This briefing from the Social Security & Tax team outlines some key changes to tax, national insurance and social security as a result of the Autumn Budget 2025.
The full Autumn Budget 2025 can be found here: Budget 2025 document - GOV.UK
Tax and national insurance
Income tax thresholds frozen until 2031
Freezing thresholds brings lower-paid workers into higher tax brackets as their pay increases. The thresholds had previously been frozen until 2028, and the freeze will now continue until 2031.
High Value Council Tax Surcharge for homes worth over £2 million
Owners of homes worth over £2 million will pay an annual surcharge of £2,500 from 2028. This rises to a surcharge of £7,500 for homes worth over £5 million.
Plan 2 student loan repayment thresholds frozen until 2030
Freezing thresholds brings lower-paid workers into the repayment obligation. Plan 2 thresholds were frozen until 2028, and these are now frozen until 2030.
NICs relief on salary sacrifice into pension schemes capped
This change only affects employees paid under PAYE.
This change does not affect the Equity Pension Scheme because that is a ‘relief at source’ pension scheme and does not operate a salary sacrifice arrangement.
From 2029, NICs will be paid on salary sacrificed into pension schemes on amounts above £2,000 per year per person. Currently there is no cap on the NICs relief available on payments into a pension via salary sacrifice.
Pay-per-mile motoring tax for electric cars
From April 2028 there will be a pay-per-mile scheme on electric cars. This will be paid alongside the usual car tax and will be around half the fuel duty paid by petrol/diesel drivers.
Tax on State Pension as sole income
Freezing of income tax thresholds and uprating of State Pension risks bringing some people into income tax liability on State Pension alone. If your sole income is the basic or new State Pension without increments, you will not have to pay “small amounts of tax”. The government will set out plans for achieving this.
Access to State Pension for those who live abroad
If you live abroad, from April 2026 you will no longer be able to make voluntary Class 2 NICs payments to buy qualifying years for a UK State Pension and you will need a longer initial residency or greater contributions to be eligible. After April 2026, it will still be possible to make voluntary Class 3 NIC payments to buy qualifying years, but these are more expensive than Class 2 NICs. Any existing contributions will still count.
If you are registered as self-employed and living in the UK, this change does not affect you, and you will still be able to make voluntary Class 2 NICs payments on the same basis as previously.
Cost of living
National Minimum Wage and National Living Wage increased
The National Living Wage - for those aged 21 and over - will rise from £12.21 to £12.71 an hour in April 2026. The National Minimum Wage for 18 to 20-year-olds - will rise from £10 to £10.85 an hour from April 2026. This change will also increase the minimum income floor (MIF) in Universal Credit, as the MIF is calculated using these hourly rates.
Household energy bills to reduce by £150
The government will fund some of the Energy Company Obligation about renewables, which will translate into around £150 off household energy bills.
Prescription charges frozen for one year
Fees will remain at £9.90 for a single charge from April 2026.
Regulated rail fares frozen for one year
Season tickets, commuter peak return fares and off-peak returns between major cities are frozen until March 2027.
Social security
Two-child limit in UC abolished
The two-child limit on the child element of Universal Credit (UC) will be removed from April 2026. This will increase Universal Credit payments for families with more than two children by an extra £3,647 a year per child.
This welcome change has been a top priority for child poverty groups since implementation of the limit in 2017 because it is the key driver of rising child poverty, with 3 in 10 children living in poverty.
However, its impact is undermined for some of those families because the Chancellor has retained a different cap – the benefit cap. This is an overall cap on total household social security payments including Child Benefit. If your UC increases by £3,647 for your third child via abolition of the two-child limit, you won’t necessarily see any of that increase if you are also subject to the benefit cap.
In Scotland, there is already a plan to end the two-child limit via a top-up payment from March 2026.
UC child-care costs
The maximum amount that can be reimbursed for childcare costs for eligible Universal Credit claimants will increase by £736.06 for each additional child above the current maximum cap for two children.
