- Another year of frozen thresholds
- State pension rises by 4.1%
- Benefits increase by 1.7%
- Employer costs rise thanks to NI hike and minimum wage
- Stamp duty holiday ends
- Council tax rises
- Energy bills to rise again
- Student fees and maintenance loans to rise (September)
- Childcare support doubles for some (September)
Ahead of a raft of personal finance, tax and pensions changes in April, AJ Bell’s experts look at some of the key changes set to impact household finances heading into the 2025/26 tax year:
Another year of frozen thresholds
April sees the start of a new tax year but, once again, taxpayers will be denied any uprating to income tax thresholds or the personal allowance. Likewise, the inheritance tax-free allowance will be frozen for another year, with Chancellor Rachel Reeves extending the freeze on the nil rate band until 2030.
AJ Bell pensions and savings expert, Charlene Young, says:
“Frozen tax thresholds punish taxpayers by stealth. When asset prices and wages rise but thresholds fail to track inflation, the result is higher tax bills.
“Employees face yet another year of frozen thresholds come April. It means another year when our tax bills are set to go up, despite the headline tax rate remaining the same.
“We will at least be over halfway through the planned freeze on income tax thresholds by then, although the finish line in 2028 will still feel some way off for those taxpayers snared by the stealth tax raid. There has even been some speculation government may yet to look to extend the freeze again.
“Frozen thresholds apply beyond tax on income as well. Astonishingly, the main Inheritance Tax free threshold won’t have changed in over two decades by the time the freeze is lifted in 2030.
“Although a new exemption has been introduced since then – the residence nil rate band – it actually doesn’t compensate for frozen thresholds. Had government done nothing whatsoever other than index the Inheritance Tax allowance to the CPI measure of inflation over the past 20 years then the tax-free limit would be almost £1.1 million for a married couple by 2030 when the freeze is due to end. That’s more than the combined nil rate band and residence nil rate band, illustrating that the freeze has cost taxpayers, despite the introduction of a new IHT exemption.”
Under the triple lock, the state pension will rise from April in line with 4.1% earnings growth in July 2024.
Rachel Vahey, head of public policy at AJ Bell, comments:
“UK pensioners should see a sizeable increase to their state pension, of almost £500 a year, to bring the full new state pension to just under £12,000 from April.
“Criticism of the decision to scrap the Winter Fuel Payment for all pensioners except those that receive Pension Credit still lingers. Claims for Pension Credit have surged in recent months, which should mean the lowest income pensioners end up better off overall, but many others will still be reeling from the £200 most pensioners lost this winter.
“Government will hope this rise in Brits’ state pensions will at least help to publicly reinforce its commitment to the triple-lock guarantee.
“But how long they can keep these promises remains to be seen. The state pension will be at a level perilously close to the personal allowance and should overtake it in a couple of years if things continue, thanks to frozen tax thresholds. At that point something must surely give. But slowing the increase in state pension growth or unfreezing the personal allowance both currently seem unlikely, with pensions minister Torsten Bell ruling out scrapping the triple lock guarantee just last week.
“It could be that this fast-approaching crunch time means the government will finally be forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.”
Rachel Vahey, head of public policy at AJ Bell, comments:
“Payments in the welfare system are normally linked to CPI inflation from the previous September. It means benefits such as Universal Credit, Child Benefit and disability-related payments are due to increase by 1.7% from April.
“Confusingly, the additional state pension – paid on top of the basic state pension (claimed by those reaching state pension age before April 2016) – also increases at just 1.7%, meaning older pensioners expecting a 4.1% to all their state pension could be in for a nasty surprise.
"The DWP plans to implement a raft of reforms in an attempt to curb the growing welfare bill, so future increases are likely to be the subject of heated debate over the coming months.”
Employer costs rise thanks to NI hike and minimum wage
The National Living Wage will rise for those age 21 and over from £11.44 to £12.21 from 1 April. Employer National Insurance will rise to 15% and the threshold falls to £5,000, with the increase starting in the new tax year for 2025/26.
Laura Suter, director of personal finance at AJ Bell, comments:
“Firms are in line for big hikes to payroll costs coming from National Insurance increases and a higher minimum wage. Put together it means that it will cost a business almost £2,400 more to employ someone on the minimum wage working 35 hours per week from April.
“The smallest businesses will be protected from some of these cost increases, as the Employment Allowance will more than double from £5,000 a year – meaning they can claim back up to £10,500 a year on their National Insurance bill. This will also be extended to all businesses, providing some respite for employers.
