In partnership with interactive investor.

Chancellor Rachel Reeves’ Autumn Budget 2025 introduces several tax and pension reforms that will directly affect business owners, company directors as well as anyone drawing dividends, planning for retirement, or making use of tax-efficient saving like a Stocks & Shares ISA.

Let’s take a closer look at these reforms.

Dividend Tax increases

From April 2026, dividend tax rates will rise by 2 percentage points. This means any dividend you receive on top of any other income will change to the following:

• Basic rate (between £12,570 and £50,270): from 8.75% to 10.75%
• Higher rate (between £50,271 and £125,140): from 33.75% to 35.75
• Additional rate (above £125,140): from 39.35% to 41.35%

If you rely on dividends as part of your income, this change will reduce your post-tax earnings. With the new tax year approaching, it may be worth reviewing how you draw profits from your business. Speaking to an accountant could help you ensure your approach remains as tax efficient as possible.

Salary sacrifice pension contributions capped

A significant reform for savers and business owners is the introduction of a cap on salary sacrifice pension contributions.

From April 2029, only the first £2,000 of annual salary-sacrifice contributions will receive full National Insurance (NI) benefits.

Salary sacrifice works by allowing employees to exchange part of their salary for an employer pension contribution, reducing both employee and employer NI bills. Here are current NI contributions:

• 8% NI on earnings between £12,570 and £50,270
• 2% NI on earnings above that
• On top, employers pay 15% NI on staff earnings over £5,000

From April 2029, contributions above the £2,000 cap will be subject to NI, making them less tax efficient. You may need to revisit how you contribute to your pension, including the option of making personal contributions outside of salary sacrifice.

Cash ISA allowance reduced

From April 2027, the annual Cash ISA allowance for individuals under 65 will fall from £20,000 to £12,000. The full overall ISA allowance, however, will remain at £20,000.

This means for you to make the most of your tax-free ISA allowance, at least £8,000 per year would need to be placed into higher growth products such as a Stocks & Shares ISA.

This reform aims to encourage longer-term investing.

National living wage increase

From April 2026, the National Living Wage will rise:

• Ages 21 and over: from £12.21 to £12.71 per hour (up 4.1%)
• Ages 18 to 20: from £10.00 to £10.85 (up 8.5%)
• Under 18s and apprentices: from £7.55 to £8.00 (up 6%)

Income-Tax and National Insurance thresholds frozen

Income Tax and NI thresholds will remain frozen until 2031, extending the current freeze by a further three years.

While this avoids a direct tax-rate increase, the prolonged freeze continues to create “fiscal drag” — where rising wages push more people into higher tax brackets. By 2029–30, the extended freeze is expected to:

• Create 780,000 more basic-rate taxpayers
• Push 920,000 people into the 40% higher-rate band
• Move 4,000 individuals into the additional-rate band

State pension increase confirmed

The government has confirmed that the triple lock will remain in place, meaning the state pension will rise by 4.8% from April 2026, driven again by wage growth.

This means the annual full state pension will increase from £11,973 to £12,547, while the old state pension, paid to those who reached state pension age before 6 April 2016, will hike from £9,175 to £9,616 a year.

Mansion tax

Reeves announced a “Mansion Tax” applying to properties worth more than £2 million. Around 100,000–200,000 homes are expected to be affected, raising an estimated £400 million a year.

If you live in a home worth more than £2 million, you’ll face an annual surcharge from April 2028, collected through the council tax system. There will be four price bands, with charges arising from £2,500 for properties in the £2 million to £2.5 million bracket, to £7,500 on homes valued above £5 million.

Tax increase on savings interest and property income

The Budget also targets income from savings and property. From April 2027, tax rates on interest from savings and on rental income will rise by 2 percentage points across all rate bands.

This means basic, higher and additional rate taxpayers will pay 22%, 42% and 47%, respectively.

For savers, this may feel like another blow, coming alongside the reduction in the Cash ISA allowance to £12,000 from April 2027. It also adds further pressure for landlords, who have already been affected by a series of tax changes in recent years.

Stamp duty holiday on new UK listings

To encourage investment in UK markets, the Chancellor announced a three-year stamp duty holiday on newly listed shares. Investors will not pay the usual 0.5% stamp duty on purchases of newly listed UK company shares during this period.

While the move was welcomed by industry groups, many argue the government should go further and scrap stamp duty on UK shares altogether to improve market competitiveness and liquidity.

Tax relief for Venture Capital Trusts (VCTs) slashed

The Budget also brought changes to Venture Capital Trusts (VCTs), which provide upfront tax relief to encourage investment in early-stage UK businesses. From the next tax year, the upfront income tax relief will fall from 30% to 20%—a notable drop given it was once as high as 40%.

At the same time, the government will expand investment limits and increase the size of companies VCTs can back – a move that’ll help widen the opportunity for investors. But, with lower tax relief coming into play, it may make VCTs less appealing for some investors.

Many commentators have raised questions about this change. While the government is encouraging people to invest by cutting the Cash ISA allowance, it is also scaling back incentives for those supporting smaller UK businesses through VCTs—a contradiction some commentators say undermines the goal of building a stronger investing culture.

What to do next? Think long term

While many of these changes won’t take effect immediately, it’s a good idea to start looking beyond the next tax year and consider your next financial steps.

Taking proactive approach now, rather than waiting for the new rules to arrive, can help shape your financial future.

Be sure you stay informed and think carefully before making any financial decision.

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