In the latest Budget announcement, Chancellor Rachel Reeves outlined several significant measures that will impact your finances. While some details were revealed early by the official forecaster, the implications of these changes are essential for everyone. Here’s a breakdown of the key measures and how they could affect your money.
One of the most notable changes is that the income tax bands will remain frozen until 2031, which is three years longer than previously planned. This means that the amount of income you can earn before moving into a higher tax bracket will not increase in line with inflation. Consequently, if you receive a pay rise, you may find yourself paying more tax than expected, as your income could push you into a higher tax bracket. It’s important to note that Scotland operates its own income tax rates, so residents there will see different impacts based on these changes.
Starting in 2028, drivers of electric vehicles and hybrid cars will face new road pricing based on the number of miles driven. This will be in addition to existing road taxes. While the fuel duty will remain frozen for five months from April, a gradual increase will begin in September 2026. This shift could complicate the calculation of road usage for EV drivers, leading to higher overall costs.
On a positive note, the Chancellor confirmed that the minimum wage will see increases in April. The new rates will be:
National Living Wage for workers aged 21 and over will rise to £12.71 per hour, up from £12.21. The National Minimum Wage for workers aged 18, 19, or 20 will increase to £10.85 per hour, up from £10. For those aged 16 or 17, the minimum wage will rise to £8 per hour, up from £7.55. The apprentice rate will also increase to £8 per hour from £7.55.Homeowners in England with properties valued at £2 million or more will face a council tax surcharge starting in April 2028. This measure will introduce four price bands, with surcharges ranging from £2,500 for homes valued between £2 million and £2.5 million, to £7,500 for properties worth £5 million or more. This so-called mansion tax is expected to affect around 100,000 properties, primarily in London and the South East.
In a significant move for commuters, regulated train fares in England will be frozen until March 2027. This marks the first time in 30 years that these fares will remain unchanged. The freeze applies to season tickets and some off-peak return tickets on long-distance journeys, specifically for services operated by England-based train companies. Additionally, the cap on bus fares at £3 for a single journey will also remain in effect until March 2027.
The annual tax-free savings limit for cash ISAs (Individual Savings Accounts) will be reduced from £20,000 to £12,000 for individuals under 65. This change aims to encourage more investments in stocks and shares ISAs, which carry higher risks but could promote economic growth. Interestingly, the over-65s will still be allowed to save up to £20,000 in cash ISAs. The Help to Save scheme, designed for low-income individuals on universal credit, will also be extended until 2028.
In a significant policy change, the Chancellor announced the removal of the two-child cap on universal credit and tax credits, effective from April next year. This change will provide additional financial support to many families with three or more children, subsequently increasing their overall benefits.
A considerable shift in pension savings is on the horizon. From April 2029, a £2,000 annual cap on the amount that can be contributed to pensions through salary sacrifice schemes will be implemented. Although employees can still receive income tax relief on their pension contributions, critics argue that this cap may diminish the incentives for pension savings.
Additional measures revealed in the Budget include the extension of the UK tax on fizzy drinks to high-sugar milk-based products by 2028. This could lead to increased prices or changes in ingredients for products like milkshakes and sugary coffees.
In summary, the recent Budget announcement by Chancellor Rachel Reeves introduces several crucial changes affecting taxes, wages, and savings. It is vital to stay informed about these measures as they may have a direct impact on your financial situation in the coming years.