Reeves’ Budget raids savings, family legacies, pensions and self-employed “wealth”. But on the bright side, our Bingo winnings won’t be taxed anymore…
IPSE MD Vicks Rodwell says Budget was not good news for the self-employed.
“Rachel Reeves says the government wants to make the best place in the world for businesses, but has landed a handful of blows to business owners today,” Matthew Knight, Chief Freelance Officer at The Independency Co., tells The Freelance Informer in response to the Autumn 2025 Budget announcements.
“An increase in taxes on savings and dividends will impact those who are taking on the risk of building a business and penalise people who are sensibly putting away money into an emergency fund,” says the freelancer advocate and strategist.
Knight warns that hitting salary sacrifice pension contributions is likely to “put off” freelancers paying into a pension, where numbers are already worryingly low.
He adds:
And freezing the income tax thresholds is an increase in tax, even if the headline amounts don’t change. Many freelancers are already facing a huge number of challenges and risks running their own business, as well as significant financial anxiety and uncertainty, which has a very real impact on their mental health. I don’t see how this is encouraging or supporting those who are working hard to build their own businesses.
Knight also expresses how more and more people are finding themselves in self-employment, not through choice, but “circumstance”, e.g., redundancy, ageing out, carers, disabled, or neurodiverse.
He continues, “The list goes on—so many can only find work which works for them in self-employment. They’re being hit like they’re ‘companies’ but are just doing their best to make an income.”
Insulted: We’re working people, too
Many of the UK’s self-employed will find the tax raid on pensions especially insulting. In addition, many of the UK’s small businesses and solo self-employed business owners feel misunderstood and misjudged. They feel used as easy tax grab targets, being denied “working people” status.
For example, dividends “earned” from owning stock in a large multinational versus dividends actually earned by a solo self-employed person scaling their own business should arguably not be taxed at the same rate. But they will be.
Dividend income tax hike
Changes to tax on dividend income – The government is changing 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%. The additional rate will remain unchanged at 39.35%. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2026.
Changes to tax on savings income – The government is changing 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.
After today’s Budget announcement, there seems to be less incentive for a solo founder to start a business in the UK or to scale it. Profits should be incentivised, not punished.
Vicks Rodwell, Managing Director at IPSE responded to the new changes announced in the Budget:
“It’s freelancers and solo company owners that lose out most from this Budget. Not only is their personal allowance staying frozen for longer, but their dividend income is being raided too.
“We’re not talking about wealthy investors here – these are hardworking freelancers and small business owners. They have already absorbed a 90% reduction in the dividend allowance since 2017. For the rate of dividends to then be hiked – on the basis that it targets assets and not work – will infuriate freelancers and company directors.
“Company ownership comes with significant responsibilities and risk, and dividends make that risk manageable. Ultimately, this piles yet more pressure onto company owners and sends entirely the wrong message to entrepreneurs and the self-employed.”
Tax “equalisation”: Unfair and not fit for purpose?
Government after government —Tory and Labour— seem determined to “equalise” taxation for employees and the self-employed, despite the latter’s complete lack of equal rights, benefits and support. The risk-reward tax efficiency is so slim these days, people with brilliant ideas could feel it’s just not worth launching that business idea.
However, those of us who have become part of the freelance economy, by choice or fate, should never lose sight of the power we do have to fulfil our tapestry-like portfolio careers alongside our personal and financial goals.
But we can’t put on blinders, so we must face the new challenges. Yes, Chancellor Reeves has announced significant changes that will impact self-employed professionals, contractors, and freelancers across the UK. From frozen tax thresholds to new pension contribution rules.
Here’s everything you need to know about how this Budget affects your income and financial planning.
Tax thresholds frozen until 2031 and your take-home pay
The government is freezing income tax thresholds and National Insurance contribution thresholds at their current levels from April 2028 until April 2031. This means:
- Personal Allowance remains at £12,570
- Higher rate threshold stays at £50,270
- NICs Primary Threshold and Lower Profits Limit frozen at £12,570
While headline tax rates aren’t increasing, frozen thresholds mean you’ll pay more tax as your income rises with inflation. This is often called “fiscal drag” – as your earnings increase to keep pace with the cost of living, more of your income gets taxed at higher rates.
For self-employed individuals, the Lower Profits Limit (the point at which you start paying National Insurance) will also remain frozen, meaning more of your profits will be subject to NICs as your earnings grow.
Property income faces new higher tax rates from 2027
If you earn rental income from property, significant changes are coming from April 2027. The government is creating separate tax rates specifically for property income:
- Property basic rate: 22% (up from 20%)
- Property higher rate: 42% (up from 40%)
- Property additional rate: 47% (up from 45%)
This targets landlords and property investors, who currently pay the same income tax rates as employment income but don’t pay National Insurance contributions. The government argues this makes the tax system fairer, though it will mean less take-home income from rental properties.
If you’re a contractor with a rental property portfolio, you’ll need to factor these higher rates into your financial planning from 2027 onwards.
