Budget 2025 – The impact on doctors finances

In this episode of the Medics Money podcast, Ed Cantelo and Andy Pow discuss the recent budget announcements made by Chancellor Rachel Reeves. They delve into the implications of tax changes for healthcare professionals, including income tax thresholds, property income tax rates, and changes to ISAs. The conversation also covers NHS spending plans, pension taxation, and the introduction of new vehicle exercise duties. Ed and Andy provide insights into how these changes may affect listeners, particularly those in the medical field.

Labour’s Second Budget – The Chancellor Comes Back For More 

Rachel Reeves’s Second Budget as Chancellor contained little by way of surprises given how widely leaked all the measures were through months of unprecedented frenzied speculation (which earned the Government a telling off from the Deputy Speaker before Reeves started talking). Added to this the Office of Budget Responsibility had also accidently leaked the Budget before the Chancellor had even stood up in the House of Commons.  

Against more miserable economic data and having already announced a record tax increasing Budget in October 2024, The Chancellor (blaming multiple sources) came back for more raising taxes by £26 billion and bringing the tax take once again to an all-time high of 38% of GDP by 2030-3. 

 In the blog below, Ed, a salaried GP but also a Chartered Accountant and Chartered Tax Adviser, breaks down what the Budget means for healthcare professionals  

Income Tax 

• As expected, The Chancellor continued the freezing of income tax thresholds and allowances until 5 April 2031. In her first Budget Reeves had implied that she would end this freeze in 2028 but, faced with the worsening economy, she backtracked and continues a policy brought in by the previous Conservative Government in 2021. By freezing allowances for another 3 years, and continuing the policy of “Fiscal Drag”, it is thought this will raise £8bn for the Treasury.  

• The £100,000 limit at which the Personal Allowance is withdrawn and the tax-free childcare scheme funding (and free childcare hours) is lost means the marginal rate tax trap remains in place and will also continue to 2031 meaning that this problematic threshold will have been the same for 21 years by then. For more on this see here: https://medicsmoney.co.uk/the-marginal-rate-tax-traps/ 

• At one point it had been expected that Income Tax rates (Scotland aside) would be increased in breach of the Labour Party Manifesto, especially given her unusual speech before the Budget advising that hard choices would have to be made. However, faced with a backlash from her own party, it was leaked that the Chancellor no longer needed to increase income tax rates and this came to pass. However, there were still some income tax changes that are expected to raise £2.2 billion in 2029-30:

• Property income: Property income will be subject to a new separate tax rate from April 2027 – at this point a new “property basic rate” of 22% will be introduced along with a “property higher rate” of 42% and “property additional rate” of 47% (effectively 2% higher than the current non-savings income tax rates)

• Dividend income: There has been an increase in the ordinary and upper rates of tax on dividend income by 2 percentage points from 6 April 2026. The ordinary rate will increase from 8.75% to 10.75% and the upper rate will increase from 33.75% to 35.75%. There is no change to the dividend additional rate which will remain at 39.35%.

• The tax rates on savings income will increase by 2% across all bands from 6 April 2027.  

 Pensions and Investments 

• As expected, the Cash ISA Allowance will be cut to £12,000 for everyone under the age of 65 from 6 April 2027. The total £20,000 ISA allowance in the tax year will remain however. So, of the £20,000 total limit a maximum of £12,000 of the £20,000 can be invested in cash ISAs and a maximum of £4,000 of the £20,000 can be put into a Lifetime ISA for those eligible to do so. The Government hopes that this will encourage more taxpayers to invest in Stocks and Shares ISAs. Note that the Government is continuing to consult on the future of the Lifetime ISA. 

• Despite all the speculation about changes to the tax-free lump sum (speculation that once again led to people withdrawing amounts from their pension earlier than they might want to in order to beat this potential change) and the re-introduction of the lifetime allowance, only one change to pensions was made and this is unlikely to affect those in the NHS.  
• The Chancellor introduced a £2,000 cap on salary sacrifice into pensions with contributions above that being taxed in the same way as other employee pension contributions. This will come into affect in 2029 but does not affect normal contributions such as those made via the NHS pension.  

• Investments in Venture Capital Trusts will receive up-front income tax relief at 20%, down from 30%, from 6 April 2026. 

Other Changes: 

• Drivers of electric vehicles will face a new electric vehicle excise duty which will be payable each year at a rate of 3p per mile for electric vehicles and 1.5p per mile for plug-in hybrids. This will be payable each year alongside normal vehicle excise duty and will come into effect from April 2028. The Government is hoping that this charge will replace falling fuel duty receipts. 

• The 5p Fuel Duty has been extended until September 2026 (it was expected to have been abolished from April 2026). It will gradually increase from then until March 2027 when it will be back to the March 2022 levels.   

• In another long-trailed change, a new “Mansion Tax” (officially named the “High Value Council Tax Surcharge”) was introduced, taking affect from April 2028, with an annual charge of: 

• £2,500 for properties worth more than £2 million

• £7,500 for properties worth more than £5 million

• The Eco energy scheme has been scrapped which the Government says will cut £150 from the average household bill from April 2026. 

• The National Living Wage has been increased to £12.71 from April 2026. Good news for our patients but costly for the NHS in particular GP Practices who may find their budgets eaten into further. The State Pension will be uprated by 4.8% and the “Triple Lock” retained.

• The two-child benefits cap for those on Universal Credit will be lifted from next April, providing further support for those patients of ours who are eligible.  

• The government is also looking at steps to ensure income tax Self-Assessment taxpayers pay tax automatically via regular payments throughout the year. 

The NHS 

• It’s worth noting that health is devolved to the four nation governments so NHS budget changes impact England only 

• The Government is continuing with its plans to abolish NHS England to reduce the “headcount and running costs of Integrated Care Boards”. It is claimed that £1 bn of savings will be made by the end of this Parliament. NHS trusts’ spend on agency staffing is to be reduced by “at least 30% in this financial year”.   

• The Government have announced 250 new Neighbourhood Health Centres “to improve access to care” (120 of which are to be in operation by 2030) through a “Public-Private Partnership” and that old chestnut “an increase in technology budgets to support NHS productivity”. The Government claim they will increase NHS productivity by 2% a year.  

• An additional capital investment in the NHS was announced of £300 million over this Parliament 

• Prescription charges have been frozen at £9.90 for a single charge for 2026/27.  
• The Government are utilising drones to cut NHS blood deliveries from 30 minutes by van to 2 minutes by drones.  

What hasn’t changed 

• There had been talk about Employer’s National Insurance being introduced on the taxable profits of partners which could have potentially affected GP partners – this was not brought in. Likewise, National Insurance was not introduced on rental profits, though there will be a new property income tax rate coming in as above. In fact National Insurance remains unchanged. 

• Pensions were unaffected aside from those using salary sacrifice (which will not affect the NHS pension)  

• There was talk of Inheritance Tax Reforms but in the end the tax remains untouched and thresholds frozen until April 2031. Other capital taxes such as Capital Gains Tax and Stamp Duty Land Tax also remain.  

• Corporation Taxes also remains unchanged 

Conclusion 

For the second time the Chancellor has come back with tax rises to fix the public finances. Many would agree that Rachel Reeves had been dealt a bad hand before she and Labour came to power – whether she has made things worse since the July 2024 election and whether today’s measures will make things any better …. well, we will leave that for you as the reader of this blog to decide!