There was little festive cheer for most, with frozen income tax thresholds likely to drag most of us into paying more tax, and the reduction of the cash ISA allowance restricting the amount risk-averse savers can put away into these tax-efficient accounts.

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It wasn’t all doom and gloom, however, with the Chancellor removing the two- child benefit cap, and promising a 4.8% increase in the state pension next April. Here’s our round up of the main Budget announcements and what they could mean for your finances.

Income tax thresholds frozen for longer

The Chancellor announced that income tax thresholds would be frozen until 2030, which means that as people’s wages increase, many will be pushed into a higher tax band. Originally they were due to be frozen until 2028.

Caroline Abrahams, Charity Director at Age UK said: "The Government’s decision to freeze the income tax personal allowance for a further three years will drag more older people into paying income tax, including some on low and modest incomes who need all the help they can get to sustain a decent standard of living at a time when prices for essentials are constantly rising.”

Pension changes

There were plenty of rumours prior to the Budget that the Chancellor might tinker with the current system of generous pension tax relief on contributions or restrict the amount of tax-free cash you can take, but thankfully these were both left untouched.

However, the Budget did include plans to change salary sacrifice for pensions which affects many workers who pay into company pension schemes. With pension salary sacrifice, an employee exchanges part of their salary for an equivalent employer pension contribution. This sacrificed amount and the employer’s payment are free from income tax and National Insurance. However, from April 2029, only the first £2,000 will benefit from a reduction in employee and employer National Insurance.

Andrew Tully, technical services director at Nucleus Financial said: “This change sends the wrong message to savers, likely reducing the pension savings many millions will make for their retirement and particularly hitting those earning around £40,000-£50,000. While Government will benefit through increased tax and NI receipts, the knock-on impact on savers will be significant.

“Pension savings will fall and changes like this also increase the likelihood of a wider impact. Some employers may alter their benefits packages or reduce contributions, while employees may feel more disengaged.”

There was better news for those claiming the state pension. The Chancellor maintained the government’s commitment to keep the ‘triple lock’ guarantee, which means that the state pension must rise by either September’s price inflation, May-July average earnings growth or 2.5%.

As a result, the new state pension will rise by 4.8% in April 2026, in line with earnings growth, taking it from £230.25 to £241.30 a week. The basic state pension, paid to those who reached state pension age before April 2016, will increase from £176.45 a week currently to £184.90 from next April.

National Living Wage to increase

The National Living Wage will increase by 50p an hour from £12.21 per hour to £12.71 an hour for over 21s with effect from April 2026.

Kate Smith, Head of Pensions at Aegon, said: "Millions of low workers will benefit from a pay increase from next April. At a time of continuing cost of living pressures, this will bring welcome relief to many, boosting their earning power.

Cash ISA allowance restricted

The amount savers can put into tax-efficient cash ISAs each tax year will reduce to £12,000 from April 2027, but those aged 65 and over will retain their full £20,000 allowance.

Nimesh Shah, chief executive at accountancy firm Blick Rothenberg said: “The reduction in the cash ISA limit to £12k will cost a higher rate taxpayer over £140 in income tax (assuming interest rate of 4.5% and no personal savings allowance).

“The ISA regime has just been made (even more) unnecessarily complicated by having a different regime for over-65s. I understand the logic but this is making a mess of ISAs”.

ISA tax benefits calculator - Hargreaves Lansdown

Mansion tax to be introduced

From April 2028, owners of properties identified as being valued at over £2 million by the Valuation Office (in 2026 prices) will have to pay a recurring annual charge on top of their existing council tax bills.

Homeowners with a property worth between £2m and £2.5m will face a bill of £2,500 annually, rising to £7,500 for properties worth over £5m.

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