Hoxton Wealth CEO Chris Ball walks us through the implications of yesterday’s Budget, the potential unintended consequences of chancellor Rachel Reeves’ announcements, and how clients can consider mitigating the effects of the measures being introduced.

It feels as if the sting was taken out of the Budget because of the leaks that took place, not just in the hour prior to the Budget but in the weeks before. It felt as if it was being soft launched, whether intentional or not, to get us to be somewhat accepting of what's eventually going to happen. As always with Budgets, there were items that would be welcomed by a lot of people, but these would be countered by measures that will make life more difficult for many people.

Income tax

The chancellor has extended the freeze on income tax thresholds for another three years beyond 2028. It will mean income tax thresholds do not increase with inflation, meaning more people will fall into higher bands when they receive pay rises. Thresholds will stay the same for the 2028-29, 2029-30 and 2030-31 financial years. This will lead to an estimated 920,000 extra higher rate taxpayers, according to the Office for Budget Responsibility.

This seems to be a continuation of an ongoing trend, with more people being brought into higher tax bands almost surreptitiously. It does mean that tax planning becomes even more important, with people needing to make sure of their allowances, and to look at their contributions, because more people will be drawn into the £100k. And so it just makes planning even more important."

Pension salary sacrifice

Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance from April 2029. This means that salary-sacrificed contributions above that limit will be subject to both employer and employee National Insurance, or 15% and 8% respectively for earnings under £50,270 and 2pc on income above that level. The policy is expected to raise £4.7bn in 2029-30 and £2.6bn in 2030-31.

For lower and middle earners, changes to the salary sacrifice rules are going to have less impact than for those that earning far more than the average. They are going to be the ones paying the brunt. They are going to be facing higher levels of taxation, though it does deliver on Labour's manifesto promise of ensuring those with the broadest shoulders should be the ones to bear the brunt. But because introduction has been set at April 2029, implementation may not even happen and it could be retracted.

The fact that it is not an immediate change could be reassuring, but people need to maximise what they do in the next few years and not look at just pensions, but other tax vehicles for their own individual circumstances.

Savings and dividends

The basic and higher rates of tax on dividends is rising by two percentage points to 10.75% and 35.75% respectively, from April 2026. Savings income tax will rise by two percentage points from April 2027, to 22%, 42% and 47% for the basic higher and additional rates.

Going over after those that have accumulated wealth and are starting to earn from that is difficult. There was an argument increasing capital gains tax, which would have been quite difficult for them to get the response that they want. This is less of a stealth tax, but more of a manoeuvre around. It's difficult for people that are living off or able to generate revenues from savings but it fits with the optics of those with the broader shoulders having to pay because the average working person doesn't get dividends or as significant a savings income.

It's quite an easy tax grab, though not a significant increase and it allows the government to keep the narrative that they're not increasing taxation. It's going to be disincentivising and may get people annoyed but I don't think it is going to lead with broader protest or dissatisfaction.

Cash ISAs

How much you can save into your cash ISA each year will be cut from £20,000 to £12,000 from April 2027, though only if you're 65 or under. The £8,000 difference has to be an investment but what wasn't clarified is what comes first the £8k investments and then the rest of cash or something different.

This adds unneeded increased complexity on the ISAs, and I think it misses the point entirely because if you want to incentivise the UK population to become investors rather than savers, it needs to start with education, not just changing the ISA limit by £8,000.

Class 2 NICs

From 6 April 2026, the government will remove access to pay voluntary Class 2 NICs abroad and increase the initial residency or contributions requirement to pay voluntary NICs outside of the UK to 10 years.

This will prevent those with diminished UK links from building state benefit entitlements and is intended to manage long term costs. It will make it even more important to plug any contribution gaps before heading overseas.

Property

The owners of properties worth £2m or more face a new 'high value council tax surcharge' from April 2028. There will be four bands, with properties worth £2m to 2.5m incurring a surcharge of £2,500 and the charge rising to £7,500 for those worth £5m or more. Property income tax will also rise by two percentage points from April 2027, to 22%, 42% and 47% for the basic higher and additional rates.

Renters are the ones that are going to be affected the most by this. They're the ones that are going to have to pay the difference for their landlords because landlords are unlikely to want to stomach this kind of additional amount of tax.

So, it could be quite a negative thing in the market. People are going to get squeezed out of where they are and it's going to become a lot more competitive for the more cost-effective properties, which could end up with people stuck in limbo in the middle.

In terms of the increase of council tax bands, you have to think about the people who are living in those bands. If you're fortunate enough to be living in a place that's worth more than £5m, that's a £7.5k surcharge. Assuming you're a high-earner, you've got to earn near double that amount to be able to afford it.

And it's not just going to be high-earners that are living in there. It's people that have purchased properties 10, 20, 30, even 40 years ago that are living in them and don't want to sell their family homes that are relatively asset-rich cash. They could struggle to find this new level of income that they need, even £2.5k at the lower end is still a significant amount for people to try and budget and accommodate for. This could lead them to sell further assets, sell the property they're in, look to downsize, and then you have to question who's going to want to try and buy these properties with the additional increase in cost to maintain them.

This leaves a sticky situation at the top end of the market. How far is that going to drive prices down? There's going to be an increase in supply but not much demand, unless people are trying to think about whether this is a long-term investment, assuming that things in 20, 30 years' time are going to be different. But not everyone has that time frame to manoeuvre.

Chris Ball is CEO at Hoxton Wealth