Autumn Budget 2025: the key takeaways for savers and investors

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Kyle is joined by Craig Rickman to cover the personal finance contents of the famous red briefcase. The duo discuss the cut to the cash ISA allowance, reform to the Lifetime ISA, changes to pension salary sacrifice contributions, an extension to the freeze on income tax thresholds and higher dividend and savings tax rates.

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest On the Maoney podcast, which is a weekly look at how to make the most out of your savings and investments.

In this episode, we’re going to be covering the personal finance content of the famous red briefcase, which was opened earlier than it should have been as lots of the contents and policies were announced early in error by the independent fiscal watchdog, the Office for Budget Responsibility (OBR), prior to Chancellor Rachel Reeves stepping up to deliver her Budget speech.

We’re going to be covering the announcements that impact savers and investors, and joining me to provide his expert insight is Craig Rickman, personal finance editor at interactive investor. So, Craig, the Budget, it’s always a busy time for yourself, and you penned a couple of news analysis pieces on the day of the Budget, which can be found on the ii website, which is ii.co.uk.

Craig, could you give us a very brief rundown of the main Budget takeaways for savers and investors?

Craig Rickman, personal finance editor at interactive investor: I sure can. So, here are four key policies that were announced. So, the deep freeze on income tax and national insurance thresholds, that’s going to be extended by a further three years. The cash ISA allowance for those who are under age 65 will reduce to £12,000 in the future. The overall £20,000 ISA allowance will remain.

There’s going to be a £2,000 cap on pension salary sacrifice contributions. And, also, the rates of tax on dividends, on savings interest, and property income are all due to rise in the future as well.

Kyle Caldwell: Let’s move on to talking through each of those key announcements/reforms in more detail. Let’s start off with the cash ISA. So, there were lots of rumours and speculation ahead of this Budget that there would be some sort of change to the cash ISA allowance.

And it was announced that the cash ISA allowance will be cut to £12,000 a year from the current level of £20,000 per tax year. It’s going to happen from 6 April 2027, so it’s not going to impact this tax year or the next tax year, it’s going to impact the following one.

It was also announced that if you’re aged 65 or over, you’ll still be able to put a maximum of £20,000 into a cash ISA in a tax year if indeed you wish to do so.

For me, I think this is a very sensible move as I think those in retirement arguably have a greater need for more accessible and lower-risk savings, which is what a cash ISA provides.

In terms of the annual subscription limits, it was also announced that the ISA will remain at £20,000 a year. The Lifetime ISA will remain at £4,000 a year, although there are going to be some reforms to the Lifetime ISA, which we are going to talk through a bit later.

The Junior ISA and Child Trust Funds will also remain at £9,000 a year. All those allowances are going to be frozen at those respective levels until the 5 April 2031. So, that means that the annual ISA allowances will have been frozen overall for 14 years.

Going back to the cash ISA, so from 6 April 2027, if you’re under the age of 65 and you want to use the full £20,000 ISA allowance, £8,000 of that will have to be in either the stocks and shares ISA or the innovative finance ISA.

So, Craig, the hope of the government is that a lower cash ISA allowance will encourage more money to go into the stocks and shares ISA version, and that it’ll incentivise more people to consider investing.

What are your thoughts, Craig, on this aim?

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Craig Rickman: Well, ultimately, time will tell, but merely reducing the cash ISA limit, how much is that going to move the dial for investors? I’m not sure a great deal.

I think the government will be hoping that reducing the cash ISA allowance, together with some of the other initiatives that they’ve launched, will have an impact.

So, during her Mansion House speech, Rachel Reeves announced that in the future, they’re going to look to change the narrative around investing risk warnings to try and promote the benefits.

There’s also the Targeted Support regime, which is going to be rolled out from April, which is a way for providers to help guide savers and investors towards appropriate financial products, and that might be guiding them towards perhaps a stocks and shares ISA instead of a cash ISA.

So, I think the government is probably looking at these things in aggregate to try and help funnel more money into the stock market for that dual aim to try and help improve saver returns and also boost the UK economy.

But, yeah, time will tell whether that works or not. The big thing for me is that people aren’t just going to invest in the stock market, or lots of people aren’t, purely because there are tax breaks for doing so.

