Sarah Coles, head of personal finance at AJ Bell, comments: “This was always going to be a dull Budget, by design. However, in an effort to steady the ship and avoid turbulence in the bond market, John Healey threw an awful lot overboard that could have made a real difference to people's financial lives. From inheritance tax, income tax and a pensions tax lock, there were several sensible changes that were notable for their absence.
Pensions IHT
“It’s disappointing that Healey didn’t grasp the chance to halt the changes to inheritance tax on pensions. They will create fiendish complexity, distress and inevitable delays for personal representatives when settling estates at what will already be an emotionally difficult time for bereaved families. In addition, it will result in considerably more work for HMRC, which needlessly runs against the government’s aims to simplify the tax system.
"Even if the government had decided it couldn’t live without the additional revenue this change will bring into Treasury coffers, it didn't need to stick with such an ill-considered approach. There are alternative solutions for taxing pensions on death that could raise the same revenue for government without making life more difficult for everyone.
Pensions tax lock
“The chancellor resisted calls to commit to a pensions tax lock. He hasn’t actually made any changes to pensions tax free cash or tax relief in the Budget, which is a very positive step. However, he chose not to go further and lock in long-term stability for pension savers.
“A clear commitment to a Pension Tax Lock – a pledge not to alter tax relief or tax-free cash entitlements for the long term – would have given savers the confidence to plan for the long term and put an end once-and-for-all to Budget-driven instability.
Simplification
“Healey has chosen not to address the ISA elephant in the room: that tweaks and tinkering by successive governments have introduced horrible complexity to an ISA range that really needed more simplicity.
"The introduction of potentially two new ISAs means we could end up in a position where we have eight separate ISAs at the same time. Right now, we have the Cash ISA, Stocks and Shares ISA, Lifetime ISA, Junior ISA, Innovative Finance ISA, plus the dregs of the closed Help to Buy ISA. After the addition of the First Time Buyer ISA and a Starter ISA, that will bring us to eight.
"There's a huge amount to be celebrated within each of these products but adding more ISAs is simply the wrong direction of travel. Making the rules needlessly complicated throws additional friction into the process of saving and investing. Faced with excess complexity, people often choose the path of least resistance, which can mean giving up altogether.
“Creating a single, main ‘One ISA’, combining cash and investing, would tear down this barrier and allow people to seamlessly transition from short-term saving to long-term investing.
Frozen personal allowance
“The cost of frozen income tax thresholds continues to soar. The Office for Budget Responsibility calculations show that for every percentage point rise in earnings and CPI inflation, the amount of income tax and National Insurance we pay rises by an average of £7 billion a year. That's around £2.5 billion a year more than if thresholds were increased with inflation. At a time of rising inflation, it means the freezes are costing us dear.
"Unfreezing the personal allowance was a big ask, so it’s not a huge shock that the government has chosen a complicated carve out for low-income pensioners instead of lifting it for everyone. However, there will be plenty of people who got their hopes up when Andy Burnham promised to take a look at the frozen personal allowance.
"Instead, we have the double whammy of life getting more expensive for all workers, and an unfair two-tier system for pensioners that means people who only have state pension income are protected, while those who have saved privately are punished for their efforts to do the right thing.
Student loans
"Healey had a real opportunity to tackle growing discontent over changes to the Plan 2 student loan, affecting graduate repayments. A Treasury Committee had called for urgent reform in the summer, highlighting the fact that nobody had told students that the government could vary the terms and conditions of loan agreements retrospectively.
"One of the most controversial changes was announced in the Budget of 2025, when repayment and interest thresholds for those on Plan 2 loans were frozen. As most people will never pay off their loans, freezing the repayment threshold just means more of their income is subject to the 9% repayment charge, adding to the amount they’ll pay back before the balance is written off after 30 years.
“AJ Bell calculations show someone could easily find themselves facing an additional £250 a year of payslip deductions by the time the threshold is due to rise again in 2030. Over the lifetime of the loan that could amount to almost £10,000 of additional repayments for a graduate whose payslip includes a student loan deduction for the full 30 years. Although the exact impact is hard to predict and could be more or less depending on future inflation.
"Graduates who were holding out hope that Healey would enact the recommendations, by unfreezing repayment thresholds and bringing forward the switch from the RPI inflation measure to CPIH will be sorely disappointed they will continue to pay the price for this decision."
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