Budget “rapid reaction”

Budget 2025: “rapid reaction” from Shackleton – Britain’s financial adviser

The run-up to the 2025 Budget may have been characterised by greater conjecture about what would, or wouldn’t, be announced than in perhaps any other “pre-fiscal event” period in the UK’s modern political history. The last-minute leak of the Office for Budget Responsibility’s forecasts only added to the sense of anticipation of what would be revealed.

But, for better or for worse, the Chancellor has now delivered her statement, and the official “Red Book” of policy announcements (all 146 pages of it, in addition to supporting documentation) has been published on the Government’s website.

If anything was a foregone conclusion it was that, one way or another, taxes were going to rise overall. Speculation ahead of today related overwhelmingly to the matter of where the hikes would be targeted, rather than to whether they were coming. Now, at least, we know the facts. Digesting the full implications of the policy changes will take some time, but we are nevertheless pleased to share here the initial reactions of a group of Shackleton’s financial planning and investment experts to some of today’s most prominent revelations.

If you are an existing Shackleton client, and you would like to discuss the impact of the Budget on your individual, long-term financial plans, we encourage you to contact your adviser – they will be delighted to help you to consider your options in light of this new information. If you are new to financial planning, are concerned about the announcements in the Budget, or would simply like to find out more, then please don’t hesitate to get in touch with us. Please remember that it is important that any financial plans take your individual circumstances into consideration. As such, the comments provided below are for general information only, and do not constitute financial advice.

 

CONTENTS

1. PENSIONS
2. INCOME TAX AND NATIONAL INSURANCE
3. INDIVIDUAL SAVINGS ACCOUNTS (ISAs)
4. INHERITANCE TAX, ESTATE PLANNING AND GIFTING
5. CAPITAL GAINS TAX
6. VAT
7. EMPLOYEE BENEFITS – IMPLICATIONS FOR EMPLOYERS AND EMPLOYEES
8. RESIDENTIAL PROPERTY AND MORTGAGES
9. UK ECONOMY, FINANCIAL MARKETS AND INVESTMENTS
10. OTHER TAXES AND ALLOWANCES

 

1. Pensions

Comments from Paul Wingham, Head of Advice Process and Proposition

Pension Commencement Lump Sum or “Tax-Free Cash”

• At one stage, there was considerable speculation that the Government would remove or reduce the generosity of the tax treatment relating to the Pension Commencement Lump Sum (or “PCLS”), as the pension “tax-free cash” allowance is officially known.  However, for those making contributions through salary sacrifice, the overall contributions could reduce from 2029, in turn impacting the overall pension fund and of course, how much Tax-free cash is available.  Pensions however remain a great place to save for retirement for many of us.

State Pension

• The commitment to the state pension triple lock remains intact, with a previously announced increase of 4.8% going ahead in April 2026.  Furthermore, people only in receipt of a State Pension, do not have to pay small amounts of tax through simple assessment from April 2027.  Whilst this is good news, those with income from multiple sources may still need to submit a tax return.

Pensions and Inheritance Tax

• Please see the section titled “Inheritance tax, estate planning and gifting” below for comments about previously announced changes to the tax treatment of residual pension assets on death. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

 

2. Income Tax and National Insurance

Comments from Adam Ryan, Head of Employee Benefits

• Perhaps the most controversial of all the mooted policy changes in the run-up to today’s Budget were increases to personal income tax and/or National Insurance contributions.
• In the end, the Chancellor decided that such a manifesto-busting policy would have been a step too far.
• Nevertheless, the existing income tax thresholds freeze was extended for a further three years beyond the planned date of 2028, up to 2031.
• This change means, growth in wages will push individuals into higher tax bands via so-called “fiscal drag.”
• Please remember that income tax rates and thresholds in Scotland and Wales are a partially devolved matter, and are thus set independently of the rates and bands applicable in England and Northern Ireland.