They need to understand the benefits of investing their money over the long term versus keeping it in cash. So, broadly, that’s the big challenge that needs to be tackled.

Kyle Caldwell: I completely agree, Craig. I think the big challenge, as you say, that needs to be tackled is education, and education around the benefits of long-term investing, and education around the fact that investing isn’t scary, isn’t something to be frightened of. It can be a real power for good over the long term if you follow the fundamental investment principles.

There are various golden rules with investing, which we speak about regularly on this podcast, and we write about a lot on ii.co.uk, such as the benefits of compounding, which is achieved through investing over the long term; diversification, which is owning a mix of different investment types that gives your portfolio ample opportunity to grow, but also safeguards against the risks when stock markets go through trickier periods.

When there’s a Budget, I get a lot of emails, and I’ve seen viewpoints from both sides of the debate. So, just to spell them out, some comments that arrived in my inbox yesterday were pointing out that the money that’s not put into cash ISAs is going to end up in taxable savings accounts.

And then I saw comments on the other side, saying that cutting the cash ISA limit is a milestone towards creating a nation of investors.

For me, I’m somewhere in the middle of those two viewpoints. If you’ve got the means, and the spare cash, and it’s not going in a cash ISA, I think it might make you think more about potentially investing. You might think, OK, what is this stocks and shares ISA? How can it benefit me?

And you might go away and learn and understand more about it. But for me, there’s the education gap that needs to be addressed first before people then commit to do that.

Craig Rickman: The other thing to note as well is that from when ISAs were launched in 1999 all the way up to 2014, the cash ISA allowance was smaller than the overall ISA limit. So, that was changed in 2014, and the limits were brought in line. So, this is going back to the old regime rather than a new one.

There’s another question around this, which involves ISA transfers, and I haven’t seen the answer to this yet. Before 2014, because the cash ISA allowance was smaller, you couldn’t transfer from stocks and shares to a cash ISA. The reason for that is because otherwise, you could fill up your ISA in stocks and shares and then immediately transfer to cash in a way to circumvent the rules.

So, it’ll be interesting to see what happens with that and whether stocks and shares to cash ISA transfers will indeed be permitted in the future.

Kyle Caldwell: I think it adds a bit of extra complication to the ISA regime in terms of how it is going to be administered in future. Now that the allowances aren’t exactly the same, who’s going to keep on top of that? Is the onus going to be on individuals to keep on top of that, or will it be on providers?

Going back to my points on the education gap, I just wanted to point out that I think for investors that are considering a first move out of cash, one potential starting point, if you’re looking for a cash-like product would be a money market fund. So, these funds invest in very short-term bonds, which are essentially IOUs issued by governments or companies.

These funds they tend to produce a cash-like return, and their returns generally tend to be in line with whatever the Bank of England’s base rate is. So, if the base rate’s 4%, the level of income that’s being produced by these funds, which is not guaranteed, will be around 4%.

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These funds are the most cash-like type of funds that you could go into. They are a step up from cash, but that would be the next step from cash.

In terms of other types of funds, I’d suggest investors go away and look at multi-asset funds. I think they’re a great starting point for investors, particularly for risk-adverse investors, because they give investors ready-made diversification as they own a mixture of shares and bonds. They typically have different risk levels.

It’s important to look under the bonnet, look at how the fund invests, and be comfortable with the level of risk that’s being taken. But they’re the types of funds I would suggest as starting points for investors who have only ever been in cash, and are looking to take a level of risk up from cash.

Let’s now move on to another change to ISAs, Craig, which I very briefly mentioned, and that is the reforms that are going to be made to the Lifetime ISA. The details are very thin on the ground at the moment, but there was a little bit of detail in the Budget documents that followed the speech.

So, Craig, it’s been a long time coming these reforms to the Lifetime ISA. There were two major problems with that type of ISA. Could you run through what those problems are and what was said in the Budget documents following the speech about the potential reforms to the Lifetime ISA?

Craig Rickman: Yeah, sure. The Lifetime ISA has been under review since the start of the year. The Treasury Select Committee has been looking into the viability of the product and whether it’s fit for purpose. So, just a brief overview of how it works and what the whole product is about.

