Rachel Reeves 2025 Budget: What will these changes mean for you?

Introduction

This past week, Chancellor Rachel Reeves announced the 2025 Budget. This will change taxation, welfare, public services and everyday costs for many UK households. It’s estimated to make around £26 billion in additional revenue between 2029 and 2030. This will be through tax rises, threshold freezes and targeted reforms.

The budget is one of the biggest shake-ups the UK has seen in years and a symbol of great change. The government are planning to use increased taxes to fund and improve public services, support working people and create stability in the economy. So whilst taxes are going up, the government has assured that support will be expanded.

Many of these changes will affect young people. This includes renting, working, saving and travel. So let’s break it all down.

Rachel Reeves announcing her 2025 Budget

2025 Budget means Higher Taxes on Wealth, Savings and Investments

One of the biggest changes in the budgets is the government’s desire to make wealthy people pay more. That is people earning money from property, savings and investments. So what does this entail?

Well, from April 2026, tax rates on the following will go up by 2 percentage points:

Money you make from dividends
Money earned through savings interest
Rental Income (for landlords)

Additionally, owners of property valued at £2 million or more are expected to pay a new annual council tax surcharge. This will start at roughly £2,500 per year, with more expensive properties expected to pay more. The government has announced that fewer than 1% of UK homes will be affected.

The government are hopeful that through these initiatives, the tax gap between income earned from work and income earned from assets will narrow.

Changes to Pension and Savings

The budget has also changed the way pension savings work. From April 2029, people who use a salary-sacrifice pension scheme (a way to get tax perks by putting earnings straight into a pension) will face limitations. Anything over £2,000 a year won’t get the tax advantage.

Meanwhile, cash ISA allowances for under-65s will go from £20,000 to £12,000 from 2027. The government reasoning behind this? To encourage savers to look at equities and other forms of investment.

But since these measures are put in place to help support people… Who gains from the 2025 Budget Changes?

Although the budget changes raise taxes on wealth and assets, Reeves has included policies that will help with rising costs. These are mainly targeted at lower-income earners and working families to help ease financial pressure.

The biggest decision is scrapping the 2-child benefit cap from April 2026. This change is set to take hundreds and thousands of children out of poverty.

Additionally, the National Living Wage is also going up again in 2026. This will help workers on lower incomes to earn more money. Additionally, many young workers in retail, hospitality and entry-level jobs will see an increase in their pay.

Furthermore, the budget changes mean good news for commuters:

Rail fares are frozen for at least a year.
Fuel duty stays frozen until August 2026.
Energy bills are expected to reduce to about £150 from 2026.

The government predicts that by implementing these changes, inflation will reduce by 0.4 percentage points next year. If this happens, it will be the largest inflation cut from government policy since the 1990s. Additionally, this will widely benefit young adults, who heavily rely on public transport or drive, as they won’t have to deal with unexpected rises in cost.

So what does this mean if you’re in your 20s…

Well, if you’re young and struggling with the cost of living, paying for rent, and your job salary isn’t doing enough, then this is probably a sign of relief. Wage increases, cheaper travel and lower energy bills are definitely appealing to the youth.

But, if you’re beginning to save or invest, be mindful of the taxes that will come into place. The current changes make it harder to grow wealth through savings alone, pushing people to invest earlier. This could be good or risky, depending on your approach.

Conclusion

The 2025 Budget under Rachel Reeves is a sign of rebalancing. That is to push to tax wealth more heavily and support public services. Additionally, providing help and reducing pressure lower-income houses face. Will it play as well? Well, that is yet to be determined.

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