 

3. Individual Savings Accounts (ISAs)

Comments from Richard Hansell, FPFS, IMC, Head of Wealth Management, Chetwood Wealth Management (part of Shackleton – Britain’s financial adviser)

• Today the chancellor announced that, from April 2027, she would cut the Cash ISA allowance for under 65s to £12,000, a reduction from the previous allowance of £20,000. Whilst you will still be able to place £20,000 a year into an ISA wrapper, your remaining £8,000 would need to be invested in an Investment ISA.
• The immediate reaction is twofold. Firstly, if under 65s want to utilise a full personal ISA allowance they must now consider equity risk. Whilst this can come in many different formats, without guidance, a move toward higher‑risk investments without personalised financial education is dangerous. Secondly, it may unintentionally tighten mortgage funding by shrinking building societies’ access to cheap retail deposits. The headline might be ISA allowance cuts, the long-term damage may be in lending – not saving.
• Building societies rely on Cash ISA inflows as a stable source of funding for mortgage lending; the lower cash allowance could reduce those inflows, potentially increasing mortgage pricing or shrinking product availability if alternative funding is costlier. Analysis cited by the Building Societies Association suggests that a meaningful diversion from Cash ISAs could reduce available mortgage funds and further weigh on housing activity and growth.
• The chancellor’s hope is that investors do indeed turn to equity investment and boost UK markets with fresh inflows. Her measures to reduce money held in cash did not stop there, as she also announced that from 2027, saving income tax rates would each go up by two percentage points. Income tax on savings would therefore be 22%, 42% and 47% for basic, higher and additional rate taxpayers, respectively.
• Currently, the UK market is a paltry 3% of global market indexes, compared to over 70% in US markets. This may be the plan, but parliament’s Treasury Committee and market participants caution that trimming the cash cap is unlikely to materially boost equity participation or direct more money into UK shares, meaning the policy may miss its growth objective while adding household risk.
• Without parallel improvements in financial education and investor confidence, forcing a shift in equity investment via reduced cash allowances can backfire by exposing unsuitable investors to equity drawdowns, without the discipline to take a long-term view and to stay invested during times of market volatility. Having a financial plan and a partner in helping you make the right decisions for you is key. Whilst the chancellor announced today that online hubs will be launched by various ISA providers, there has never been a better time for financial advice in this area.
• Clients still have access to £9,000 a year for Junior ISAs – for children and grandchildren up to the age of 16. Utilising tax-free investment allowances within an acceptable risk profile remains a key part of a long-term financial plan.The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

 

4. Inheritance tax, estate planning and gifting

Comments from Paul Wingham, Head of Advice Process and Proposition

Inheritance Tax and pensions

• Although not an announcement in the 2025 Budget, this is nevertheless a timely reminder of changes announced in the Autumn 2024 Budget which mean that, from 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax (IHT) purposes. From 6 April 2027, any unused pension funds left behind will be considered part of an estate and may be taxed at 40% if the total value of the estate exceeds the IHT threshold.
• Existing rules mean that pensions normally fall outside the estate liable to IHT. Benefits paid after age 75 are subject to income tax for beneficiaries, meaning IHT and income tax may be payable after April 2027, so getting personalised advice is key.
• While pension wealth will (from April 2027) be brought into scope, the usual IHT exemptions will continue to apply. A surviving spouse will not pay IHT on anything received, regardless of the amount, as long as both spouses are UK-domiciled for tax purposes.
• Under the latest proposals, personal representatives (the people managing the estate) will be responsible for reporting and paying any IHT due on pensions.
• Whilst this law is yet to come into effect, for many people it is likely that the planned changes should form part of considerations when making long-term financial plans. In general, we continue to consider pensions to be an excellent way of meeting income needs in retirement in a tax efficient way. We strongly recommend that any new financial plans made in response to the upcoming changes, as well as any changes to existing plans should be made only based on carefully considered and individually tailored advice. If, for any reason, current planned legislative changes are either not enacted or are changed, those making changes to their financial plans may find that they cannot subsequently “undo” their actions. As with so many decisions, the “right” course of action will almost invariably depend on an individual’s personal situation and attitude to risk.
• Aside from these previously announced changes to pensions, the budget announced no new changes that directly impact inheritance tax. The Financial Conduct Authority does not regulate tax advice or estate planning.

