Moneyfacts reacts to the Budget 2025
The Budget has introduced several tax changes, a review on benefits and a cut to the cash ISA allowance. Moneyfactscompare.co.uk has reacted to some key areas that consumers would be wise to review.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said:
“The Budget can be complex to unravel but it’s essential consumers take time to review how the announced changes will impact them. Some decisions will be hard to swallow, and others celebrated, so undoubtedly there is going to be a divide in sentiment. Those anxious about their situation would be wise to seek advice for support.”
Cash ISA reforms become reality
“The cut to the cash ISA was expected but it will still be disappointing news for hard-pressed savers, where the limit will be brought down from £20,000 to £12,000 from April 2027. Cutting the cash ISA allowance is intended to push savers to consider investing, but it will take a lot of educational work to shift the culture of investing in the UK. However, it is a good decision for the Government to acknowledge those who want risk-free pots later in life. Savers over the age of 65 will continue to be able to save up to £20,000 in a cash ISA each year.
“Cash ISAs are popular and have hit milestones this year. Not only has there been a record number of products and providers offering them, but there have also been significant deposits made by savers to shield their cash from tax. Savers should feel supported and empowered to save risk-free, but there is no denying that cash savings have been struggling over the years to beat inflation. The cash ISA limit cut can have repercussions on institutions, like mutuals, who use ISA deposits as a source of funding, so we could start to see mortgage rates increase, which would cause chaos in the housing market.
“Unless the PSA (Personal Savings Allowance) is abolished in the future, a lower cash ISA limit can mean savers earn more interest outside of a cash ISA, so there will be a greater argument for investing in a stocks and shares ISA moving forward, based on the top rate deals. It will be interesting to see how the shake-up will impact the rates and availability of cash ISAs on offer, but we could well see a stampede of savers rushing to make full use of their current allowance before the limit is cut.”
Investing in the UK
“One of the most fundamental issues on why savers do not want to invest is down to trust. It is no surprise that many are risk-averse and do not feel comfortable putting their hard-earned cash into a product that puts it at risk. We found that almost twice as many savers preferred to use a cash ISA over a stocks and shares ISA and that 55% of consumers save for financial security.
“There may well be those more open to the idea of investing if they plan to leave their cash to grow over time, such as with a stocks and shares ISA. However, the pessimistic sentiment around investing will not improve overnight. One incentive to bring in investors could be for the Government to apply a short-term bonus for investing in UK stocks, like they do to entice savers to take out a Lifetime ISA. They could also consider a reduction in management fees for investing in UK funds. Ultimately, improving financial education is a big part of making consumers feel more informed and empowered to invest, which will take time to improve.”
Further income tax threshold freeze – Millions will see their PSA halved
“More years of stealth tax is far from ideal, with income tax thresholds now frozen to 2031, that means we would have had frozen thresholds for almost a decade. Savers are going to be in dismay of the fiscal drag, as any basic-rate taxpayer who moves up to the higher-rate tax bracket at 40% will see their Personal Savings Allowance (PSA) halved, from £1,000 worth of savings interest tax-free each year to just £500. Savers need to take advantage of their ISA allowance and protect their hard-earned cash from tax. As the cash ISA allowance will be cut down from April 2027, savers will no doubt want to maximise their deposits in the meantime.”
Lifetime ISA ‘overlooked’
“Once again, the much-desired review on Lifetime ISAs has been overlooked, with a consultation not expected until next year. Hopefully, the review will eventually lead to a new product designed with the sole purpose of new buyers in mind, perhaps an echo of the Help to Buy ISA. There have been numerous calls for the upper limit on the property value threshold of £450,000 to be increased on a Lifetime ISA, but also to give savers access to their cash without penalty when they cannot use it to buy a home due to rising house prices. Savers have been granted access before, so it can be done. The 25% Government bonus will still pull in savers, but the product is not suitable for everyone, so savers need to check the terms and conditions carefully.”
