The Autumn Budget | Under pressure

Dan McKissock, one of our Chartered Financial Planners, shares his thoughts on this week’s Autumn Budget.

Under Pressure: The Budget, pensions and fiscal rules

After months of anticipation, the long wait was finally over yesterday as the Chancellor delivered her Autumn Budget on one of the latest dates in recent memory. The run-up had been marked by a steady flow of leaks, hints and reversals, with several policy ideas seemingly tested in the court of public opinion before being either refined or abandoned. Even the Office for Budget Responsibility’s (OBR) assessment of the Budget’s impact appeared prematurely online, adding to the sense of a process struggling to remain tightly controlled.

Rabbits from the hat?

The Budget was delivered very much under pressure – to fund spending commitments, respect fiscal rules and avoid tax rises. Economic growth, while improving on paper, remains subdued, inflation has yet to return fully to target and the Government’s “fiscal headroom” – the margin it has available while still meeting its debt and borrowing rules – is at historically low levels. With key manifesto promises not to raise Income Tax, National Insurance or VAT still firmly in place, the Chancellor’s room for manoeuvre was always limited, and the question became less one of whether a rabbit would be pulled from the hat, but whether there was even a hat left to reach into.

In a bid to stimulate growth, there were a myriad of technical announcements for the policy experts to pore over covering investment in skills, business support and infrastructure, and including a three-year exemption on Stamp Duty Reserve Tax for new UK market listings. Immediate market reaction signalled acceptance rather than alarm, with government bond yields remaining steady.

Pensions and Salary Sacrifice

Turning to personal finance, it is notable that speculation didn’t entirely translate into policy. Despite insistent rumours we were reassured to note that the pension tax-free cash limit has not been reduced, with the standard lump sum allowance remaining at £268,275. Similarly, the pension contribution annual allowances, and the related tapering thresholds, will all remain at their current levels. This continuity should offer a degree of reassurance to pension savers.

However, pensions did not emerge fully unscathed. As anticipated, the Chancellor has set her sights on Salary Sacrifice, a mechanism which allows employees to pay into their workplace pension out of pre-tax income. As well as being a neat way of granting income tax relief on pension payments, both the individual and their employer also avoid national insurance contributions (NICs) on these payments. From April 2029, this NIC relief will be limited to the first £2,000 of pension contributions per person.

For an employee paying a typical 5% of their salary into a workplace pension, this measure would begin to bite at an annual salary of just £40,000 – an amount only a touch higher than the median gross annual salary for full-time employees (c.£39,039 in April 2025), and potentially dampening enthusiasm for long-term saving. The effect of fiscal drag would be expected to bring even more individuals above the £2,000 threshold over the next three years before this change takes effect.

Details of how the NIC relief cap will be administered have yet to be announced, with legislation to be introduced in due course, but it is reasonable to expect that the burden will fall upon employers.

ISAs

Next in the firing line were ISAs, with the allowance for Cash ISAs reducing to £12,000 from April 2027. The overall ISA limit will remain at £20,000 but requiring at least £8,000 to be allocated to a Stocks and Shares ISA to take full advantage of the allowance. An exemption to this rule will apply for the over-65s, bringing an unwelcome level of complexity to the ISA system. Questions also remain over whether future rules will be put in place to prevent cash-like assets (for example, money market funds) being sheltered within a Stocks and Shares ISA.

For reference, we are pleased to confirm that the limits for the Lifetime ISA (£4,000) and Junior ISAs (£9,000) are unaffected and have been set at their current levels until April 2031, although continued inflation will erode their real value.

Property income

On a similar note, a continued freezing of the existing income tax, NIC, capital gains, and dividend thresholds came as no big surprise, with the lock on income tax thresholds now being extended through to April 2031.

With the pledge not to raise income tax, NICs or VAT still in force, and no sign of significant spending cuts, those of us watching the speech live were waiting for the other shoe to drop. This came in the form of a straightforward tax rise on unearned income with, for the first time, a separate tax rate being created specifically for property income.

These rates will be 2% higher than those for earned income – a basic rate of 22%, a higher rate of 42% and additional rate of 47% – for both property and savings income, taking effect from April 2027. Dividend tax rates will also be increased from April 2026 by 2% (to 10.75% for basic rate and 35.75% for the upper rate) with only the highest additional rate remaining unchanged.

The new tax rates are, on balance, preferable to some of the proposals which were discussed before the budget (charging NICs on property income, for example) but will, of course, still have a direct impact on those who rely on such income to meet their ongoing expenditure. It is also reasonable to expect this to add further strain to an already stretched private rental market. The only saving grace being a meaningful amount of lead time to allow those affected to plan accordingly.

Venture Capital Trusts and Enterprise Investment Schemes

Sticking with income tax, one minor change which has gone under the radar related to the rules governing Venture Capital Trusts (VCTs) – a longstanding scheme designed to promote investment into early-stage UK businesses. Alongside measures to expand the scope of this scheme, allowing companies to continue to raise capital as they grow beyond the startup phase, the amount of upfront income tax relief available to investors has been quietly reduced from 30% to 20%.

The stated aim of this reduction is to better reflect the risks involved to investors, and to ensure that investors into riskier Enterprise Investment Schemes (EIS) are incentivised by keeping tax their relief at 30%.

The ‘High-Value Council Tax’

Threats of a so-called “mansion tax” on high-value properties turned out to be just that, with a concession to the Labour backbenches being the introduction of a “high-value council tax” surcharge of £2,500 for properties worth more than £2m, increasing to £7,500 for properties worth over £5m, and taking effect from the 2028-29 tax year.

The relatively long lead time seems indicative of the likely difficulty in implementing such a charge, given that current council tax bands are based on values dating back to 1991. The Government’s official Budget document only confirms that “this charge will be based on updated valuations to identify properties above the threshold ”, with a consultation on the details of how this charge might be delivered to follow in the new year.

In short…

For all the political choreography, yesterday’s measures did little to alter the underlying landscape. Growth remains subdued, the tax base is increasingly strained, and the Chancellor’s room for manoeuvre is narrowing as demographic pressures and existing commitments tighten their grip. Some may welcome the avoidance of immediate pain; others will note that choices have simply been deferred rather than resolved. In truth, the music hasn’t stopped; the pressure remains. Markets, taxpayers and pensioners will be listening closely for what happens next.