The 2025 Autumn Budget introduced several measures that could affect your financial planning if you’re already retired.
While many of the changes don’t come into effect immediately, it’s important to plan for them now to ensure you’re prepared for when they do.
Read on to discover what the Budget means for people in retirement.
Your income and estate could face higher taxes due to the freeze on thresholds
One of the key announcements in the Budget was the decision to extend the freeze on Income Tax thresholds for a further three years to April 2031 (this freeze doesn’t apply to Scottish rates).
Although this will impact most people, pensioners especially need to plan for this, as keeping the thresholds frozen for longer means more of your pension will be liable for tax if you increase your withdrawals.
You may think that the simple solution to this is to keep your withdrawal rate the same, but inflation causes the cost of living to rise, and you’ll need to draw more to maintain your lifestyle.
To help accommodate the freeze, it’s a good idea to revisit your retirement income plan to ensure it’s well-balanced and set up to be maximally efficient.
You can read about how to do this in our previous article on the topic.
Reeves also extended the freeze on Inheritance Tax (IHT) thresholds from 2030 to 2031. This means the standard nil-rate band won’t have changed for 22 years when the freeze finally comes to an end, if indeed it does.
The long-term freeze on IHT thresholds has led to many more estates paying significantly higher IHT bills, and receipts are set to rise further as new rules come into effect over the next few years.
It’s important to adjust your estate plan as your life and government legislation change to ensure it remains efficient.
You can read more about estate planning and how the upcoming changes could impact you in our previous article on the topic.
You may pay more tax on your alternative income sources
Retirement income often comes from more than just pensions and ISAs.
You may also depend on dividends, property rent, or cash savings outside of ISAs, and the changes to rates announced in the Budget could affect how much of that income you ultimately keep.
Reeves raised most tax rates on savings interest, dividends, and property income by two percentage points, and the changes are set to come into effect in April 2026.
This means that once you’ve exceeded your normal allowances, property income and savings interest will now be taxed:
- 22% for basic-rate taxpayers
- 42% for higher-rate taxpayers
- 47% for additional-rate taxpayers.
Dividend income will now be taxed:
- 10.75% for basic-rate taxpayers
- 35.75% for higher-rate taxpayers
- 39.35% for additional-rate taxpayers (unchanged).
So, if you’re likely to be affected by these changes, now is a sensible time to revisit your financial plan.
You may need to review how you structure your retirement income, make better use of available allowances, or adjust your withdrawals to improve your overall efficiency.
If you live in a high-value property, you could face a new tax charge
If your home or any other property you own is valued at £2 million or more, you may face an additional charge, often referred to as a “mansion tax” (this doesn’t include properties in Scotland).
This will apply to roughly the top 1% of properties and will start from April 2028, though properties will be valued in 2026.
The annual surcharge will be split into four bands, ranging from £2,500 to £7,500 for homes valued above £5 million.
If you live in a house that will face the new charge but have a modest pension, you may want to start exploring how this could affect your long-term planning. Indeed, many pensioners find themselves asset-rich but cash-poor as the house they live in has grown in value while their pension income has remained the same.
While you can build the cost into your wider financial plan, you may also want to explore alternatives such as downsizing or releasing equity.
A financial planner can help you evaluate these options and put a plan in place that helps ensure your financial security while managing the additional charge.
The State Pension is set to rise in line with the triple lock
Reeves also confirmed that the State Pension will increase by 4.8% from April 2026, which means you will get:
- £241.30 a week (£12,547.60 a year) if you’re entitled to the full new State Pension
- £184.90 a week (£9,614.80 a year) if you receive the old State Pension.
It’s important to note that the full new State Pension will be just £20 below the Personal Allowance, meaning even a small amount of additional income could push you into paying more in Income Tax.
So, it’s a good idea to consider how this rise will affect your overall tax bill and what steps you may need to take to ensure you remain efficient.
Get in touch
To find out more about how the Budget could affect you and what you can do to prepare for and adjust to the reforms, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
