Chancellor Rachel Reeves has delivered her Budget. Here we reflect on the key points for investors.
1: How have markets reacted?
“Initial market reaction to the budget was muted, with many of the announcements already reflected in asset prices. Increased fiscal headroom and a lack of inflationary policies were positively received by the bond market, with gilt yields declining post announcement given support for expectations of further Bank of England interest rate reductions,” said Alastair Power, Investment Research Manager, at Redmayne Bentley.
“Longer-term issues remain unaddressed with a lack of clear policies targeting economic growth, tax reform, or spending cuts. In addition, the level of fiscal headroom remains open to forecasting risks, with front-loaded spending increases offset by back-loaded revenue raising policies. A silver lining could, however, be found in the increased potential for outperformance of forecasted economic and productivity growth rates as the effects of a gradual reduction of interest rates influence economic activity.
“At the sector level, UK banks saw share prices rise on avoidance of any tax increases while wealth management and investment platforms also benefitted. Expectations of supportive policies for housebuilders were not forthcoming, with share prices in the sector marginally lower at the close.
“Overall, a budget which results in the highest tax burden since the second world war appears to be at odds with the outlined commitment to economic growth,” he added.
2: Changes to ISAs
The cash ISA allowance will reduce to £12,000 from April 2027 for under-65s.
The total ISA limit stays at £20,000, but the Chancellor announced a smaller portion will be allowed in cash ISAs. The Chancellor hopes those who prioritise cash ISAs will invest the remaining £8,000 in Stocks and Shares ISAs. However, it is worth noting, that a review of Lifetime ISAs is underway, with the Government expected to publish a consultation in early 2026.
No change to tax treatment of ISAs or pensions themselves. The structures remain:
- Tax-free growth in ISAs
- Tax-deferred growth in pensions
- Protected from dividend tax increases
- Protected from savings tax rises
3: Tax on dividends, rental income and savings will rise by 2%
This will affect business owners, landlords and anyone receiving investment income outside tax-efficient wrappers from April 2026.
The new rates will be:
- Dividends: Ordinary rate increases to 10.75%, the rate paid by higher rate taxpayers will be 35.75% from April 2026 (39.35%. additional rate unchanged).
- Savings & rental income: Rates rise to 22%, 42%, and 47% (with finance cost relief given at the new 22% property basic rate).
Vittoria Vaccaro, Financial Planner, at Redmayne Bentley said: “These changes may impact how people save and invest over the coming years. If you’re unsure how this affects your own position, it’s worth seeking regulated financial advice.”
Other things to keep in mind
The Chancellor also froze the
personal income tax thresholds for a further three years, until the end of 2030/31. This extended freeze creates fiscal drag - often described as a ‘stealth tax’ -reducing take home pay in real terms and pulling more people into higher tax brackets.
From April 2028, there will also be a new ‘
mansion tax’ applied to properties valued above £2m. The annual charge will be banded, with lower rates for homes just over £2m and higher levies for properties valued at £5m and above.
While contributions to
salary sacrifice pensions were capped at £2,000 from 2029, before paying National Insurance.
Some rates stayed the same. The
Pension Annual Allowance stays, with high earners still receiving a £60,000 annual allowance and able to carry forward unused allowances (up to 3 years). While Capital Gains Tax rates also remain the same at 18% and 24% and
Inheritance Tax allowances remained at £325,000 Nil Rate Band, £175,000 Residence Nil Rate Band and the ability to transfer to a spouse is unchanged.
This communication is for information only and does not constitute financial advice. Investments and income arising from them can fall as well as rise in value.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
Please note that tax treatment depends on the specific circumstances of each individual and may be subject to change.
The Financial Conduct Authority does not regulate estate planning or tax or trust advice.