Budget 2025 brings significant changes that will affect homeowners, families, and anyone with a mortgage or housing aspirations. While there’s welcome news on energy bills and support for families with children, there are also new property taxes and frozen income thresholds that will impact household budgets.
Property Taxes: The New Council Tax Surcharge
High Value Council Tax Surcharge (HVCTS)
From April 2028, if you own a home worth £2 million or more in England, you’ll pay a new annual surcharge on top of your existing council tax:
- £2-3 million: £2,500 per year
- £3-4 million: £5,000 per year
- £5 million+: £7,500 per year
Key points:
- Fewer than 1% of properties are affected
- Based on updated property valuations, not 1991 values
- Levied on owners, so if you own and occupy, you pay it
- Consultation coming in the new year on implementation details
For most homeowners, this won’t apply, but it’s a significant shift in property taxation for those with high-value homes, particularly in London and the Southeast.
Regular Council Tax
The budget doesn’t mandate nationwide council tax increases, but local authorities will have discretion to raise rates (typically up to 3%, or 5% including social care precept). Your local council will announce specific changes for 2026-27 in the coming months.
Income Tax & Take-Home Pay
Frozen Tax Thresholds Extended to 2031
The freeze on income tax thresholds has been extended for another three years until April 2031. This means:
- Personal allowance: Stays at £12,570
- Basic rate threshold: Stays at £50,270
- Higher rate threshold: Stays at 50,270
Why does this matter?
As wages rise with inflation and promotions, more of your income gets taxed at higher rates. This “fiscal drag” means even if you get a pay rise, you might not feel much better off after tax. By 2031, this freeze will have been in place for 11 years.
In 2029-30, three-quarters of the revenue from these frozen thresholds will come from the top 50% of households.
Student Loan Repayments
If you’re on a Plan 2 student loan, the repayment threshold (currently £27,295 in 2025-26) will be frozen at its 2026-27 level for three years until April 2030. This means if your income grows, more of it goes toward loan repayments.
Families: The Two-Child Limit is Gone
This is the headline positive news for families with children.
Removal of Two-Child Limit
The government is scrapping the two-child limit in Universal Credit. This means families can now claim the Child Element for all their children, not just the first two. This change will:
- Lift 450,000 children out of poverty
- When combined with free school meals expansion, lift around 550,000 children out of poverty
- Support 95,000 children in Scotland and 69,000 in Wales
- Come into effect progressively (exact timing TBC)
Universal Credit Increases
The Standard Allowance (the basic UC amount) will increase by over 6% in April 2026. This is part of reforms to rebalance the system and better incentivize work.
Free School Meals Expansion
The government is expanding free school meals eligibility to all pupils in England whose parents receive Universal Credit. This will lift 100,000 children out of poverty and reduce food costs for eligible families.
Childcare Costs for Larger Families
Families with three or more children can now claim more for childcare costs through Universal Credit, with increased maximum amounts.
Free Breakfast Clubs
Over 2,000 new schools will join the free breakfast club scheme in 2026-27, helping families with the cost of morning childcare and food.
Cost of Living Support
Energy Bills: £150 Saving
The average household in Great Britain will save around £150 on energy bills from April 2026 through:
- Government funding 75% of the Renewables Obligation domestic costs
- Ending the Energy Company Obligation (which was funded through bills)
Additionally, 6 million households will get a £150 Warm Home Discount this winter.
Transport Costs
- Rail fares: All regulated rail fares in England frozen for one year from March 2026 (first time in 30 years). Saves up to £300 on the most expensive routes
- £3 bus cap: Extended to March 2027 covering 5,000 routes
- Fuel duty: 5p cut extended until end of August 2026, then gradual return to March 2022 levels by March 2027. No inflation increase in 2026-27. Average saving of £89 next year for car owners
Prescription Charges
Prescription charges in England frozen at £9.90 for a single charge for one year from April 2026. Plus, free morning-after pill will be available in all pharmacies across England.
State Pension Increase
For pensioners, the State Pension will increase by 4.8% in April 2026 (Triple Lock commitment), meaning up to £575 extra per year depending on entitlement.
