2025 Budget impact on financial planning: ISAs, pensions salary sacrifice & savings taxes

The 2025 Budget had been approached with some trepidation, but after the early release of the Office for Budget Responsibility’s report, markets settled. The FTSE 100, bond markets and sterling all showed slight gains. While full detail will emerge in the supporting documents, the overall impression is one of increasing complexity.
ISA allowance changes
The annual ISA allowance remains at £20,000, but from April 2027 a new rule will introduce additional complications. Savers will only be able to put £12,000 of that allowance into a cash ISA each year, with the remaining £8,000 needing to be invested in stocks and shares. Anyone already using the full £20,000 for stocks and shares ISAs will see no difference.
Those who prefer to save entirely in cash ISAs will face a choice: invest for the first time in the stock market, or accept that any extra savings held in a standard account may be taxed. Interest in normal savings accounts will also be subject to the newly announced income tax changes.
People aged 65 and over will be exempt and will still be able to contribute the full £20,000 into a cash ISA.
The Government’s aim is to push more investment into the UK, but analysts note it is unlikely to have a major economic impact, as only a small portion of ISA investments typically go into UK equities. The change takes effect on April 6 2027, giving savers time to plan and potentially make use of allowances before the rules shift.
Salary sacrifice restrictions
Another key measure is the change to salary sacrifice pension contributions. While less severe than some expected, the new rule removes National Insurance relief on pension contributions above £2,000 made through salary sacrifice. Tax relief on pension contributions will remain.
This update is due in 2029 and will shape how attractive salary sacrifice arrangements remain. Advisers suggest making the most of current rules while they are still in place.
Tax increases on income
A two per cent rise in taxation for people receiving rent, interest and dividends will create further complications. More individuals will be pushed towards or into the higher rate tax bracket. Notably, this means untaxed income such as dividends and savings will be taxed at a higher rate than earned income.
The change comes in stages: April 2026 for dividend income, and April 2027 for savings and rental income. These updates add further layers to tax planning and may make it harder for people to understand or maximise their savings.
It remains unclear how much these measures will help reduce the fiscal deficit. Some financial experts warn that added complexity could discourage people from saving for their future.