id
On 26 November 2025, Chancellor Rachel Reeves announced a range of measures in this year’s Autumn Budget. Here are the key changes we think you should know about.
1. Salary sacrifice is capped at £2,000 a year – but not until April 2029
Arguably the biggest update this year is the new £2,000 cap on salary sacrifice pension schemes, which will come into effect from April 2029.
As a quick reminder, salary sacrifice means an employee exchanges part of their salary for a pension contribution. Because they’re lowering their salary, they pay less in Income Tax and National Insurance, making it a tax-efficient way to boost their pension pot without significantly reducing their take-home pay.
The new cap means that, from April 2029, employee pension contributions above £2,000 will be subject to both employee and employer National Insurance Contributions (NICs). Employer contributions will continue to be exempt from both types of NICs. This change will affect private sector workers most of all, as public sector schemes don’t usually use salary sacrifice.
The change potentially creates a number of options for people to keep their pension saving levels the same. One example could be negotiating higher employer pension contributions in return for lower pay. However, time will tell how this is implemented.
As this change isn’t coming into effect until 2029, there’s no immediate impact to employees or employers – so nothing to worry about right now. The government has said they'll be sharing further guidance on next steps before April 2029.
It’s important to remember that pensions remain one of the most tax-efficient ways to save for your financial future. That’s because you get tax relief on your pension contributions. So if you’re a basic-rate taxpayer, you get 20% tax relief automatically added to your pension – meaning if you contribute £80, the government adds £20.
2. Freeze on Income Tax thresholds has been extended to 2031
The freeze on Income Tax thresholds has been extended by three years until 2031. This was originally a temporary measure introduced in 2021. The freeze in combination with wage growth and inflation, will steadily push more workers into higher tax bands, reducing take-home pay and increasing the importance of tax-efficient saving.
Pensioners will be affected by this too. The full new State Pension is due to rise to £12,547.60 a year from April 2026, which is just short of the £12,570 Personal Allowance. From 2027–28, the State Pension is expected to go over this allowance – meaning many retirees could pay Income Tax on any State Pension above it.
However, the government has said they’ll remove the need for Simple Assessments for pensioners whose sole income is the basic or new State Pension without increments. This is to ease the administrative burden, prevent small tax bills, and reduce complexity for those with no other income. The government will release more details on this next year.
Ultimately, pensions are one of the most effective tools to manage the impact of frozen thresholds. Pension tax relief is based on the rate of Income Tax you pay, meaning those moving into higher bands could benefit from greater relief. With thresholds now locked until 2031, reviewing your pension and making the most of available allowances is more important than ever.
3. State Pension is rising and triple lock remains
The full new State Pension will rise by 4.8% in April 2026, boosting payments by £574.50, and bringing the total up to £12,547.60 a year.
The Chanceller also confirmed that the government is committed to maintaining the pension triple lock. This is what’s used to decide how much to increase the State Pension by: whichever is highest out of average wage growth, inflation, or 2.5%.
3. State Pension is rising and triple lock remains
At the moment, pension plans don’t usually form part of your ‘estate’ when you die, so inheritance tax (IHT) doesn’t currently apply to them.
But the Autumn Budget included a reminder that, from April 2027, unused pension savings and death benefits will be treated as part of your estate. This means they could be subject to inheritance tax (IHT) in future.
Remember, IHT is a tax that might need to be paid when you die – but only if the value of your estate is above a threshold of £325,000. Your threshold may be even higher depending on who you leave your estate to. The value of your estate includes things like property and your belongings, and tax is only paid on the amount that’s above your threshold.
The government will announce more details about how IHT will work in relation to pensions closer to 2027. When we have those details, we’ll update our website with more information.
id
Tax rules and legislation may change and your individual circumstances and where you live in the UK will have an impact on the tax you pay.
The information here is based on our understanding in November 2025 and should not be taken as financial advice. If you’re unsure please speak to financial adviser. If you don’t have an adviser and would like help finding one, please get in touch. Or, you can find details of the advisers in your area at Unbiased.