UK Budget 2025: Rachel Reeves unveils tax hike, scraps two-child welfare cap — 15 Key points

UK Budget 2025: Finance Minister Rachel Reeves, whose official title is chancellor of the exchequer, unveiled a tax-raising budget on Wednesday.

The Chancellor of the Exchequer told MPs that she said she would cut the cost of living, and she meant it — “this budget will bring down inflation and provide immediate relief for families.”

"My choices are a budget for fair taxes, strong public services, and a stable economy," Reeves told parliament.

According to an estimate published by the Office for Budget Responsibility, tax rises will raise an extra 26.1 billion pounds ($34.4 billion) a year in tax by 2029/30.

Here's are the key takeaways

— The government is raising taxes on property, dividend and savings income, reflecting the fact that income from those sources faces no equivalent of National Insurance that employees pay.

— Existing allowances will continue to protect those with low to middle amounts of such income.

— The government will maintain income tax thresholds and the equivalent NICs thresholds for employees and self-employed individuals at their current levels for a further three years from April 2028 to April 2031, and inheritance tax thresholds for a further year to April 2031.

— The government makes changes to the rates of income tax applicable to savings income. From 2027-28, the savings basic rate will be increased by 2 percentage points to 22%, the savings higher rate will be increased by 2 percentage points to 42% and the savings additional rate will be increased by 2 percentage points to 47%. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027.

— Reeves announced higher levies for online gambling, a tax on luxury properties, a mileage-based charge for electric-car users and a cap on pension benefits.

— The repayment threshold for Plan 2 student loans will be frozen at £29,385 for three years from April 2027.

— The government changes the rates of income tax applicable to dividends. From 2026-27, the ordinary rate will be increased by 2 percentage points to 10.75% and the upper rate will be increased by 2 percentage points to 35.75%.

— Reeves also announced that a two-child limit on welfare payments would be scrapped in April to help reduce child poverty rates.

"We on this side of the House do not believe that the solution to a broken welfare system is to punish the most vulnerable children. We are lifting 450,000 children out of poverty with the end of the two-child limit," said Reeves.

— UK will exempt new London Stock Exchange listings from stamp duty tax for 3 years. Stamp duty is a tax set at 0.5% that buyers pay when buying newly listed shares on London's markets.

— The UK will impose High Value Council Tax Surcharge (HVCTS) on homes valued at more than £2 million ($2.6 million) The measure, which will come into force in April 2028. A new annual tax on homes worth more than 2 million pounds is expected to raise 400 million pounds in 2029-30. This charge will be based on updated valuations to identify properties above the threshold and will be in addition to existing Council Tax.

— Britain will remove 150 pounds ($198.23) a year on average from energy bills by moving some costs to general taxation and cutting a scheme to help pay for home improvements.

— Rachel Reeves said that Britain will levy a pay-per-mile tax on electric and plug-in hybrid vehicles from April 2028.

"Because all cars contribute to wear and tear on our roads, I will ensure that drivers are taxed according to how much they drive and not just the type of car they own," Reeves said.

— UK has imposed tax rises on most forms of online gambling from April 2026 to raise over £1 billion for public services. A 10% tax on bingo, seen as safer than other types of gambling, will be eliminated from next year.

“Remote gaming is associated with the highest levels of harm,” said Reeves.

— The government is also increasing the National Living Wage to £12.71 an hour from April, giving full-time workers £900 more a year. The move boost will help over 2 million people with the cost of living.

— The government will make the Help to Save scheme permanent and, from April 2028, will expand eligibility to include all Universal Credit claimants who receive the child element, the caring element or both.

Steps to strengthen NHS

— NHS prescription charges in England will be frozen in 2026-27 with the cost of a single prescription remaining at £9.90.

— An additional £300 million capital investment for NHS technology to support NHS productivity and improve patient outcomes.

— The government also announced plans for delivery of 250 new Neighbourhood Health Centres, of which 120 will be operational by 2030.

— The government will ensure continued progress to reduce the waiting list for elective care by protecting investment in the NHS in England.