Motability
The Motability scheme allows adults and children in receipt of the highest rate of disability benefit for mobility issues to use these payments to pay for a fixed term lease of a vehicle to get around. After this period, the vehicle cannot be bought and must be returned. They are then usually sold on as a second-hand vehicle via dealerships. It is estimated that the scheme contributes millions to the UK economy.
On 25/11/25, Motability announced it would be removing ‘premium brand’ vehicles from the Scheme with immediate effect. The chancellor referred to these vehicles as ‘luxury’ in her budget statement. These vehicles include BMW, Mercedes and non-UK made vehicles. Motability state they are increasing work with UK-based manufacturers to increase UK made and adapted vehicles.
At the budget, the following changes were announced from July 2026:
VAT at 20% will now be applied to advanced payments which are made for ‘higher value’ vehicles.
There will no longer be a 12% insurance premium exemption
Neither of the above changes will apply to vehicles that are ‘designed for, or substantially and permanently adapted for, a wheelchair or stretcher user.’
Changes to the scheme have been severely criticised by disabled people for the following reasons:
Reduction of VAT relief for Motability: the changes will make advanced payments more expensive for disabled people. Already, 66% of people who are eligible for the Motability scheme do not join it. With the median household income of a Motability customer at just £18,500 (roughly half the UK average) it would appear that even less disabled people will be able access this scheme as a result these increased costs.
Removing ‘luxury’ vehicles: The vehicles in question are typically larger with an unobstructed boot and automatic gear box. These are necessary vehicle requirements for those with wheelchairs/scooters, and for those whose physical impairments that make clutch operation painful, unsafe, or impossible. It is hard to see why they have been labelled as ‘luxury.’ While there may be an effort to increase UK manufacture of accessible cars in the long term, there are concerns about immediate access to accessible vehicles for disabled people.
Campaigners say that there are virtually no cars available without an advanced payment that have the necessary combination of large boot and automatic gear box. They say that any vehicle above a basic model is usually already paid for through an advance payment by the disabled person themselves, not the taxpayer. Therefore, it is unclear how this measure will save the Exchequer any money at all.
Annual uprating
Working age benefits will be uprated from 3.8% in line with September 2025 CPI. State Pension and Pension Credit will increase by4.8% in line with earnings growth.
The standard allowance in Universal Credit will rise by 6.2% from April 2026. This is an above-inflation increase and has been announced previously during the spring 2025 welfare reform announcements. Payments in 2026/27 are as follows:
UC standard allowance under 25: from £316.98 to 338.58 per month
UC standard allowance over 25: from £400.14 to £424.90 per month
A full breakdown of rates can be found here: https://www.gov.uk/government/publications/benefit-and-pension-rates-2026-to-2027
National Living Wage increase and social security payment from 2026/27
The National Living Wage (NLW) - for those aged 21 and over - will rise by 4.1% from £12.21 to £12.71 an hour in April 2026. The National Minimum Wage (NMW) - for 18 to 20-year-olds - will increase by 8.5.% from £10 to £10.85 an hour from April 2026.
Changes to the NLW and NMW will increase the following:
Minimum Income Floor (MIF); for example, if you are over 21 and your MIF is based on 35 hours a week NMW, this would mean a MIF of £1672.43 after notional tax/NI (£919.84 per month taken into account for UC)
Administrative Earnings Threshold (AET): the amount you need to earn PAYE in order to not be required to work search or be available to take work. For a Single person over 21 this is based on 18 hours = £991.38 per month; for a couple over 21, 29 hours = £1597.22 per month.
Permitted work threshold (higher limit): £203.50 per week
Expansion of targeted case reviews on Universal Credit
The targeted case review system in Universal Credit is now continuing until 2031. These measures were expanded in the Autumn 2024 budget as part of DWP’s efforts to reduce fraud and error, and they are now being continued for longer.
One group being targeted is the self-employed, so we are keeping a careful watch on this issue. If you are affected by a targeted case review, please contact our Social Security & Tax helpline.
