What does the Budget mean for you?

This year’s budget – the first from a Labour Chancellor in 14 years – was always going to be a big one. During the 76-minute speech, Rachel Reeves laid out her plans for the public purse and announced £40 billion of tax hikes.

Here we dig out the announcements that matter to you and the impact they will have on you and your finances over the coming years.

What's on this page? 

1. Inheritance tax
2. Pensions
3. Carer's Allowance
4. Savings and investments
5. Spending and transport
6. Employer's National Insurance contributions

Inheritance tax

Although Reeves didn’t take steps to fundamentally reform inheritance tax, she did announce four changes that could have an impact on those with estates above the threshold.

1. Inheritance tax on pensions

One change which has made headlines is the tax treatment of pensions when they are passed on after death. From April 2027, inherited pensions will form part of the deceased’s estate, so could become subject to IHT if the nil rate band has already been used up.

Currently, it’s possible for members of defined contribution pensions to leave any remaining funds in their pot to the loved ones of their choice when they die, free of inheritance tax. If death happens before the age of 75, payments from the pension are also free of income tax.

As a result of this tax treatment, many wealthier retirees have been encouraged to call on other sources of income first, such as ISAs, to reduce the amount of tax that will be payable when they die. 

This measure, the government says, is intended to ensure the focus for pensions is retirement saving and to reduce the incentive to use them as an estate planning vehicle.

The news means many wealthier retirees will want to review their income plans and consider alternative ways to reduce their IHT liability.

The government says that most estates (including most of those with inheritable pension wealth) will continue to pay no inheritance tax. It estimates that out of around 213,000 estates with inheritable pension wealth in 2027-2028, about 38,500 estates will pay more inheritance tax than would previously have been the case, and a further 10,500 estates (around 1.5% of total UK deaths) will become liable to pay IHT where this would not previously have been the case. 

It means that people who have been using pension as a tax-efficient way of leaving money to children or grandchildren may want to rethink their approach.

There are still ways to gift money in a tax-efficient way, if you do it in your lifetime:

• You can give away up to £3,000 in total each tax year without it later being included in your estate. You can carry forward any unused annual allowance for one year.
• You can also give £5,000 tax-free to a child or stepchild (or £2,500 if it’s a grandchild) if they are getting married or having a civil partnership. 
• It’s also possible to give away larger amounts in your lifetime without any inheritance tax liability, as long as you survive at least seven years after making the gift. (If you don't survive for seven years, usually, gifts are taken account of for IHT purposes before the remainder of your estate, so will usually form part of your nil rate band unless they are above £325,000. If the amount gifted is more than the nil rate band, tapering applies. That means that if you die more than three but less than seven years later, the amount gifted over and above £325,000 will still attract some relief, on a sliding scale depending on how many years have passed.)

People inheriting pensions from someone who died over the age of 75 need to pay income tax on money they take out of the pension, and this rule will not change. Gary Smith, financial planning partner and retirement specialist at Evelyn Partners, points out there are still ways for legacy-leavers to potentially reduce the income tax that the inheritors of pensions will pay. This could include leaving pensions to beneficiaries who don’t pay tax, or who pay it at the basic rather than higher rate.

“If you left the pension fund to grandchildren, or great grandchildren, they could receive some of the pension within their unused Personal Allowance at 0% income tax, or within their basic rate tax band at 20%,” he explains.

Steve Webb, a partner at pension consultants LCP, warns that the measure could add to delays in families receiving money from the estates. This is because the person dealing with the deceased’s estate will need to obtain information from all the relevant pension companies and use an HMRC tool to work out if any IHT needs to be deducted from pension balances, before the remainder is paid out to beneficiaries.

The government is currently consulting on how the measure will be implemented. 

2. An extension to the freeze on the nil rate band and the residential nil rate band 

The nil rate band is the amount that can be passed on to loved ones free of inheritance tax when you die. It currently stands at £325,000, but it can be boosted by the residential nil rate band, worth up to £175,000, if you are passing on a family home to children or grandchildren. There’s also the fact that a spouse’s allowance can be transferred, meaning that together a couple can leave an estate worth £1 million to their descendants tax-free if it includes the family home. 

The last time the nil rate band increased was in April 2009. The residential nil rate band hasn’t been changed since 2020. The continued freeze in the allowance, when combined with other factors such as inflation and rising house prices, will mean more families will need to pay inheritance tax in years to come.

The freeze was due to end in 2028 but has now been extended for a further two years until 2030.

3. Changes to agricultural property relief and business relief

Currently, families passing on farms or businesses are able to take advantage of agricultural property relief and business relief to pass on certain assets to younger generations, free of inheritance tax. This means that families aren’t forced to sell family-run farms or businesses to pay the tax bill.

However, from April 2026, the 100% rate of relief will only be available for the first £1m of combined assets. Thereafter families will only get relief at a rate of 50% – effectively creating an IHT rate of 20%. However, if a married couple own a farm together they can split it, effectively meaning it qualifies for £2m of agricultural property relief, plus another £500,000 for each partner if a property is involved. 

The government says that three-quarters of estates claiming agricultural property relief and the majority of estates claiming business property relief in 2026 to 2027 are expected to be unaffected. 

4. Reduced IHT relief for AIM-listed shares

The 100% rate of relief for shares listed on the Alternative Investment Market (AIM) will also be reduced to 50%, again making them subject to IHT at a new rate of 20%.

