UK Budget of Discontent: Key Tax Changes and Growth Forecast

“Now is the Winter of our Discontent…” no, not a line from Rachel Reeves budget but instead Shakespeare’s play Richard III, in which we are embroiled into a period of political uncertainty and general discontent, with various political machinations and rival factions battling for control…again I promise not modern Westminster; although in a peculiar turn of events the Duke of York is mysteriously vanished from public life within the play with some modern synchronicity and the OBR’s early release of the budget information is something out of a Shakespearian farce.

However, under the backdrop of extremely low government approval Rachel Reeves had set the scene as this being a budget aimed to tackle the NHS, National Debt and Cost of Living Crisis; with a gloomy ‘scene setting’ on the 4^th of November.

So, what were the big announcements and main takeaways from the Budget of Discontent:

Much Ado About Nothing

The main takeaway was the rumour mill and doom-mongering from income tax increases and tax-free cash being reduced or scrapped altogether did not materialise.

The budget we got was a highly technical, long-term approach to taxation. This should be a great lesson for future budget announcements – the headlines are not legislation and making decisions on headlines and not legislation leads to bad outcomes.

Growth! Growth! My Kingdom for some Growth!

The OBR not only released all of Rachel Reeves’ budgetary announcements but downgraded the growth forecast for the remainder of this parliament. Rachel Reeves defiantly said that they will outperform the forecast, but the reason for additional tax was absolutely led by this lack of growth in the U.K. economy.

From a personal finance perspective, the lesson should be that a lot of U.K. based investment funds carry a U.K. or ‘Home’ bias. This is still an active decision and leaves you open to regional fluctuations – diversify globally.

The better part of valour is discretion

The rumour mill pre-budget was that the government was ready to break the 50-year tax taboo of raising the basic rate of income tax. That did not materialise, but the chancellor decided that rather than a headline grabbing rise to income tax the more discrete choice was to freeze the tax-bands – a so-called ‘stealth’ tax.

For devolved governments they have discretion to set the income tax-bands within the region, but the U.K. government sets the Personal Allowance (£12,570) and starting rate for savings income (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers). Whilst not immediately painful, but as earnings increase across the U.K. the overall tax-take rises.

Similarly, the freeze on Inheritance Tax (IHT) Allowances, will see further growth on property, pensions and investments increase the IHT take and push more families into having a liability in the first place.

Our Griefs, Our Taxes

The direct tax rises were far more technical than the broad stroke tax rises speculated beforehand, but the ones that were announced yesterday were:

Dividends and savings tax

• From April 2026 there will be an increase in dividend tax of 2% on the basic and higher rates to 10.75% and 35.75%. Strangely the additional rate of 39.35% remains as is.

Rental income

• From April 2027 there will be an increase in England, property income tax to 22%, 42% and 47%.
• The government will engage with Scotland, Wales and Norther Ireland to provide them with the ability to set property taxes.

‘Mansion tax’

• A ‘high-value council tax surcharge’ (HVCTS) will be applied to properties in England (it is up to Scotland, Wales and Ireland if they adopt a similar tax), for properties valued over £2m.
• The tax starts at £2,500 per annum, rising to £7,500 per annum for properties worth over £5m.

Salary Sacrifice

• Previously salary sacrifice saved the employer and employee some National Insurance (NI), which may or may not be passed on the individual.
• From 2029/30 any salary sacrifices beyond £2,000 per annum will be subject to employer and employee NI.
• This is relevant to a small number of our clients and reduces the attraction of salary sacrifice. But note this is a few years away.

Employee Ownership Trusts

• Previously businesses being sold to an Employee Ownership Trust (EOT) benefited from 100% Capital Gains Tax relief.
• Following the budget, this has been restricted to 50% relief, with immediate effect.

Venture Capital Trusts (VCTs)

• Income tax-relief from VCTs will reduce from 30% to 20% from April 2026.

Alas, poor Cash ISA, I knew him well

Meddling with ISAs is not new (lest we forget the British ISA) but from 2027/28 we are getting into murky waters within the ISA world. Let me break it down for you: the amount you can allocate to a Cash ISA will be £12,000 from 6^th April 2027 but you will still have a £20,000 ISA Allowance so could contribute further to a Stocks & Shares ISA up to £8,000, unless you are over 65 and then you can use the full £20,000 in a Cash ISA. Lifetime ISAs will remain at £4,000 but are being looked at to simplify them and Junior ISAs remain the same £9,000 allowance – and don’t float the hypothetical of contributing to a Stocks & Shares ISA and then transferring to a Cash ISA (currently allowable) as that hasn’t been answered other than to say ‘further reforms may happen’ to restrict transfers. Clear?

Is there no news of good?

Not a lot from a personal finance perspective, but the welcome change was an introduction of an inheritable agricultural and business relief between spouses. This had been an outlier in terms of allowances on death, but this was a welcome immediate change to Agricultural and Business Relief.

With all Budget announcements, we will need to wait and see how the proposed legislation is implemented and wait for the detail to come down the track. If you are concerned or worried about the proposed changes, reach out to us to discuss how any of the changes may impact you directly.

The Chancellor has once again ruled out future tax-rises within the parliament, but if you think the lady doth protest too much then try and remember the headlines and theories that swirled around this budget and how they failed to materialise.

Important Note: This article is provided for information purposes only and should not be regarded as financial advice. Decisions should not be made based on this material without first consulting a qualified financial planner who understands your personal circumstances. Information is based on sources believed to be reliable, but accuracy cannot be guaranteed. This content is directed primarily at UK residents.