 

5. Capital gains tax

Comments from Hayden Fisher,  Financial Adviser & Regional Manager

• Capital Gains Tax (CGT) relief on business sales made to employee ownership trusts will be halved with immediate effect. Previous relief meant that these sales were exempt from CGT, and will now attract a tax rate equivalent to 50% of the normal rate.
• The headline rates of CGT for other disposals remain unchanged, following the changes announced last year where CGT rates were aligned with those which apply to residential property disposals.
• This has been a popular tax to target over recent years with CGT allowances having been reduced and changes to Business Asset Disposal Relief which were also announced in 2024.The Financial Conduct Authority does not regulate tax advice or estate planning.

 

6. VAT

Comments from Paul Wingham, Head of Advice Process and Proposition

• There was no change to the headline rate of VAT, which will be a relief to many.

 

7. Employee benefits – implications for employers and employees

Comments from Adam Ryan, Head of Employee Benefits

• From 2029 Salary Sacrifice contributions into pensions will be capped at £2,000 per year; anything above this will attract National Insurance contributions – employees will be able to pay more and still receive income tax relief within normal allowances.
• The salary sacrifice reforms announced in the Budget today have a significant impact on the employers and employees alike. Among the clients that we support, in excess of 50% of employers offer salary sacrifice with a large number of these reinvesting the NI savings in other employee benefits or the employees’ pension pot.
• Salary sacrifice has historically been used by employees to maximise their pension savings and manage their personal finances. This will mean that individuals need advice and guidance more than ever, to understand how this is impacting their retirement projections and plans for the future.
• These changes will also see an increase in the employer national insurance contributions payable, which will in turn impact the amount of money available for employers to reinvest in their employees. This emphasises the importance of regular reviews of existing benefits to ensure the cost of benefits is contained.

 

8. Residential property and mortgages

Comments from Stuart Williams, Head of Wealth Builder, Zoe Ealey, Head of Mortgages, Anna Needs, Mortgage Adviser and Jonathan Birkett, Mortgage, Equity Release & Protection Adviser

• Other than the announcement of a new ‘high value council tax surcharge’ for those with homes valued over £2m, the wider property market has navigated the chancellor’s budget announcements largely unscathed. The new tax, dubbed a ‘mansion tax’ will come into effect from April 2028 onwards, and is set to cost impacted homeowners between £2,500 to £7,500 per year in addition to their existing council tax rates. There are four bands relating to properties valued between £2m and £5m, and the surcharge is forecast to raise circa £400m for the exchequer.
• Although there are national implications, it will hit hardest in London and the southeast where property prices are typically higher. Asset-rich and cash-poor homeowners might be able to draw additional income to meet the increased expenditure, although this could impact the sustainability of their wider financial plans. Some might choose instead to downsize, potentially leading to ripple effects in the wider property market.
• Homeowners with higher value properties will benefit from obtaining an up-to-date valuation of their property and should seek guidance and advice from their Financial Planner to see how this change impacts their wider arrangements.
• There were no changes to Stamp Duty Land Tax (SDLT) linked to property transactions in England and Northern Ireland, Land and Buildings Transaction Tax (LBTT) in Scotland, or Land Transaction Tax in Wales.
• Landlords, who have felt the squeeze from tax changes in previous budgets, now have another stone in their shoe. In addition to the upcoming changes in 2026 under the Renter’s Rights Act, they now need to contend with a 2% increase to tax on their rental income, pushing the basic, higher, and additional rates to 22%, 42% and 47% from April 2027. The Office for Budget Responsibility (OBR) has recognised this will hit Landlords in the pocket and is likely to force up rents as they look to protect profit margins, potentially adding £20–£25 per month to typical rents in England. Any Landlords considering selling residential property will need to consider the impact of capital gains tax on disposal but could ultimately benefit from wider investment diversification and potential tax advantages of investing their funds elsewhere.
• Any decisions will need to be evaluated against the individual’s circumstances and objectives, and professional advice should be sought before any decisions are made.
  Alongside the announcement about reducing the Cash ISA subscription limit to £12,000 for those under age 65 from April 2027 onwards, there was some small print confirming that Lifetime ISAs are being scrapped. This, along with the reduced Cash ISA subscription, could impact the ability of would-be homeowners to save their deposits. The government acknowledges this potential issue and are lining up a replacement ISA product, with details to follow in early 2026.
• The OBR’s inflation forecast is 2.6% in 2026, representing an increase of 0.4% from their previous forecast in March 2025, although they still predict a return to the target of 2% in 2027 and beyond. The wider outlook for mortgage interest rates remains largely unchanged, with the Bank of England expected to balance any immediate inflationary pressures with caution, while continuing the policy of controlled rate cuts where appropriate.

