How the autumn budget impacts individuals

Key takeaways from Chancellor Rachel’s autumn budget

In this article, we look at how the autumn budget impacts individuals in the UK in terms of personal taxation, wages and pensions. The key takeaways from Chancellor Rachel’s autumn budget are the extension of the frozen tax and national insurance band thresholds, limiting annual tax-free salary sacrifice contributions to £2,000, a student loan repayment threshold freeze, and a 2% tax increase on savings interest, dividend and property income. Rachel Reeves also announced changes to the cash ISA. These tax changes will impact numerous people, and target the already beleaguered landlords, savings outside of an ISA, limited company directors, graduates with Plan 2 student loans and anyone with dividend income exceeding £500 per year.

Attack on passive income?

The 2% hike in dividend and property income is justified as a tax on passive income, implying we haven’t put in any hard work to earn it. Tell that to small entrepreneurs who work through limited companies and pay themselves with dividends. They don’t benefit from leave or sick pay, and bear the inherent risks of self-employment. Consider the non-professional landlord who manages their own rental property, cleans it between tenancies, decorates and refurbishes it themselves – apparently that’s not work. While folk who earn dividends on their self-managed investment portfolios spend time researching, choosing and managing their assets, that’s not passive work.

Cash ISAs

From April 2027, the amount that under-65s can put into their cash ISAs annually will drop from £20,000 to £12,000. The balance of the allowance is available for investing in the stock market. This change aims to encourage more people to invest in the stock market, which typically offers higher returns on investments than savings accounts.

Double whammy for graduates

Graduates with Plan 2 student loans are being targeted for the second time with a frozen loan repayment threshold. The threshold will increase from £28,470 to £29,385 for the 2026/27 tax year and then remain frozen until 2029/2030. The Plan 2 threshold was frozen at £27,295 from April 2021 for 4 years until April 2025, when it increased to £28,470. Combined with the fiscal drag from frozen tax rate thresholds, graduates face increased effective tax rates and higher student loan payments.

Pension salary sacrifice

Pension salary sacrifice is a useful tool to avoid paying tax at the higher and additional rates. It is a particularly useful tax strategy for individuals circling the six-figure salary level. Salary sacrifice also benefits employers by reducing their employer national insurance bill. For someone approaching the £100,000 salary level, contributing to a pension using salary sacrifice helps them avoid the potential 60% effective tax band on earnings between £100,000 and £125,140. If they have a family, keeping their taxable income below £100,000 means they keep various childcare benefits and tax relief.

How pension salary sacrifice works

Pension salary sacrifice works by paying an agreed amount of your salary into your personal pension. The salary element that you contribute to your pension currently is tax-free and not subject to PAYE and national insurance contributions. Depending on your tax band rate, this can save you between 20% and 45% in tax and between 2% and 8% in national insurance contributions. From April 2029, the first £2,000 of pension contributions will be tax-free, with contributions above this cap subject to national insurance for both individuals and employers. Individuals still benefit from tax relief on contributions.

The following examples illustrate the current tax savings from pension salary sacrifice versus the position once the cap takes effect from April 2029.

Someone earning £40,000 a year and contributing £4,000 to their pension via salary sacrifice:

Tax type	Calculations	Tax & NI savings
PAYE/Tax saving	£4,000 @ 20%	£800
National insurance	£4,000 @ 8%	£320
Current total savings		£1,120
From April 2029:
PAYE/Tax saving		£800
National insurance	£2,000 @ 8%	£160
Savings from 2029		£960

From April 2029, in the above example, an extra £160 in national insurance is payable on the £2,000 pension contribution exceeding the £2,000 annual allowance.

Someone earning £56,000 a year, contributing £5,000 to their pension via salary sacrifice:

Tax type	Calculations	Tax & NI savings
PAYE/Tax saving	£5,000 x 40%	£2,000
National insurance	£5,000 x 2%	£100
Current total savings		£2,100
From April 2029:
PAYE/Tax saving	£5,000 x 40%	£2,000
National insurance	£2,000 x 2%	£40
Savings from 2029		£2,040

In the above example, the employee pays an additional 2% in national insurance on the £3,000 of pension contributions above the £2,000 allowance, which is £60. National insurance contributions are 8% on annual income between £12,570 and £50,270, decreasing to 2% on income above £50,270. They save 40% in tax, as the £5,000 falls within the higher rate tax band of £50,270 and above.

The employer will pay additional national insurance of £300 and £450 respectively, as employers will pay 15% in national insurance contributions on pension contributions over the £2,000 tax-free allowance (£2,000 x 15% and £3,000 x 15%).

Potential impact of the budget changes

The fiscal drag from the frozen tax bands will push numerous people into higher tax bands, increasing effective tax rates. The 2% tax increase on property income may result in more private landlords selling up, reducing the number of rental properties, and putting more upward pressure on rents. Adding an extra 2% to dividend tax is an attack on entrepreneurship for directors working through a limited company (which offers limited liability, unlike working as a sole-trader).

£50k employee vs self-employed

An employee earning £50,000 a year pays £10,480 in tax and national insurance, while a self-employed individual (sole-trader) pays £9,730. A limited company director with taxable profits of £50,000 currently pays £10,600 in tax, which will increase to £11,190 from April 2026. Sole company directors pay corporation tax, employer’s national insurance and dividend tax on their taxable income. Given that an employee is legally entitled to 28 days of leave and 3% employer pension contributions, which are not accounted for in the figures for the self-employed individuals, our tax system doesn’t look particularly supportive of entrepreneurship.

Summary of changes

• Increase of 2% in dividend tax – for basic rate taxpayers it’s increasing from 8.75% to 10.75% from April 2026. For higher rate taxpayers it’s increasing from 33.75% to 35.75%, while it remains at 39.35% for additional rate taxpayers.
• Tax on property income – increasing from 20% to 22% for basic rate taxpayers, from 40% to 42% for higher rate taxpayers and from 45% to 47% for additional rate taxpayers from April 2027.
• A 2% increase in tax on interest from April 2027. For basic rate taxpayers, this is an increase from 20% to 22%.
• Tax band thresholds frozen until the end of the tax year 2030/2031.
• Plan 2 student loan threshold is increasing to £29,385 in the tax year 2026/2027 and will be frozen thereafter until April 2030.
• From April 2029, there will be an annual cap of £2,000 on pension salary sacrifice contributions. Contributions above this limit will incur national insurance contributions for both employees and employers.
• Cash ISAs – the annual amount under-65s can put in cash ISAs is decreasing from £20,000 to £12,000 from April 2027. The remaining balance is available for investing in the stock market.
• The national living wage for individuals aged 21 and over is increasing to £12.71 per hour from April 2026.
• Basic and new state pensions payments will rise by 4.8% from April 2026.

Other resources:

If you are a limited company director, take a look at our tax calculator on our sister website, MQcalcs.co.uk, to see how the dividend tax increase will impact your finances.

Tax Calculator for Limited Company Directors – MQCalcs

Income tax thresholds: How the chancellor just took a chunk out of your future pay – BBC News