“Nonetheless, the move will raise huge sums for the government and many businesses have indicated they expect to see the cost of staffing increase by millions of pounds, meaning they have frozen hiring or laid off staff to offset the costs.”
Increased cost of hiring someone on minimum wage:
Stamp duty holiday ends
AJ Bell pensions and savings expert, Charlene Young, says:
“From April the threshold for the 0% rate of stamp duty when buying a home will drop from £250,000 to £125,000, which will cost homebuyers an extra £2,500 if they complete after the end of March.
“For first-time buyers the changes are even more significant. At present there is no stamp to pay on the first £425,000 of a property purchase. But from April that will change to £300,000. The result could be an extra £6,250 on the stamp duty bill for those buying their first home worth £500,000.
“Lots of people will be rushing to complete in the next couple of weeks, which will likely mean there is a slump in transactions once April arrives.”
AJ Bell pensions and savings expert, Charlene Young, says:
“Households across the UK will be receiving letters at the moment notifying them of next year’s Council Tax bills. In many cases they’ll see a 4.99% rise in their bills, an above inflation increase that will be about as welcome as a pothole at the end of the road or the bin collectors going on strike.
“For holiday home owners there is also the prospect of a double tax bill from the local council from April. Councils can charge a premium of up to 100%, for properties classed as ‘second homes’. This can catch holiday homes and furnished investment properties not being rented out. Charges can be even higher for so-called ‘empty properties’ that are unfurnished and unoccupied for long periods of time. Exemptions may apply in some cases, for instance where a property is being used by someone that needs a second home close to work.”
Danni Hewson, AJ Bell head of financial analysis:
“News that energy bills are set to rise for the third time in a row in April and by more than had been forecast will be unwelcome to say the least.
“It’s set to be another ‘Awful April’ for households facing a barrage of bill increases with council tax, water bills, and phone and broadband prices all set to shoot up. Those increases will take a good bite out of the rises in benefits payments, the state pension and the national living wage.
“There is a small silver lining in that the spring should bring warmer weather and longer daylight hours, meaning less reliance on heating and indoor lighting. But there are many households struggling to pay off debts run up since energy prices shot skywards and many more will be wondering if costs will ever return to more ‘normal’ levels.
“Millions of households have already switched to fixed tariffs and won’t be impacted by April’s change, and there are still deals available to those wondering if switching could be right for them, but it’s important if you are locking in for a year or longer to consider how that deal would stack up if the price cap subsequently falls.”
Other personal finance changes to look out for in 2025:
Student fees and maintenance loans to rise (September)
AJ Bell pensions and savings expert, Charlene Young, comments:
“Student fees are set to rise for the first time in eight years, by 3.1% (or £285 a year) to £9,535 a year for those starting university in September.
“Universities were calling for an increase in fees and, although they have got one, it’s been described in some circles as little more than a sticking plaster. There’s also the risk that a rise could put potential students off if they feel they won’t get value for money.
“Maintenance loans are also going up to help with the increased cost of living. The exact increase depends on whether you are studying in London or elsewhere and whether you live at home. But it could be as much as £414 a year for someone living away from home and studying in London.”
Childcare support doubles for some (September)
AJ Bell pensions and savings expert, Charlene Young:
“The continued rollout of the extended free hours childcare funding system will see free hours entitlement double in September.
“This was announced back in 2023 and the rollout began first in April 2024, when 15 free hours were extended to two year olds from the term after they became eligible. From September 2024 that then applied to children from nine months and upwards. Eventually, in September 2025, entitlement for eligible families will be increased to 30 free hours from nine months. It will mark a major increase in childcare subsidies by the time it is in full force.
“However, some people won’t get the full benefit. Those households where there is an earner with income over £100,000 stand to miss out on the new arrangements.
“That compounds the impact of the £100,000 ‘cliff-edge’ which sees higher earners lose out on tax free childcare worth up to £2,000 per child as well.
“In total, families with two children aged nine months and two years old could miss out on £20,000 of additional support by September 2025.
“In contrast, moderately well-off families where the main breadwinner earns £60,000 could access all of this support, with the figures illustrating how middle-income families have benefitted hugely from government reforms to child benefit and free hours childcare funding in the last couple of years, but the highest earners are excluded.”
Source: AJ Bell. Assumes a family where both parents work and the main breadwinner earns £60,000. Children aged nine months and two years old as at the start of each academic year. September 2023 figures factor in 50% entitlement to child benefit, accounting for the April 2024 changes to HICBC. Value of free hours based on UK average hourly childcare prices in Coram childcare survey 2024, uprated by 2% for 2025.
