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Article last updated 8 December 2025.
After more than 12 weeks of headlines, speculation and what might have felt like more twists and turns than a soap opera, Chancellor Rachel Reeves delivered her second Budget.
Rumours leading up to the Budget had prompted widespread concern, with many withdrawing large sums of tax-free cash. A collective sigh of relief could be heard across the country when the Chancellor definitively confirmed no changes to either pension tax free cash or tax relief on pension contributions.
Pension tax-free cash, once withdrawn, can’t be put back into your pension. If, after the Budget, you find yourself holding a large amount of cash, a conversation with a financial planner about what to do next is a good idea.
What was announced in the Budget?
For those near to or in retirement many concerns before the Budget didn't come to pass. There were no major changes to capital gains or inheritance tax, in addition to no pension tax free cash or tax relief changes.
Pensions
The big change for pension savers is the £2,000 cap on the amount of salary you can sacrifice into a pension, due to be introduced from April 2029. But this only applies to employees, and even then, only those employees with employers that offer salary sacrifice schemes. Because of the delayed introduction, there will be a limited impact on people close to retirement, and no impact at all on people in retirement.
Salary sacrifice is an arrangement where the employee gives up some of their salary in exchange for the employer making a pension contribution on their behalf. Neither the employee nor the employer pays National Insurance on this amount. The change means that from April 2029 means that any salary sacrificed over £2,000 will be subject to national insurance.
Income tax
While tax rates on pension income didn’t increase, the Chancellor did freeze income tax thresholds through to 2031, a year longer than expected.
The freeze means that as wages and pensions rise with inflation, more individuals will be pulled into paying tax. For pensioners, this is significant because the state pension increases under the triple lock, and projections suggest it will soon exceed the personal income tax allowance.
This shift will result in many people in retirement who previously paid no tax facing new tax liabilities on their pension income. This will reduce the real value of their retirement income and potentially impact financial planning for later life.
The Chancellor confirmed that people in retirement whose only income is the state pension will not pay tax during this Parliament, despite the freeze on income tax thresholds. This is reassuring for people who rely solely on the state pension. If you receive the state pension and additional pension income (such as from a workplace or private pension), then your total income is assessed for income tax.
In addition to this, the income tax on rental and savings income is due to go up by 2% from 2027 and dividend tax rates will rise by 2% in 2026.
Mansion tax
The newly introduced “mansion tax” – the official, rather less eye-catching, name is the High Value Council Tax Surcharge – targets homes valued at £2mn or more. Properties worth more than £2mn will face an annual charge of £2,500, while those worth over £5mn can expect to pay £7,500 or more per year. A ‘targeted valuation exercise’ has been promised and more detail on how the government plans to value properties will come next year.
We could see some movement in the property market as empty nesters and retirees in large houses consider downsizing before April 2028. There will be a group of ‘asset rich and cash poor’ retirees who can't afford the surcharge – the devil in the detail will be whether the surcharge can be deferred until a property is sold or even until death.
Cash ISAs
There was no change to the total ISA allowance, which remains at £20,000. In a bid to get the British public investing more by putting money into stocks and shares ISAs, Reeves announced a reduction in the Cash ISA allowance to £12,000 for under 65s from 2027. Over-65s will still be able to save the full £20,000 into a Cash ISA.