‘Mansion tax’ confirmed
“It was heavily rumoured that a ‘mansion tax’ was on the cards, a yearly tax levy on high valued properties, now confirmed to come into force from April 2028. This will be a tiered levy of £2,500 on properties worth more than £2 million, rising to £7,500 on properties worth more than £5 million. Unsurprisingly, the controversy around such property tax changes could steer sellers to feel rushed to transact before the levy comes into force, but homeowners should always seek advice before making any rash decisions. There is a worry this move could discourage homeowners from improving their homes, to keep the value of a home from rising above the £2 million threshold.”
Pensions – salary sacrifice ‘sends the wrong message’
“Salary sacrifice has been a great option for consumers to boost pension provisions beyond auto-enrolment minimum contributions, so the decision to create an annual threshold before NICs are payable, sends the wrong message about long-term planning to diligent savers. There will be many higher earners who try to keep their taxable income below certain thresholds, such as to retain childcare benefits, and salary sacrifice is a means to do so, in the midst of fiscal drag.”
Pension provisions – Do not solely rely on a state pension
“Those concerned about their retirement pots would be wise to seek advice to ensure they are not in line for a shortfall. If investing in a private pension, it’s worth remembering that contributions do not automatically rise in line with inflation, whereas a state pension adjusts in line with the ‘triple lock’ rules. These rules mean the pension must rise each year in line with either inflation (for the month of April), average earnings or 2.5%, whichever the greater. Those investing in a private pension must then be proactive with their contributions, and if in a workplace scheme, make sure they monitor their monthly sum along with their employers’ contributions or take advantage of salary sacrifice.”
Pension shortfall - Wealth tied in homes
“Pensioners might find they need to reduce the value of their estate, in light of a freeze on tax thresholds, and that unused pension pots will fall under Inheritance Tax (IHT) from April 2027. A lifetime mortgage could be an option for borrowers to use some wealth from their home, and it can help them support their retirement plans. Those who are considering an equity release plan would be wise to seek independent financial advice to navigate the abundance of deals and choose the right one that suits their circumstances. Lifetime mortgages have several important factors to consider, such as associated fees, drawdown and, of course, the impact on passing inheritance to family members.”
We are on hand for any data requests in support of the above. Reach out for up to the minute product news on personal finance products, or for daily average rates on savings and mortgages. Our experts are available to help with any additional commentary or broadcast opportunities.
Moneyfacts reacts to the Budget 2025
The Budget has introduced several tax changes, a review on benefits and a cut to the cash ISA allowance. Moneyfactscompare.co.uk has reacted to some key areas that consumers would be wise to review.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said:
“The Budget can be complex to unravel but it’s essential consumers take time to review how the announced changes will impact them. Some decisions will be hard to swallow, and others celebrated, so undoubtedly there is going to be a divide in sentiment. Those anxious about their situation would be wise to seek advice for support.”
Cash ISA reforms become reality
“The cut to the cash ISA was expected but it will still be disappointing news for hard-pressed savers, where the limit will be brought down from £20,000 to £12,000 from April 2027. Cutting the cash ISA allowance is intended to push savers to consider investing, but it will take a lot of educational work to shift the culture of investing in the UK. However, it is a good decision for the Government to acknowledge those who want risk-free pots later in life. Savers over the age of 65 will continue to be able to save up to £20,000 in a cash ISA each year.
“Cash ISAs are popular and have hit milestones this year. Not only has there been a record number of products and providers offering them, but there have also been significant deposits made by savers to shield their cash from tax. Savers should feel supported and empowered to save risk-free, but there is no denying that cash savings have been struggling over the years to beat inflation. The cash ISA limit cut can have repercussions on institutions, like mutuals, who use ISA deposits as a source of funding, so we could start to see mortgage rates increase, which would cause chaos in the housing market.
“Unless the PSA (Personal Savings Allowance) is abolished in the future, a lower cash ISA limit can mean savers earn more interest outside of a cash ISA, so there will be a greater argument for investing in a stocks and shares ISA moving forward, based on the top rate deals. It will be interesting to see how the shake-up will impact the rates and availability of cash ISAs on offer, but we could well see a stampede of savers rushing to make full use of their current allowance before the limit is cut.”
Investing in the UK
“One of the most fundamental issues on why savers do not want to invest is down to trust. It is no surprise that many are risk-averse and do not feel comfortable putting their hard-earned cash into a product that puts it at risk. We found that almost twice as many savers preferred to use a cash ISA over a stocks and shares ISA and that 55% of consumers save for financial security.