Pensions 

The Chancellor confirmed that the basic and new State Pension will both rise by 4.1% from April next year. This will take weekly payments from £221.20 to £230.25 a week on the new State Pension, adding approximately £470 over the course of the year. Payments on the basic State Pension will rise from £169.50 a week to £176.45 a week, boosting annual incomes by around £360.

Pension Credit will also increase by 4.1%, adding £465 to annual minimum incomes for single pensioners and £710 for couples.

Carer’s Allowance

If you are claiming Carer’s Allowance – the benefit that offers financial support to those that spend more than 35 hours a week caring for someone else – there was good news in the Budget.

From April next year, carers will be able to earn up to £196 a week and still receive Carer’s Allowance, an increase of £45 a week on the previous threshold of £151. The new threshold is equivalent to 16 hours working for the National Living Wage, and the charity Carers UK said as many as 60,000 more carers would become eligible for the benefit as a result.

Commenting on the announcement, Helen Walker, chief executive at Carers UK, said: “Carers working and claiming Carer’s Allowance can now take on additional hours to earn up to £196 per week from April 2025, or over £10,000 a year. This is a vital poverty prevention measure helping many carers, particularly women, stay in the labour market. It will make a noticeable difference for many, and for the first time in decades, carers will not lose out as the National Living Wage rises.  It will help to put much needed cash into the pockets of working carers who do so much to look after their disabled, ill and older relatives.”

Caroline Abrahams, Charity Director at Age UK, commended the changes to the Carer’s Allowance but was disappointed that no further support was offered to pensioners on low incomes. “Nothing in the Budget changes the plight of the four in five pensioners on low and modest incomes set to lose their Winter Fuel Payment this year when they simply cannot afford to do so, and that’s a massive disappointment,” she said. 

“The Government could have brought forward measures to safeguard these older people but chose not to, despite compelling evidence showing how severely as many as two and half million in this position will be hit. It comes to something when the best policy option older people on tight budgets now have left is to hope and pray for a mild winter.”

Savings and investments

Every year, it’s possible to shelter £20,000 a year in tax-free ISAs.  In the Budget, Reeves confirmed that this allowance would be frozen until 2030.

Given fears that the allowance might be cut, Sarah Coles, head of personal finance at Hargreaves Lansdown, said that although the move provided certainty for savers, it comes at a price. “The downside of this certainty is that over time, the allowance will continue to drop in real terms, and become less valuable,” she said. “The £20,000 allowance was introduced back in 2017, and hasn’t moved since. Given the level of inflation we’ve seen since, this has eaten into the real value of the allowance.”

ISAs have arguably never been so important as a means of reducing tax. Following significant cuts to the capital gains tax allowance in recent years (from £12,300 in 2020/21 to a current level of £3,000), the Chancellor also took the opportunity to increase CGT rates.

Rates were not aligned with income tax, as some people had feared. But the rates charged on the sale of assets (not including property) have immediately risen from 10% to 18% for basic rate taxpayers and from 20% to 24% for those that pay higher rate. Rates on the sale of property will stay at their current level of 18% and 24% respectively.

The Budget also confirmed that the British ISA, which was announced by then Chancellor Jeremy Hunt in March, will not go ahead. It would have allowed savers to invest an extra £5,000 tax-free in UK equities, but the idea had received a lukewarm reception from investment companies.

Spending and transport

• Fuel duty frozen: The 5p cut in petrol and diesel duties, which was bought in by the Conservatives, has been extended until 22 March 2026. According to the government this move will save the average car driver £59 over the course of a year.
• Single bus fares to rise: The current £2 cap for most single bus fares in England will go up to £3 in January. However, once you reach state pension age in England (or 60 in Scotland, Wales and Northern Ireland) you are entitled to a free bus pass.
• More money for road maintenance: The government has committed to fixing potholes with an additional £500m for local road maintenance during 2025/2026.
• Vehicle excise duty to rise: The tax paid on new petrol, diesel and hybrid cars in the first year will, in most cases, double as part of moves to encourage motorists to switch to electric cars.
• Tobacco tax to rise: The duty on cigarettes will increase by a rate of 2% above inflation. The move will add 54p to a pack of 20.
• Cheaper beer, but only on draught: From February 2025, the duty on draught beer will be cut by 1.7%, knocking a penny off a pint. Duty on non-draught alcoholic drinks will go up in line with the RPI measure of inflation.
• Train fares to go up: From 2 March 2025, regulated rail fares (including anytime and off-peak tickets) will go up by 4.6%. The cost of most railcards will go up by £5.
• VAT on school fees: The Chancellor has confirmed that from January 2025, school fees for private schools will no longer be exempt from VAT.

Increases to employer’s National Insurance Contributions

The biggest tax hike in the budget was undoubtedly the increase in employer’s National Insurance Contributions. The rate has been increased by 1.2% to 15%, while the threshold that payments are based on has been lowered from £9,100 to £5,000 in a move that’s expected to raise £20 billion.

As a result, businesses are reporting that it will affect their ability to increase wages or hire new staff.

However, as Sarah Coles told Saga Money, the impact won’t be confined to businesses and their staff.  “At first glance it may not seem that higher National Insurance for employers will affect you after retirement, but there are knock-on effects to consider. Employers will have higher wage bills, so they may push up prices in order to cover their costs. It means this could filter through to the price you pay for goods and services. The Office for Budget Responsibility forecasts it will leave inflation 1% higher in 2029/30.”

She adds: “There’s a small potential upside for some retirees though, because if it keeps inflation running slightly hotter, it will mean that the Bank of England is slower to cut interest rates, which might mean savings rates tend to be a little higher over the next year or so.”