28 Nov New budget explained – What is in for individuals

The announcements for the new Budget this week came into a mix of responses merely due to the hype and the information leaked prior to that about changes that were to take place and they never did in fact. Please see below the changes that have been announced and how they affect taxation of individuals.

INDIVIDUALS

Income tax

The Chancellor previously announced that the thresholds will be uprated by inflation from April 2028 onwards. Instead, the freeze on personal tax thresholds – ie personal allowance, basic and higher-rate thresholds for income tax at the current level of £12,570 and £50,270 – will now be extended until 2030-31.

From April 2026, dividend tax rates will increase as follows:

·        the ordinary rate rising from 8.75% to 10.75%

·        the upper rate rising from 33.75% to 35.75%

·        the additional rate remaining at 39.35%

From April 2027, tax rates on property and savings income will also increasing as follows:

·        20% to 22% (basic rate)

·        40% to 42% (higher rate)

·        45% to 47% (additional rate)

MTD

Making Tax Digital (MTD) for Income Tax will be extended to sole traders and landlords with income over £20,000 by the end of this Parliament. This expands the rollout of MTD for Income Tax, which is April 2026 for sole traders and landlords with income over £50,000 and April 2027 for those with income over £30,000.

Increase in National Minimum Wage and other employment opportunities

From 1 April 2026, the National Living Wage will increase by 4.1% to £12.71 per hour. The National Minimum Wage for 18-20 year olds will also increase by 8.5% to £10.85 per hour and for 16-17-year-olds and apprentices by 6.0% to £8.00 per hour.

In order to tackle the youth unemployment, the government has announced it will guarantee a six-month paid work placement for every eligible 18-21-year-old who has been on Universal Credit and looking for work for 18 months. This will cover 100% of employment costs for 25 hours a week at the relevant minimum wage, and additional wraparound support. Further details of the scheme including the implementation date are awaited.

IHT

No rate changes for Inheritance tax have been announced and the thresholds remain frozen until April 2031. As previously announced, unused pension funds and death benefits will be included in estates from April 2027. In addition, legislation will be introduced in Finance Bill 2025/26 to increase the £1m allowance for the 100% rate of APR and BPR in line with CPI from 6 April 2031.

National Insurance on pension salary sacrifice schemes

From April 2029 the amount of employee pension contributions made through salary sacrifice that is exempt from National Insurance contributions (NICs) will be capped at £2,000 per year.

Employees who contribute up to £2,000 into their pension each year via salary sacrifice can continue to benefit in full, but employee and employer NICs will be charged in the usual way on the amount above £2,000.

The government also confirmed that employees who use salary sacrifice to access Tax-Free Childcare or Child Benefit can continue to do so, but any pension contributions above the £2,000 cap will now be subject to NICs.

More timely payment for self-assessment

From April 2029, the government will require Income Tax Self Assessment (ITSA) taxpayers who also have PAYE income to pay more of their tax payments through the year via the PAYE system. This will help spread the taxpayer’s ITSA liability across the year. Taxpayers with both ITSA and PAYE income will pay some of their forecast ITSA tax through their employer or pension provider, deducting their ITSA tax via the normal PAYE process. These payments will be based on their previous ITSA liability.

The government will consult in early 2026 on detailed design options, and on options for timelier tax payment for those with self-assessment income only.

These proposals take steps to ensure income tax self-assessment taxpayers pay tax automatically via regular payments throughout the year, moving taxpayers away from having to pay unexpected bills and reducing the number of falling into tax debt. No one will pay more tax than they do under the rules today, the only change is when the tax is paid. 

The government will consult on how best to support taxpayers through the one-off impacts of this change.  

Reduction in Cash ISA limits

From 6 April 2027 the annual ISA cash limit will be set at £12,000, within the overall annual ISA limit of £20,000. Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2031. Savers over the age of 65 will continue to be able to save up to £20,000 in a cash ISA each year.