Spring Statement 2025: Income Tax, Pensions and Savings

Chancellor of the Exchequer, Rachel Reeves, held the Spring Statement on Wednesday 26 March 2025. In the run up to the event, the Chancellor stated that she ‘remains committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes and, in turn, to support the government’s growth mission’.

The Chancellor did meet her commitment that there would be no major tax announcements, but tax is only one side of the equation. The other is spending, and the Spring Statement confirmed a number of the measures recently announced, namely:

• cuts to the welfare state
• cuts to the civil service
• an increase in defence spending. 

There were also announcements about the rollout of Making Tax Digital (MTD) for Income Tax and we will be sharing more information on this shortly. 

According to the government, growth is their central mission.

The government will set out capital spending plans at the Spending Review in June. Ahead of that, the government has announced an additional £2 billion for social and affordable housing for 2026/27, as part of the government’s ambition to build 1.5 million homes in England in this Parliament, supported by reforms in the Planning and Infrastructure Bill.

In the following series of articles, will be focusing on the tax measures from the Spring Budget Statement which may affect you, your family or your business, starting in this article with a focus on income tax, pensions and savings. 

Private Clients

Income Tax

Tax bands and rates

The basic rate of tax is 20%. For 2025/26 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% rate applies is £50,270 for those who are entitled to the full personal allowance.

The basic rate band is frozen at £37,700 until April 2028. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these tax years as well. The government has suggested that, from April 2028, these limits will then be uprated in line with inflation.

For 2025/26 the point at which individuals pay the additional rate of 45% is £125,140.

The personal allowance

The income tax personal allowance is fixed at the current level of £12,570 until April 2028. The government has suggested that, from April 2028, it will then be uprated in line with inflation.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

The first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2025/26.

Dividends received above the allowance are taxed at the following rates for 2025/26:

• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers.

The Corporation Tax due on directors’ overdrawn loan accounts is paid at 33.75% and remains unchanged.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

High Income Child Benefit Charge (HICBC)

For 2025/26, the income threshold at which HICBC starts to be charged is £60,000. The rate at which HICBC is charged is 1% of the Child Benefit payment for every additional £200 above the threshold. This means that Child Benefit will not be withdrawn in full until individuals have adjusted net income of £80,000 or more.

Pensions

For 2025/26, the pension tax limits are:

• The Annual Allowance (AA) is £60,000
• Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000
• The Lump Sum Allowance, which relates to the general maximum that may be taken as a tax-free lump sum, is £268,275
• The Lump Sum and Death Benefit Allowance, which relates to the general maximum that may be taken as a tax-free lump sum in certain circumstances, is £1,073,100.

Tax Efficient Investments

Individual Savings Accounts (“ISAs”)

For 2025/26, the limits are as follows:

 Individual Savings Accounts (ISAs) £20,000

• Junior ISAs £9,000
• Lifetime ISAs £4,000 (excluding government bonus)
• Child Trust Funds £9,000.

Investments in Venture Capital 

There were no changes to the EIS and SEIS rules.

In our next article in this series, we will be looking at Capital Gains Tax and Inheritance Tax but as always, please contact us to discuss your circumstance if you have any concerns about the issues raised in this article.

These articles have been written to provide a general guide to potentially highly complex issues. Whilst great care has been taken in the production of these articles, they are intended to provide the clients and friends of Ritchie Phillips LLP with an outline of the issues individuals, families and trustees should consider and you should seek specific advice before taking or refraining from any action.