It has a dual purpose. So, you can either use it to buy your first home or use it to save for retirement. So, if you don’t use it to buy a first home, you can access it at age 60. The big perk with the Lifetime ISA is you get a bonus on what you put in, which is 25%.

So, you can put £4,000 in every year and get up to £1,000 bonus to help you along your way towards your goal, whichever those two goals that it is.

There are a few problems with it. The first is that there’s a maximum property price that you can use the product to buy, and that’s £450,000. That’s been fixed since the product was launched in in 2017, which could pose a problem for those in London and the South East.

Another big problem is that there’s an early withdrawal penalty. So, if you don’t use your Lifetime ISA to buy a first home, or if a home is worth more than £450,000, or you access it before age 60, there’s a 25% penalty on whatever you’ve got in there. They’re big problems.

Another one is that you can’t open one after age 40, and you can’t pay into one after age 50. So, as many other commentators have said, it’s a bit of a confused product, hence why the Treasury Select Committee has been looking at it. I guess they have a few options - either keep it as it is, reform it, or scrap it.

Kyle Caldwell: The only detail that was really in the document following the Budget was that there’d be some sort of product that would help people get on the property ladder for the first time. The retirement goal aspect of the Lifetime ISA wasn’t mentioned at all.

I’m assuming, going forwards, however that ISA changes, it may end up going back to something like the previous Help to Buy ISA, which was designed for someone to use to get on the property ladder for the first time.

Craig Rickman: Yeah, that seems like the way that they’ve gone with it and decided that to try and serve those two purposes, it perhaps doesn’t quite work in a single product. For the majority of people who use a Lifetime ISA, buying a first home is their objective.

Kyle Caldwell: So, while there are potential changes on the way for the Lifetime ISA, one thing that’s not changing is income tax thresholds – they are going to remain frozen. Craig, could you run through the details? How much longer are they going to be frozen for? And what impact does this have on workers?

Craig Rickman: Sure. So, there were rumours before the Budget that the deep freeze on income tax and national insurance thresholds would be extended by a couple of years, but the government has gone a step further and prolonged the freeze by three more years. So, this was a policy from the previous government. They froze income tax and national insurance thresholds in 2021, and that was due to continue until 2028. But now, it’s going to continue until 2031.

The upshot here is that as people’s incomes naturally rise over time, more of their income will either trip into higher rates of tax, or be exposed to tax. So, it’s a stealthy way for governments to raise tax revenues without pushing up the headline rates of tax.

It is a controversial move, particularly in the scope of the election manifesto where they promised not to raise taxes on working people. You don’t have to raise the headline rates of income tax and national insurance to increase workers’ bills, and this is one way of doing it. So, it does arguably break the election manifesto pledge.

Out of all the Budget measures, this is the most lucrative for the government to give you an idea of how big the impact will be. Over time, there are going to be lots more people who end up paying income tax who weren’t before.

More and more people are going to trip into the higher rate of tax and also some more people into the additional rate tax as well, plus get caught out by a couple of tax traps that exist in the tax system as well.

So, this can have a particularly big impact on people’s money over time. The longer tax thresholds are frozen, the bigger impact it has on our finances. So, yeah, this is a big policy.

Kyle Caldwell: So, in short, the freezing of the income tax thresholds means that if you get a pay rise, a bigger proportion of that pay rise is going to be lost to tax.

Now, there were no changes to the headline rates of tax for basic-rate, higher-rate, and additional rate taxpayers - they all remain the same. There were lots of rumours ahead of the Budget that the basic rate of tax might go up by a penny, but that didn’t happen.

What also didn’t happen, Craig, were any changes to the pension rules in relation to the tax-free lump sum. There were lots of concerns and fears that that might be meddled with. 

There were also no changes to the pension tax system in terms of pension tax relief. Again, there were rumours that the higher rate of tax, the 40% rate, may be changed in regards to pension tax relief, and that there might be a system introduced in terms of a flat rate of pension tax relief. However, there were no announcements.

