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The 2025 Budget brings a series of tax and savings rule changes that could affect anyone with cash in the bank, investments or income from property.
If you want to stay ahead and protect your finances, understanding these changes is essential. Here’s a breakdown of what’s changing and how it could affect you.
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In a widely-predicted move, Reeves announced major changes to ISA contribution limits which are aimed to encourage more people to invest in the stock market.
Currently all savers can choose how much of their £20,000 annual allowance can be used for cash savings or investments. But from 6 April 2027, the maximum an individual will be able to deposit into a cash ISA each year will be reduced to £12,000. This means £8,000 of the allowance will effectively be “reserved” for other kinds of ISAs such as stocks and shares.
However, over-65s will be exempt from the £12,000 limit, and will still be able to put the full £20,000 into cash ISAs.
The government says the change is intended to nudge people away from hoarding too much cash and towards investing – with the idea that more money invested could support UK businesses and the broader economy.
Louise Halliwell, group savings director at OSB Group, described the altered cash ISA limit as a “step back”.
She said: “This fragmented approach, with different limits for cash and stocks and shares ISAs, previously created unnecessary complexity, and reintroducing this distinction risks adding further layers to what is already a complicated rulebook of different ISA types and limits for consumers to navigate. It is also disappointing from a broader national perspective, as the UK should be encouraging people to save more, whether for later life, pensions or financial resilience, rather than placing new structural barriers in the way.
“We recognise that over-65s will retain the full allowance, but introducing different limits based on age raises concerns in a sector that has worked hard to improve accessibility to savings for all savers.”
Reeves also announced that tax rates on savings income will rise by 2%. The rule change will affect cash savings interest outside of the personal savings allowance and ISAs. The personal savings allowance protects the first £1,000 of interest for basic-rate taxpayers and £500 of interest for higher-rate taxpayers.
From April 2027, tax on savings not covered by these tax wrappers will be levied at 22% (basic rate), 42% (higher rate) and 47% (additional rate).
According to analysis by AJ Bell, the tax hike will disproportionately affect pensioners. Figures from a freedom of information request by the investment platform found that pensioners account for almost half (44%) of all taxpayers facing an HMRC bill for interest earned on their cash savings.
Laura Suter, director of personal finance at AJ Bell, said: “The move combined with the extended freeze on income tax bands means that more people will be pushed into the next tax band and in turn see a cut to their tax-free savings allowance and a hike to their tax rate. For someone with £5,000 of savings interest above their personal savings allowance, the move will cost them an extra £100 a year in tax.”
Another tax hike will come in the form of higher income tax on rental income from April 2027. As with savings interest, this will rise by 2% across the board, to 22%, 42% or 47% depending on the landlord’s tax band.
The government said this was designed to account for the fact that landlords don’t pay national insurance on rental income – and was positioned as making things fairer.
But experts doubted whether property investment would still add up for many landlords under the new rules.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The fact they can invest in stocks and shares completely free of tax in an ISA may persuade more of them there’s an easier return to be made elsewhere. For those who have been run ragged by the work involved in managing a property, it also enables them to make an income or gain that involves much less hard work.”
Other experts warned there is a very real risk that landlords facing reduced profit margins will pass this on to tenants by increasing rents.
"Driving landlords out of the sector in the middle of a supply crisis that’s keeping rents unaffordably high helps no-one, least of all renters,” said Matt Hutchinson, director of flatshare site SpareRoom.
The third element in this trio of tax increases targets investors who receive dividend income. Starting from 6 April 2026, the ordinary (basic) and upper (higher) tax rates on dividends will increase by 2%, rising to 10.75% and 35.75% respectively. The additional-rate dividend tax will remain unchanged at 39.35%
The change will hit individuals who receive a significant portion of their income from dividends, such as shareholders, investors, and many small-business owners who pay themselves via dividends rather than salary.
Dividends held inside tax-efficient wrappers, such as stocks and shares ISAs or SIPPs, will remain tax-free.
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