Mortgage Market & Interest Rates
Interest Rate Environment
The Bank of England has cut interest rates five times during this Parliament. According to the budget:
- Someone taking out a new two-year fixed rate mortgage in September 2025 saves around £1,200 per year compared to June 2024
- The government’s fiscal strategy (reducing borrowing) aims to support the Bank of England in keeping inflation and interest rates low
Housing Market Factors
Several budget measures may affect the housing market:
Positive factors:
- Lower energy bills reduce running costs
- Interest rate cuts improving mortgage affordability
- Planning reforms expected to deliver 170,000 additional homes, boosting GDP by 0.2% by 2029-30
- £39 billion over 10 years for Social and Affordable Homes Programme
Neutral/Negative factors:
- HVCTS may dampen demand at the very top end (£2m+ properties)
- Frozen tax thresholds mean less disposable income for potential buyers
- Ongoing cost of living pressures despite targeted relief
What This Means for the Market
The OBR forecasts private housing investment will grow:
- 2026: 1.4%
- 2027: 6.8%
- 2028: 7.7%
This suggests confidence in housing as an investment, though growth rates moderate later in the forecast period.
Income from Savings & Investments
If you have savings or investments outside tax-sheltered accounts (ISAs, pensions), you’ll face higher taxes:
Savings Income
From April 2027, savings income tax increases by 2 percentage points across all bands. Most taxpayers (90%+) pay no savings tax due to allowances, but if you have significant savings income, factor this in.
Dividend Income
From April 2026, dividend tax rates increase by 2 percentage points:
- Basic rate: ~8.75% → ~10.75%
- Higher rate: ~33.75% → ~35.75%
Protection: Assets held in ISAs remain completely tax-free, with no changes to this treatment.
Electric Vehicles: New Mileage Charge Down The Road
If you drive or are considering an electric vehicle, there’s a significant change coming in April 2028:
Electric Vehicle Excise Duty (eVED)
A new mileage-based charge will apply to electric and plug-in hybrid cars:
- Average EV driver will pay around £240 per year (£20/month)
- About half the rate paid by petrol/diesel drivers in fuel duty
- Self-reported mileage, no tracking required
- Vans, buses, motorcycles, and HGVs excluded (for now)
BUT – Also EV Incentives:
- Electric Car Grant: Additional £1.3 billion funding, extended to 2029-30 (up to £3,750 off eligible EVs)
- VED Expensive Car Supplement threshold: Increased from £40,000 to £50,000 from April 2026 (saves £440/year)
- £100 million additional EV charging infrastructure investment
- 10-year 100% business rates relief for EV chargepoints
The government is trying to balance the need for tax revenue with keeping EVs attractive versus petrol/diesel cars.
What Should You Do?
For All Homeowners
- Check your council tax band and watch for local authority announcements on 2026-27 rates
- Review mortgage deals if you’re coming to the end of a fixed term – rates have come down
- Consider energy efficiency improvements with government support through the Warm Homes Plan (£1.5 billion additional capital)
If You Own a £2m+ Property
- Budget for HVCTS from April 2028 (£2,500-£7,500/year depending on value)
- Watch for the consultation in the new year on implementation details
- Consider estate planning if this affects multiple properties in your portfolio
For Families with Children
- Check UC eligibility – removing the two-child limit means you might now qualify or receive more
- Apply for free school meals if your children are eligible under expanded criteria
- Look into free breakfast clubs at your children’s school
For EV Owners/Buyers
- If buying: Take advantage of the Electric Car Grant before it changes
- Factor in eVED from April 2028 in your total cost of ownership calculations
- Check VED threshold – if you’re looking at cars £40k-50k, you’ll save money from April 2026
General Financial Planning
- Maximize ISA allowances – £20,000/year remains tax-free, and with dividend/savings tax rising, this is more valuable
- Review savings accounts – With higher taxes on savings income from 2027, ensure you’re using allowances efficiently
- Budget for fiscal drag – With thresholds frozen until 2031, your effective tax rate will slowly rise even if headline rates don’t change
The Bottom Line
For most homeowners and families, this budget brings targeted support (energy bills, transport costs, child poverty measures) while asking higher earners and high-value property owners to contribute more.
The frozen tax thresholds until 2031 mean everyone earning above the personal allowance will gradually pay more tax as a percentage of income, but for families with children, the removal of the two-child limit is genuinely transformative.
The property market should remain relatively stable, supported by lower interest rates and planning reforms, though the top end may cool slightly due to HVCTS.
Need help understanding how Budget 2025 affects your specific situation? Get in touch with Acorn Finance for personalized advice on mortgages, property, and family finances.