But there was a change to salary sacrifice in relation to pensions. Craig, to start off, could you explain what this arrangement is, and why some employers use pension tax relief?

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Craig Rickman: Yes, so pension salary sacrifice is essentially an arrangement between you as a worker and your employer to trade a portion of your salary for a pension payment.

Essentially, the idea with salary sacrifice is that the same amount goes into your pension, but because you’re getting paid a lower salary, or accepting a lower salary, you save on national insurance. And your employer saves on national insurance as well. So, it boosts your take-home pay, and your employer pays a bit less tax.

Those schemes have been pretty popular with employers and beneficial for businesses and their staff alike to save money into pensions and also put a bit of extra money in workers’ pocket.

So, one of the big announcements on Wednesday was that there’s going to be a cap on pension salary sacrifice, which is due to come in in April 2029, and the cap will be £2,000.

What this means is that any salary sacrificed for pension contributions above that £2,000 figure, will suffer national insurance. So, the rates of national insurance for a basic-rate taxpayer is 8%, on anything above the higher-rate tax band, which is £50,270, national insurance drops quite significantly, actually, to 2%. For employers, the rate of national insurance is flat, it’s 15%.

So, there were a lot of rumours about this in the lead-up to the Budget, so it wasn’t a huge shock when it was announced. But there are some big concerns about the impacts that this change could have on workers and chipping away at the incentives that help people save for retirement. What impact is that going to have on people’s future incomes and future retirement pots?

What’s going to happen to workplaces? Are they going to revisit how they offer pension contributions? Might they not be as generous as they have been in the past? And what could be the impact on the wider economy?

So, there’s quite a lot of concerns about the impacts that this may have. There’s still three and a bit years before this comes into play, so I’m sure that businesses will be working out what to do. But it is potentially another tax hike on businesses, which are already facing higher national insurance bills due to the reforms at last year’s Budget.

Kyle Caldwell: The calculations show that one in four workers earning less than £50,000 will be worse off under this scheme. Is there also a risk that some people will just disengage and be less incentivised to save towards their retirement?

Craig Rickman: Yeah, there is the risk of that. If you’re eroding the tax advantages of pensions, then there’s always a risk that it’s going to turn people off, and they’re not going to perhaps save as much for retirement as they would have done otherwise.

Obviously, we hope that that doesn’t happen because there’s plenty of data that predicts that future retirees are going to be potentially worse off than those that are there already. Some figures from the government show that.

So, there needs to be this big push to try and foster the required levels of engagement to help people save enough to live comfortably in retirement.

So, there’s the risk of that, obviously we hope it doesn’t happen, but yeah, that is one of the potential drawbacks of this policy.

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Kyle Caldwell: Let’s move on to a more positive announcement, although I would like to see the government go further than this in future.

So, as part of its aim to stimulate more investment, particularly on these shores in the UK, it was announced that there will be a three-year stamp duty holiday on newly listed company shares.

So, investors will be exempt from the current 0.5% stamp duty charge for up to three years after the listing. Now, while this reform is welcome, I personally think - and I know it’s a viewpoint that’s shared across interactive investor as well - that the government should go further and scrap stamp duty overall on UK shares, including investment trusts.

I just feel that why is there this barrier to investing in our home market? The government wants to make us more of a nation of investors and, ideally, wants to increase investment in our own home market. Why are investors being penalised? Why are we having to pay this stamp duty on UK shares? If stamp duty on UK shares is scrapped, that’s only going to encourage greater levels of investments in our own home market.

I’m going to quote our chief executive, Richard Wilson, on this matter. He said, ‘If the government thinks that retail investors are the answer to boost the UK stock market, then it seriously needs to go and look at scrapping stamp duty. It’s an outdated and irrational tax that is bad for liquidity and bad for growth. It is suffocating investments in British businesses, and it has to go.’

Now, while our three-year stamp duty holiday for newly listed shares is a positive, there was also other announcements that were negative for investors, including the fact that the dividend tax is going to go up by two percentage points.

And for savers who go over the personal savings allowance, they’re going to be hit with paying two percentage points more in future than they currently pay.