 

9. UK economy, financial markets and investments

Comments from Charlie Lloyd, Head of Investments

• For financial markets, the main takeaway / surprise is that the Chancellor has increased her fiscal headroom to nearly £22bn, reducing the likelihood of further large tax raising measures in the near-term / future budgets. This may also provide some comfort to bond markets following the U-turn over increases to income tax.
• Furthermore, the announcements on rail fares, energy bills and fuel duty align with the governments objective to help with the cost of living. As a result, the OBR forecasts that inflation will fall by 0.4% next year, opening the door to the Bank of England delivering more cuts in interest rates than are currently priced in by markets. However, the OBR have downgraded their forecasts for future UK economic growth, providing a further incentive for the central bank to loosen monetary policy at their December meeting, and into 2026.
• Immediately following the budget, and after a period of volatility following the OBR debacle this morning, we’ve seen a mildly positive reaction from sterling and UK government bonds, with the extra fiscal headroom somewhat offsetting the reduction to the OBR’s UK growth forecasts for the period 2026 – 2029. The reaction from UK equities was somewhat muted initially, although the FTSE 100 and FTSE 250 have both edged higher since the Chancellor started her speech. There are also some notable sector moves.
• The main budget winners were the banks, with share prices rising in response to confirmation that the government would not impose a further levy on profits. However, the housebuilders saw sharp share price falls, perhaps reflecting some disappointment over the lack of any further support for first-time buyers, or stamp duty reform. Perhaps more surprising was the rise in share prices of gambling stocks such as Entain and Flutter, although the increase in gambling taxes was not unexpected.
• All in all, a reasonably positive reaction with UK assets broadly higher, although the detail of the budget and the OBR’s forecasts will be forensically examined in the coming days. UK equities may benefit from the prospect of the Bank of England reducing interest rates, beginning at their December meeting, followed by one or two further cuts in the first half of 2026. Consumer discretionary stocks will also welcome an improvement in consumer confidence and household spending as a result of lower inflation and a fall in borrowing costs.

 

10. Other taxes and allowances

Venture Capital Trusts & Enterprise Investment Schemes

Comments from Hayden Fisher,  Financial Adviser & Regional Manager

• The Chancellor confirmed her renewed support for Venture Capital Trusts (VCTs) & Enterprise Investment Schemes (EISs) today. However, there was bad news for VCT investors as upfront income tax relief has been cut from 30% to 20% from April 2026.
• The rules remain the same in that this is a tax reducer, i.e. you must have paid the amount of tax in that year to be able to claim relief, and your tax bill cannot be taken to below £0 as a result of this. EIS upfront income tax relief remains at 30%.

Business taxes

Comments from Martin Crawley-Boevey, Financial Adviser

• The Corporation Tax rate was maintained at 25%. The Chancellor also introducing targeted reliefs for SME and high street firms to support local businesses – welcome news for the high street!
• She also announced that she is maintaining the £1m Annual Investment Allowance for investment in businesses, and is bringing in a permanent 40% First Year Allowance for main rate assets – a boost for investment into UK businesses, but unlikely to impact on most people’s personal financial plans.
• Permanent lower business tax rates for over 750,000 retail, hospitality and leisure properties, worth nearly £900m a year from April 2026 were also announced.

 

Important information:

This communication is for general information, does not constitute advice, and is aimed at retail clients only. We strongly recommend that you speak to your financial adviser before making any decisions.

This commentary on the 2025 Budget was produced on Wednesday 26 November 2025. All references to tax treatment relate to UK taxation and are based on our current understanding of UK laws and HMRC practices. Tax reliefs may change in the future and may not be maintained. Tax treatment is based on your individual circumstances. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. Past performance is not a guide to future performance, and the value of investments and any income from them can fall as well as rise.

All information supplied is based on our understanding of current legislation and regulation, which may be subject to change. Although best endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received, or that it will continue to be accurate in the future. We cannot accept responsibility for any loss due to acts or omissions resulting from the content of this communication.

No statements or representations made in the communication are legally binding upon Shackleton Advisers Limited or the recipient.