We understand, for many, you have put real effort into your investments. You top up Individual Savings Accounts (ISAs), build pension pots, keep cash for when it might be needed, and hold funds that pay dividends or property income. The goal is to turn your hard-earned money into long-term security.
The 2025 Autumn Budget changes how much of that investment growth you get to keep and potentially the approach you take.
Dividend tax is rising, tax on savings and property income is going up, and ISA rules are shifting for under 65s. Salary sacrifice becomes less efficient for larger pension contributions and Venture Capital Trust (VCT) relief is being reduced. Taken together, these changes will reshape how investors grow and draw income from their portfolios.
If you draw dividends from investment portfolios, hold significant cash outside ISAs, own investment property, or use specialist options such as Real Estate Investment Trusts (REITs) or VCTs, this matters.
From the dates set out in the Budget, those same assets are likely to leave you with less income after tax than before.
A new investment environment is taking shape
This Budget shifts the balance between taxed and tax-efficient returns, and the government has confirmed higher tax rates on dividends, savings and property income.
At the same time, income tax thresholds will now stay frozen until 2031. This creates fiscal drag – as an individual’s income rises, more of it falls into higher bands.
For investors, the result is simple: your income from dividends, cash interest and property is more heavily taxed, especially where money sits outside ISAs and pensions.
The key changes for investors
More tax on dividends, savings interest and property income
From April 2026, the basic and higher rates of tax on dividends rise to 10.75% and 35.75% respectively, while the additional rate stays at 39.35% (these changes are set out in the government’s dividend and savings tax rates update). If you hold dividend-paying shares in a taxable account, you will see less income left after tax.
From April 2027, tax on savings interest and property income rises by 2 percentage points to 22% for basic rate taxpayers, 42% for higher rate, and 47% for additional rate taxpayers. That affects interest on larger cash balances and rental income, as well as distributions from UK REITs and Property Authorised Investment Funds.
REITs still avoid corporation tax at fund level, and they are fully sheltered within ISAs and Self-Invested Personal Pensions (SIPPs). In practice, that means holding them in a tax wrapper can help protect their income from these higher personal tax rates, as long as you stay within the ISA and pension rules.
VCT relief is being cut
VCTs invest in young, higher-risk companies and currently offer 30% upfront income tax relief on new subscriptions. From April 2026, that relief will fall to 20%.
VCTs can still play a role for some experienced investors who’ve used up their ISA and pension allowances, but the tax incentive will be weaker. They also carry higher risk, a minimum three-year holding period, and can be less liquid, so this type of investment is something to discuss carefully with an adviser and shouldn’t be a DIY decision.
If VCTs are appropriate for you, there’s a limited window before 6 April 2026 when the higher 30% relief still applies, so it’s important to explore this in good time.
ISA cash becomes more restricted for under 65s
From April 2027, adults under 65 can hold only £12,000 of their £20,000 ISA allowance in cash each tax year. The remaining £8,000 must go into investments.
If you have preferred Cash ISAs for simplicity and peace of mind, you will now need to decide how much to invest through Stocks and Shares ISAs for long-term growth, and how much of the £12,000 allowance you want to keep in a Cash ISA.
Note: The government has also indicated that there will be a complete overhaul of the ISA market, so this is an area that we will continue to monitor.
Salary sacrifice loses some efficiency for larger pension contributions
From April 2029, only the first £2,000 of pension contributions made via salary sacrifice each year will avoid National Insurance (NI). Anything above that will be treated as normal pay for NI.
Salary sacrifice still has value, as you will continue to receive tax relief on contributions and keep access to a tax-free lump sum. The change mainly affects higher earners who use salary sacrifice to pay in larger amounts, and it’s a clear prompt to review how you contribute to your pensions sooner rather than later.
High-value homes face a new annual surcharge
From April 2028, homes valued above £2 million will face a new annual surcharge alongside Council Tax, ranging from £2,500 to £7,500 a year.
This mainly affects people whose property values have grown significantly over time, including long-held family homes. It means building an extra, ongoing cost into your planning, and thinking carefully about how that fits alongside other goals such as retirement spending, helping family, or deciding whether to keep, gift, or eventually sell the property.
Why all this matters for your plan
On their own, each measure looks like a tweak. Put together, they tell a clear story.
- There’s more tax on dividends, savings interest, and property income.
- Under 65s have less freedom to use ISAs purely for accessible cash.
- Larger salary sacrifice pension contributions lose some NI efficiency.
- High-value homes pick up a new recurring cost.
In other words, the Budget raises taxes on money you make from investments and trims some of the routes that helped you shelter those returns. That affects how you build portfolios, how you take income and how far your long-term plans can stretch.
Reviewing your position now, while there’s still time before the changes fully take effect, gives you more room to adjust.
An action plan for what you can do next
1. Review how you use your ISA allowance
Check your cash needs, your time horizon, and how the new £12,000 cash limit affects your approach.
2. Revisit how you take income from your portfolio
Look at the mix of dividends, interest, rental income and pension drawdown and where each sits for tax.
3. Refresh long-term retirement modelling
Update cashflow plans with the new tax rates and salary sacrifice limits.
4. Reassess property’s role in your plan
Factor in the surcharge on £2 million-plus homes and the higher tax on rental income and property funds.
5. Check your pension contribution approach
Make sure your contribution levels, and the way you pay them, still make sense under the new rules.
6. Discuss alternative options with an adviser
REITs, VCTs, diversified portfolios and pension planning all come with trade-offs. An independent financial adviser can help you understand what fits your situation and when to act.
Finding confidence in a changing landscape
Investing already asks you to juggle day-to-day life, market headlines and long-term goals. The latest Budget adds another layer at a time when you are trying to do the right thing with your money.
You don’t have to work through all of this on your own. A focused conversation can turn a long list of rule changes into a clear set of next steps that feels right for you.
If you would like to talk through what these changes could mean for your own investments, you can book a conversation with a Flying Colours adviser and explore your options together.
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.
The Financial Conduct Authority does not regulate cashflow planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
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.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.