How the Budget will affect you: Winners and losers from Rachel Reeves’ tax rises and new spending

On an extraordinary Budget day, details of Rachel Reeves’ new policies were released very early, before £26bn of tax rises and a raft of changes were announced.

So how are the key changes to personal finance affecting you, from ISA restrictions to freezing income tax thresholds, and who were the winners and losers of the big decisions?

Independent takes a look like this:

winners

retirees

We were expecting a cut to the Cash ISA and it came at just the right time. A maximum of £12,000, instead of £20,000, can be deposited into tax-free savings accounts. The remaining £8,000 will be allocated to investment products such as stocks and shares ISAs, the Chancellor said.

However, there is an exception to the change. People over the age of 65 will be able to save the full £20,000 in cash if they wish.

This is a significant gain as investing is generally more suitable for those with longer time horizons and older people are often advised to consider de-risking their wealth; their cash savings allow them to do this.

Drivers

Ms Reeves announced the temporary 5p fuel tax cut has been extended until September next year. Freezing fuel duty is naturally a positive development for everyone who drives a petrol car.

But as Creditspring financial expert Tamsin Powell points out, it’s not just drivers who benefit from the cost increases that are often reflected in the things we buy, it’s all consumers.

“Rising fuel costs don’t just impact drivers, they also increase prices for goods and services, from food deliveries to public transportation,” he said. “The increase would particularly hurt people living in rural areas or people who use cars to commute to work.

“At a time when many people are still struggling with high energy bills and fixed charges, keeping fuel duty low is one of the simplest ways to avoid additional financial hardship.”

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More importantly, this fuel tax freeze will contribute to lower inflation overall in 2026 and beyond.

some families

According to the OBR, removing the two-child benefit limit would provide benefits worth an average of £5,310 to more than half a million families.

The measure to ease child poverty will be warmly welcomed by Labor MPs but will cost £3bn a year by 2029/30.

Basic rate taxpayers

The National Living Wage for people aged 21 and over has risen to £12.71; This means a full-time employee will benefit from gross annual earnings of £900.

Similarly, an increase in the National Minimum Wage for 18-20 year olds to £10.85 means a full-time worker will earn £1,500 more over the course of the year.

Maybe we’re in a pickle at this point, but there were rumors of changes to income tax rates, but instead the rates stayed the same.

This is a boost for those fearing a lower take-home pay. However, it will affect some people harder (more on this later).

Another potential additional benefit for basic rate taxpayers could come in the form of changes to salary sacrifice rules. Contributions above the £2,000 annual threshold will no longer be exempt from national insurance from April 2029.

But those who pay 5 per cent of a £40,000 salary into their pension through salary sacrifice will not be able to exceed the £2,000 threshold at which National Insurance payments kick in, so there will be no immediate loss there.

losers

middle income earners

Income tax bands will be frozen until 2030-31; This means anyone currently on a salary of £45,000 who receives a 4 per cent increase over the next three years (note that this is lower than this year’s rate of pay rise) will be pushed over the threshold and become a higher rate taxpayer doing the same job.

The move, one of Ms Reeves’ most controversial moves, is expected to bring up to a million people into the higher rate range by the end of this period.

Ms Reeves acknowledged that freezing tax thresholds would impact the “working people” Labor has promised to protect, but she was “asking everyone to contribute”.

Cash savers

Here there is a possible blow at both ends of the scale: old and young, small amounts and large.

For example, pensioners receiving a full state pension will be just below the threshold at which income tax will be payable from next year; hence any reasonably small additional income earned will push them into tax brackets.

With cash deduction ISA limits for under-65s, those who continue to save larger amounts in non-ISA savings accounts may find themselves taxed on the interest.

But an unexpected increase in the savings tax puts rates out of balance with regular income tax rates — a two-point increase to 22 percent for basic taxpayers, 42 percent and 47 percent for those paying higher and additional taxes.

Chantal Van Stipriaan, tax expert at Blick Rothenberg, explained: “The reduction in the Cash ISA limit would cost a higher rate taxpayer over £140 in income tax, assuming the interest rate is 4.5 per cent and there is no personal savings allowance.”

retirement savers

There is time to sort this out as it does not come into play until 2029, but pay cuts above £2,000 per year will now be subject to National Insurance.

Here’s a full rundown of how it will work.

Fidelity analysis shows that someone with a salary of £60,000 and receiving a standard 5 per cent contribution plus a 3 per cent contribution from their employer would find that person £1,000 over the cap and therefore NI would be charged on this portion. This will mean an extra bill of £20 for the employee.

self-employment

Increasing dividend tax means it costs more to pay yourself from a business you own; if you do this through dividends rather than salary – a method often used for those running small firms.

The two percentage point increase means that those paying the basic rate will now be charged dividend tax at a rate of 10.75 per cent, while those paying the higher rate will now pay dividend tax at a rate of 35.75 per cent.

The frustrating part for owners who pay themselves this way is that they’ve already paid corporate taxes on those profits, and the dividend allowance itself has been cut multiple times.

hosts

The increase in income from properties will initially impact homeowners, but there are wider fears in the property market.

One option is that landlords continue to increase their sales and the availability of rental properties decreases (which would cause prices to increase if demand is still the same). Another option is for landlords to pass on the increase in costs to tenants (which also carries the risk of rising prices).

“Ultimately, the additional tax revenue is relatively modest and the long-term impact will likely fall on people who rely on the rental sector for affordable housing, not on homeowners,” said Craig Hughes, a partner at consultancy Menzies LLP.

Senior property owners

The mansion tax will impose annual bills on homeowners based on the value of their property. In England, the “high value council tax surcharge” for properties valued over £2 million is £2,500, rising to £7,500 for properties valued over £5 million.

The move has several possible consequences beyond the actual payment.

One of these is the arrival of lower valuations, and the other is that those who own property but have little liquid assets will flood the market if they believe that the property will cause them financial problems. Another is the pervasive inertia in the property market, where people grapple with the new rules in a wait-and-see mode, effectively doing nothing until more clarity comes.

Drivers (EV owners)

Those who own electric vehicles can perhaps be forgiven for being upset. After years of being told that this is our future and the right thing to do, they will now be taxed for driving anywhere.

If you drive 10,000 miles a year, that’s £300 in tax.

LCP Delta’s head of electric vehicles, John Murray, criticized the move. “The government’s decision to introduce a £0.03 per mile tax for EV drivers poses a serious risk to the industry. Mixed signals are being sent to EV drivers at a moment when clarity and determination is needed to accelerate the transition,” he said.