Budget Survival Guide – What It Means For Your Money

The aim of the much-anticipated November budget was to raise £26 billion by 2030/31, by increasing the amount we pay in tax to 38% of GDP.

In line with Labour’s manifesto promise not to raise taxes, headline rates remained unchanged. That means the government is relying on threshold freezes, reduced allowances and targeted tax increases to stimulate revenue.

So, what do the changes mean for your finances in the short, medium and long-term? Here’s what you need to know and our top tips for planning ahead.

Income tax

Perhaps the most significant and wide-reaching effect of the budget wasn’t a change in current tax law at all. Rachel Reeves chose to freeze the current tax thresholds until April 2031. The personal allowance will remain at £12,570, the higher rate threshold at £50,270 and the additional rate threshold at £125,140.

The impact? As wages rise, more people will drift into the higher tax bands (known as fiscal drag). This will increase the amount we pay in tax without any headline rate change.

Short of telling your boss you don’t want that wage rise, there is no magic solution to fiscal drag. However, if your finances permit, it may be beneficial to consider using a salary sacrifice scheme or increasing your pension contributions to reduce taxable income.

ISA reforms

The cash ISA limit is dropping in April 2027 to £12,000 for the under 65s. The current £20,000 limit remains, but £8,000 must be used in an investment ISA. Those over 65 are not affected by this change.

Cash ISAs are a useful tool in financial planning, so ensuring you use your full allowance before the change is implemented may be beneficial – that’s £40,000 you could still save tax-free.

Savings, dividends and rental income

Those of you who receive an income boost from shares in businesses will be dismayed to hear dividend tax rates are to rise by 2% from April next year. Savings interest and rental income will also be taxed more heavily from April 2027.

To minimise the impact of these rises, consider diversifying your investments. Holding assets inside ISAs or pensions could also be beneficial.

Salary sacrifice

From 2029, only the first £2,000 of a salary sacrifice scheme can be paid into your pension without incurring national insurance. Until then, the current rules apply, allowing 100% of your salary to be sacrificed, up to a limit of £60,000 per tax year, without any tax or national insurance implications.

We are recommending high earners review their current pension contributions to make the most of the existing limits and consider alternative tax efficient strategies.

Other measures

If you own a property worth more than £2 million, you are facing an annual surcharge of between £2,500 and £7,500 from 2028. The ‘mansion tax’ as it is being called will need to be factored into your financial planning going forward, not to mention your estate planning and liquidity strategy. Downsizing has never looked so appealing…

Thankfully, there was a little good news among this recent taxing budget. Energy bills are to be cut by £150 from April next year, the state pension will rise by 4.8% at the same time and the removal of the two-child cap on Universal Credit will mean more support for large families.

Review your financial plan now

With such a wide-ranging raft of changes being implemented over the next few years, we are recommending anyone with an existing financial plan reviews their strategy before it is too late. Tax rises compound over time, significantly eroding the value of savings and investments.

We want to ensure our clients are not negatively impacted by the recent budget. To arrange a review of your current retirement provisions, don’t hesitate to contact us on (01246) 298181 or email: enquiries@belmayne-ifa.com