High earners have been in this Budget’s cross-hairs – especially if they also have investments, rental property, big pension contributions or a £2m+ home. This is a pretty tough financial planning day for these folks. So let’s digest the budget 2025 for those that are climbing the career ladder and have 20 years remaining in the workforce.
Here’s a quick summary:
- Your PAYE / NICs bill will creep up over time via “stealth” tax (income tax and NIC thresholds are frozen, so a bigger slice of your income gets dragged into higher/additional-rate tax as your pay rises with inflation);
- Income from assets (dividends, interest, rental property) is hit directly;
- Generous pension salary-sacrifice and some other “wealthy” reliefs are trimmed; and
- Expensive homes and bigger estates face more property / IHT pressure.
Lets cover these areas in more detail below.
1. Earned income, NICs and student loans
Fiscal drag on salary and bonuses
From April 2028 to April 2031 the income tax Personal Allowance (£12,570), higher-rate threshold (£50,270) and additional-rate threshold (£125,140) are all frozen, as are the equivalent NIC thresholds.
- As your pay rises with inflation, more of your income is dragged into higher and additional-rate tax / NICs, even though the headline rates haven’t changed.
- Treasury’s own distributional analysis says three-quarters of the extra revenue from freezing income tax and NIC thresholds comes from the top half of households.
If you’re already above £50,270 (or £125,140), you’re the prime target for this “stealth” rate rise.
Plan 2 student loans (relevant for many graduates in their 30s-40s)
The Plan 2 repayment threshold is frozen at £29,385 from April 2027 for three years.
- If your salary keeps increasing, more of your income will sit above this frozen threshold, so your annual student-loan repayments will rise faster than they otherwise would.
2. Dividends, savings and rental property – direct tax hikes
The Budget explicitly says it is raising taxes on property, dividend and savings income to narrow the gap with tax on work.
If you’re a high earner with investments, you are squarely in scope.
Rental property income
From 6 April 2027, there will be separate, higher rates for property income in England, Wales and NI:
- Property basic rate: 22%
- Property higher rate: 42%
- Property additional rate: 47%
So if you’re already a 40/45% taxpayer on other income:
- Your rental profits will now be taxed at 42% or 47% rather than the current 40%/45% income-tax rates.
Dividend income
From 6 April 2026:
- Ordinary rate (basic-rate band) on dividends increases by 2 percentage points to 10.75%.
- Upper rate (higher-rate band) increases by 2 points to 35.75%.
- Additional rate stays at 39.35%, but more people will drift into it because of frozen thresholds.
If you pay yourself via dividends from a company, or hold a sizeable equity portfolio outside ISAs/pensions, your ongoing dividend tax bill will noticeably rise.
Savings (interest) income
From 6 April 2027, tax on savings income goes up by 2 percentage points across all bands: basic 22%, higher 42%, additional 47%.
This mainly affects high earners with large cash or bond portfolios held outside ISAs and pensions.
Allowances work less hard for you
From April 2027, reliefs and allowances are applied to other income before property, savings and dividends, so your asset income is more likely to spill into higher/additional-rate bands.
3. Pension salary-sacrifice and other “wealthy” reliefs
Cap on salary-sacrifice NIC relief for pension contributions
From 6 April 2029 the Budget:
- Charges employer and employee NICs on pension contributions made via salary sacrifice above £2,000 per year per person.
So:
- if you currently sacrifice (say) £20,000 of salary into your pension each year, today you save employee NICs and your employer saves employer NICs on the full amount;
- after 2029, only the first £2,000 gets that NIC advantage. On the remaining £18,000, full NICs will be due.
- HM Treasury explicitly notes that this change targets arrangements that have “disproportionately benefitted higher earners”, while shielding 74% of basic-rate taxpayers using salary sacrifice.
For high earners who’ve been using large salary-sacrifice structures, this is a material hit to the tax-efficiency of contributions.
Employee Ownership Trust CGT relief cut
If you’re a business owner planning to sell to an Employee Ownership Trust (EOT):
- CGT relief on qualifying disposals will fall from 100% of the gain to 50%, after 26 November 2025.
- That means half of the gain becomes subject to CGT, which is targeted directly at larger business sales where the relief had become very expensive.
4. Property wealth and inheritance
High Value Council Tax Surcharge (HVCTS)
If you own a home in England worth £2m+, from April 2028 you’ll face an extra annual charge on top of normal council tax:
- Properties £2m–£5m: surcharge starts at £2,500 per year.
- Properties over £5m: surcharge up to £7,500 per year.
- It’s charged to owners, not occupiers, and fewer than 1% of properties are expected to be caught.
Inheritance tax and pensions
For larger estates and high-net-worth families:
- IHT nil-rate bands stay frozen until April 2031, adding more fiscal drag as asset values rise.
- From April 2027 unspent pension pots come into scope of IHT, reducing the ability to use pensions as an inheritance shelter.
- Certain trust-related charges for former non-doms are capped and tightened.
All of this shifts more long-term IHT risk onto high-asset households.
5. Overall: who really feels it?
Treasury’s own distributional chart shows that:
- the biggest net losers (as % of income) are in the richest 10% of households;
- lower- and middle-income households are broadly protected or even net beneficiaries once you factor in welfare and public-service spending.
So if you’re:
- a higher- or additional-rate taxpayer
- with significant dividends, interest or rental income
- making large pension contributions via salary sacrifice
- and/or owning a £2m+ property or a business you might sell to an EOT
you’re very much in the group being asked to shoulder more of the fiscal consolidation.
6. Practical planning angles (high-level)
Not advice, but things a high earner might sensibly review now:
- Max out ISAs so more dividends/interest are sheltered before the higher rates bite;
- Re-think pension funding structures – salary sacrifice is still useful up to £2,000; above that, compare with standard contributions/employer contributions;
- Model rental profitability under 42–47% property rates if you’re a landlord;
- Plan for HVCTS if your home is likely to be valued above £2m in 2028;
- Update IHT planning, especially around pensions and trusts.
If you want some help, get in touch.