sum savings. People over 55 will be able to withdraw 25 per cent of their pension tax-free, up to a limit of £268,275.

But the Chancellor has launched a secret attack on company pensions that engage in ‘salary sacrifice’, introducing a new £2,000 cap on pension contributions that can be made through tax deductions.

Electric cars will be subject to Special Consumption Tax for the first time. Fuel duty will be frozen for 16 consecutive years and a ‘temporary’ 5p cut in petrol and diesel duty will be extended.

‘Premium’ cars are excluded from the Mobility scheme for disabled people.

Training for apprentices under 25 will be ‘free’ for small and medium-sized businesses. The Chancellor has also allocated a further £820 million over three years for the ‘youth guarantee’ announced last year.

two child benefit The cap will be scrapped while the government also freezes prescription charges and rail fares.

Labor is increasing the length of time a person must live and work in Britain to access the state pension.

Sin taxes: Taxes on tobacco products will be increased, taxes on alcohol will be increased in line with inflation, and comprehensive changes will be made in gambling taxes.

From the OBR report

The OBR report stated the following regarding Rachel Reeves’ Budget measures:

‘In the medium term, the cost of these measures is more than offset by wide-ranging changes to tax policy, which will raise revenues and reduce borrowing by £0.7bn in 2026-27, rising to £26.1bn in 2029-30.

‘The policies in this Budget deliver the third largest medium-term tax increase as a share of GDP, after the March 2021 and October 2024 Budgets, since the OBR was established in 2010.’

Tax policies include:

A range of personal tax changes will increase revenues by £14.9bn in 2029-30, including:

• a freeze on personal tax and employer National Insurance contribution (NIC) thresholds for three years from 2028-29; this would result in an increase of £8.0 billion;

• Raising £4.7bn by charging NICs for pension contributions sacrificed from salary; And

• an increase of £2.1bn by increasing tax rates on dividends, property and savings income by 2 percentage points.

Other tax changes boost revenues by £11.2bn in 2029-30. These include:

• a reduction in the main rate of write-off relief in corporation tax of up to £1.5bn;

• A £1.4 billion increase with a new mileage-based charge on battery electric and plug-in hybrid cars from April 2028;

• reforms to the taxation of gambling, which reached £1.1bn

reduced capital gains tax Easing savings into employee ownership trusts of £0.9bn;

• high value council tax surcharge for properties valued in excess of £2 million; this works out to £0.4bn;

• Tax administration, compliance and debt collection measures totaling £2.3 billion;

• these tax increases were partially offset by a further five-month freeze on fuel duty followed by gradual increases from September 2026; these increases will cost £2.4bn next year and £0.9bn each year thereafter;

And

• A number of other tax measures, including the introduction of the Sizewell C regulated asset base (RAB) tax, collectively raised a further £4.4bn.