Budget briefing: What does it mean for me?

An unprecedented budget

It was a budget that attracted huge amounts of speculation, with the rumour mill working overtime until an unprecedented leak spilled the beans before the Chancellor even opened her red box.

Rachel Reeves was under pressure to deliver a tax and spending package that would fill a hole in the public finances and reduce the cost of living, against a backdrop of a weak economy, growing debt and a government that is struggling in the polls.

So, what does today’s budget mean for doctors, dentists and teachers? There is much to unpick.

Spotlight on taxes

While a 2p Income Tax hike had been mooted, the Chancellor instead elected to freeze thresholds for a further three years until 2031, in a move that will inevitably drag more professionals into the higher and additional rate tax bands.

For more senior doctors, dentists and teachers, this could potentially prompt them to consider cutting their careers short at a time when their services are in such high demand.

Alec Collie, Head of Medical at Wesleyan Financial Services, said: "A further freeze on thresholds is a stealth tax that's quietly reducing take-home pay, and adds to the feeling that this is a tax system that is stacked against medics trying their hardest for their patients.

"For GP partners, the overall pressure is made worse by ever-rising practice costs. Against this backdrop, GPs at the start of their career will be forgiven for wondering what incentive there is at all to pursue partnership.

"This is pressure that risks deepening recruitment and retention challenges at a time when our health system needs stability most."

And Steve Renfrew, Head of Education at Wesleyan Financial Services, added: "Without targeted reform, teachers will continue to feel that the tax system is moving against them and that risks deepening recruitment and retention challenges at a time when education needs stability most."

From 2028, the Chancellor announced a so-called 'Mansion Tax' on properties worth more than £2 million.

This annual charge comes on top of Council Tax and includes four bands, rising from £2,500 for a home valued between £2 million and £2.5 million, up to £7,500 on properties worth £5 million or more.

Pensions, savings and investments

Like last year, the Budget was preceded by rumours that the option to take 25% of a pension pot as a tax-free lump sum, up to a maximum of £268,275, would be reduced.

Thankfully, this did not materialise, which will be a relief for members of the NHS and Teachers’ Pension Schemes, as this is a significant benefit that underpins many people’s retirement plans.

The Chancellor also chose to maintain the triple lock on the State Pension, which will continue to match CPI inflation, average earnings growth or 2.5%, whichever is highest.

But she did announce a cap on the amount savers can add to their pension pots through Salary Sacrifice schemes, which has now been limited to a maximum of £2,000 a year.

From April 2029, salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions, so subject to employer and employee National Insurance contributions.

This raises obvious concerns around cutting an incentive for people to save for their retirement.

Nick Henshaw, Head of Intermediaries at Wesleyan Assurance Society, said: "As savers consider alternatives to maintain tax efficiency and bolster their retirement planning, advisers’ support will be essential to guiding them through these changes and ensuring they continue to work towards good outcomes."

Iain Stevenson, Head of Dental at Wesleyan Financial Services, added: "This is a good moment to examine your overall estate and pension arrangements to get a clear picture of how these changes might impact you and your family. Getting professional guidance can help you make well-informed choices around retirement income, passing on wealth, and managing tax effectively."

And the Chancellor also moved to reform Individual Savings Accounts from April 2027, with the aim of encouraging more retail investors.

While the £20,000 annual investment limit remains, £8,000 of that must now be invested in a stocks and shares ISA, although over 65s are exempted from this rule.

Another important consideration for investors will be the Chancellor’s decision to increase tax rates on dividends, property and savings income, which will rise by 2% from April 2027.

Jonathan Halberda, Specialist Financial Adviser at Wesleyan Financial Services, said: "We’re fully supportive of anything that helps more people invest. The incentive to invest within a tax wrapper is even greater now that the tax rates on dividend and saving income are being increased.

"But it’s important that anyone now looking to change how they save their money fully understands their options before putting money in the markets. Options like 'smoothed funds', for example, can be held in a Stocks & Shares ISA, and 'smooth' out peaks and troughs in the investing journey. This might be highly appealing to new investors nervous about day-to-day volatility."

Cost of living impact

Motorists were singled out in the Chancellor’s revenue raising measures.

After 16 years of being frozen, Fuel duty will be defrosted in September 2026, at which point phased increases will be imposed until April 2027, after which the rate will grow annually in line with inflation.

And owners of electric vehicles will be hit with a new Road Charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile, which the government says represents around half the Fuel Duty paid by petrol car owners.

This comes in from April 2028 and will rise every year with inflation.