Craig, could you talk us through both of those? For me, it feels like the government on the one hand is trying to encourage greater levels of investments. But on the other hand, they are putting these measures in place that are making it less favourable.

Craig Rickman: Indeed, yeah. There was actually a third tax where the headline rate’s going to go up, and that’s on property income.

I don’t think there were any big shocks in the Budget, but these were some of the more eyebrow-raising ones.

There had been some rumours about increases to dividend tax that emerged a few days before. They pointed towards a four percentage-point hike. So, it hasn’t been quite as extreme as what the pre-Budget rumours suggested.

But, yeah, a two percentage-point increase to dividends. Who would that affect? That would affect investors with holdings outside tax wrappers. It would also affect small business owners as well who use private limited companies, and they use that business structure to draw a small salary and the rest in dividends. So, both those groups could face higher taxes from when they are implemented.

What we should also note as well is that the dividend allowance, so the amount that you can earn in dividends every year tax free, has been hacked away over the years.

If we go back eight years, it used to be £5,000. You could have £5,000 worth of dividends and pay no tax at all. It now stands at just £500, so it’s a 10th of what it used to be.

Kyle Caldwell: Another change that’s going to impact a small, but not insignificant, number of investors are those [affecting] venture capital trusts, which are known as VCTs.

So, what these products do is provide upfront tax relief for investors to put money into early stage UK businesses. Now, that upfront tax relief is going to be cut from 30% to 20% - that was announced in the Budget.

Back in the day, that upfront tax relief was a lot higher, it was 40%. So, going forward at 20%, that’s a lot less attractive.

There are also some other changes to VCTs. So, the investment limits and the increase in size of companies that VCTs can invest in, they’re both going to be expanded. However, at the same time, the upfront tax relief investors receive is going to be cut from 30% to 20%.

For me, this is potentially another example of the government trying to do one thing, but then not doing another. So, they’re curtailing the tax relief that investors receive for backing smaller UK businesses. But then at the same time, they’re reducing the cash ISA limit to try and encourage greater investment, and greater investment in the UK. They just both don’t seem to add up to me. For me, it’s one hand not talking to the other.

Going back to the changes to pensions in relation to salary sacrifice, again, I feel like that could discourage some people from engaging with their long-term pensions.

I just feel that there are some contradictions at the heart of the government’s policy to try and turn us into more of a nation of investors.

Craig Rickman: Absolutely. If you’re taking tax-efficient products and making them less tax efficient, then they’re going to be less attractive for investors. With VCTs, history shows that investors are sensitive to changes in the upfront rates of tax relief. When it becomes more generous, you see flows into VCTs, annual flows tend to increase. When they become less generous, they fall. So, that in itself backs up your point.

Kyle Caldwell: So, the last item on my Budget bingo card is the state pension.

It was confirmed that the government will continue to honour the pension triple lock. As a result, the state pension will rise by an inflation-beating 4.8% from next April, as the element of the triple lock that’s being used is wage increases, for the third year running. Craig, anything further to add?

Craig Rickman: It’s obviously good news for anyone in receipt of the state pension, particularly those on the lowest incomes who rely heavily on it. That will provide a welcome boost for them in the bid to keep rising costs at bay, which are still increasing faster than, particularly the Bank of England, would like.

Let’s have a quick look at the figures and what this is going to change with the state pension. So, the annual full state pension will increase from £11,973 to £12,547, while the old state pension, which is paid to those who reached state pension age before April 2016, will increase from £9,175 to £ 9,616. So, some healthy increases there.

We expected the triple lock to stay for this parliament. So, no big surprise that the government has rubber-stamped it. The longer-term future of the triple lock, we will have to wait and see.

Kyle Caldwell: Craig, thank you for joining me and talking through those key policy announcements related to savings and investments in this year's Budget.

Craig Rickman: Thanks a lot as always.

Kyle Caldwell: And thank you for listening to this episode of On the Money. If you enjoyed it, please let us know what you think. You can comment on your preferred podcast app, and if you’d like to leave us a review or a rating, that would be much appreciated.

In the meantime, you can find more practical pointers and analysis on the interactive investor website, which is ii.co.uk.

We’ll be back next Thursday, and I’ll hopefully see you again.