“There may well be those more open to the idea of investing if they plan to leave their cash to grow over time, such as with a stocks and shares ISA. However, the pessimistic sentiment around investing will not improve overnight. One incentive to bring in investors could be for the Government to apply a short-term bonus for investing in UK stocks, like they do to entice savers to take out a Lifetime ISA. They could also consider a reduction in management fees for investing in UK funds. Ultimately, improving financial education is a big part of making consumers feel more informed and empowered to invest, which will take time to improve.”
Further income tax threshold freeze – Millions will see their PSA halved
“More years of stealth tax is far from ideal, with income tax thresholds now frozen to 2031, that means we would have had frozen thresholds for almost a decade. Savers are going to be in dismay of the fiscal drag, as any basic-rate taxpayer who moves up to the higher-rate tax bracket at 40% will see their Personal Savings Allowance (PSA) halved, from £1,000 worth of savings interest tax-free each year to just £500. Savers need to take advantage of their ISA allowance and protect their hard-earned cash from tax. As the cash ISA allowance will be cut down from April 2027, savers will no doubt want to maximise their deposits in the meantime.”
Lifetime ISA ‘overlooked’
“Once again, the much-desired review on Lifetime ISAs has been overlooked, with a consultation not expected until next year. Hopefully, the review will eventually lead to a new product designed with the sole purpose of new buyers in mind, perhaps an echo of the Help to Buy ISA. There have been numerous calls for the upper limit on the property value threshold of £450,000 to be increased on a Lifetime ISA, but also to give savers access to their cash without penalty when they cannot use it to buy a home due to rising house prices. Savers have been granted access before, so it can be done. The 25% Government bonus will still pull in savers, but the product is not suitable for everyone, so savers need to check the terms and conditions carefully.”
‘Mansion tax’ confirmed
“It was heavily rumoured that a ‘mansion tax’ was on the cards, a yearly tax levy on high valued properties, now confirmed to come into force from April 2028. This will be a tiered levy of £2,500 on properties worth more than £2 million, rising to £7,500 on properties worth more than £5 million. Unsurprisingly, the controversy around such property tax changes could steer sellers to feel rushed to transact before the levy comes into force, but homeowners should always seek advice before making any rash decisions. There is a worry this move could discourage homeowners from improving their homes, to keep the value of a home from rising above the £2 million threshold.”
Pensions – salary sacrifice ‘sends the wrong message’
“Salary sacrifice has been a great option for consumers to boost pension provisions beyond auto-enrolment minimum contributions, so the decision to create an annual threshold before NICs are payable, sends the wrong message about long-term planning to diligent savers. There will be many higher earners who try to keep their taxable income below certain thresholds, such as to retain childcare benefits, and salary sacrifice is a means to do so, in the midst of fiscal drag.”
Pension provisions – Do not solely rely on a state pension
“Those concerned about their retirement pots would be wise to seek advice to ensure they are not in line for a shortfall. If investing in a private pension, it’s worth remembering that contributions do not automatically rise in line with inflation, whereas a state pension adjusts in line with the ‘triple lock’ rules. These rules mean the pension must rise each year in line with either inflation (for the month of April), average earnings or 2.5%, whichever the greater. Those investing in a private pension must then be proactive with their contributions, and if in a workplace scheme, make sure they monitor their monthly sum along with their employers’ contributions or take advantage of salary sacrifice.”
Pension shortfall - Wealth tied in homes
“Pensioners might find they need to reduce the value of their estate, in light of a freeze on tax thresholds, and that unused pension pots will fall under Inheritance Tax (IHT) from April 2027. A lifetime mortgage could be an option for borrowers to use some wealth from their home, and it can help them support their retirement plans. Those who are considering an equity release plan would be wise to seek independent financial advice to navigate the abundance of deals and choose the right one that suits their circumstances. Lifetime mortgages have several important factors to consider, such as associated fees, drawdown and, of course, the impact on passing inheritance to family members.”
We are on hand for any data requests in support of the above. Reach out for up to the minute product news on personal finance products, or for daily average rates on savings and mortgages. Our experts are available to help with any additional commentary or broadcast opportunities.