Dividend income tax rising by 2% from 2026
For contractors operating through limited companies who take income via dividends, tax rates are increasing from April 2026:
- Ordinary rate: 10.75% (up from 8.75%)
- Upper rate: 35.75% (up from 33.75%)
- Additional rate remains at 39.35%
This 2 percentage point increase will reduce your net income from dividends. Combined with Corporation Tax already at 25% for profits over £250,000, the total tax burden on company profits distributed as dividends is rising.
However, the dividend allowance (the amount you can receive tax-free) remains unchanged, and dividends held in ISAs continue to be completely tax-free.
What has changes is the amount you can save in a tax-free cash ISA. That has been slashed from £20,000 to £12,000, according to the Budget. That change will come into effect from April 2027. However, over-65s will not be affected and will be allowed to stick to the £20,000 limit.
Savings income tax also increasing by 2%
From April 2027, tax on savings income is rising across all bands:
- Savings basic rate: 22% (up from 20%)
- Savings higher rate: 42% (up from 40%)
- Savings additional rate: 47% (up from 45%)
Over 90% of taxpayers don’t pay savings based on their Personal Savings Allowance, which gives basic rate taxpayers £1,000 of tax-free savings interest and higher rate taxpayers £500. These allowances aren’t changing, and ISA savings remain completely tax-free.
Major pension salary sacrifice changes from 2029
This is a significant change for contractors using umbrella companies or contingent/temp worker PAYE arrangements. From April 2029, the government will charge employer and employee NICs on pension contributions above £2,000 per year made through salary sacrifice arrangements.
What this means:
- Currently, salary sacrifice for pensions allows you to reduce your taxable income and save on National Insurance. Under the new rules, any pension contributions (employer and employee) via salary sacrifice over £2,000 annually will be subject to NICs from 2029.
- For contractors using umbrella companies who benefit from salary sacrifice pension schemes, this will reduce the tax efficiency of contributing more than £2,000 per year this way. The government states this change protects 74% of basic rate taxpayers using salary sacrifice, but higher earners will be most affected.
Standard pension tax relief (outside salary sacrifice) remains unchanged and continues to be worth over £70 billion per year across the UK.
Student loan repayment threshold frozen for Plan 2
If you’re a self-employed professional with a Plan 2 student loan (for those who started university between 2012 and 2022), the repayment threshold will be frozen at £29,385 for three years from April 2027.
This freeze means you’ll start repaying your student loan at a lower income level in real terms, as wages typically rise with inflation. More of your self-employed income will be subject to the 9% repayment rate once you exceed this threshold.
Voluntary NI changes for those working abroad
From April 2026, significant changes are coming for self-employed individuals working internationally:
- Removal of voluntary Class 2 NICs for those abroad
- Initial residency or contributions requirement increased to 10 years before you can pay voluntary NICs outside the UK
If you’re a digital nomad or freelancer who spends significant time abroad, these changes could affect your ability to maintain your UK National Insurance record and protect your State Pension entitlement.
The government is launching a wider review of voluntary NICs with a call for evidence early next year, so further changes may be coming.
What about business rates and VAT?
There’s some positive news for self-employed professionals with physical business premises. The government is introducing permanently lower business rates for retail, hospitality, and leisure properties, funded by higher rates on expensive properties such as large warehouses.
For contractors and freelancers using ride-sharing taxi apps, the government is closing a VAT loophole that allowed some platforms to pay lower VAT rates by exploiting a scheme intended for tour operators. This levels the playing field.
Capital gains tax and inheritance tax changes
While not directly affecting day-to-day income, several wealth tax changes are relevant to self-employed business owners:
- Business Asset Disposal Relief CGT rate increases to 18% from April 2026 (currently 10%)
- Agricultural and Business Property Relief for inheritance tax being reformed from April 2026, with a £1 million allowance
- Pensions will be brought into inheritance tax scope from April 2027
If you’re planning to sell your business or thinking about succession planning, these changes significantly affect the tax you’ll pay.
The Bottom line for self-employed and contractors
This Budget continues the trend of asking those with income from assets, investments, and flexible working arrangements to contribute more to public finances. The key impacts are:
- Frozen thresholds mean you’ll pay more tax as your income rises with inflation
- Dividend tax increases reduce net income for limited company contractors
- Property and savings income face higher rates from 2026-2027
- Salary sacrifice pension benefits capped at £2,000 from 2029
- Working abroad becomes more complex for NIC purposes
The government argues these changes make the tax system “fairer” by narrowing the gap between employment income and income from assets, but for self-employed professionals and contractors, it means careful financial planning and reevaluating your day and project rates will be more important than ever.
Take a breather, then take action
Don’t let these Budget changes catch you off guard. Review your tax position with a qualified accountant or financial advisor before these changes take effect. Consider:
- Restructuring how you take income from your limited company
- Reviewing your pension contribution strategy before 2029
- Assessing the impact on your rental property income
- Planning for higher dividend and capital gains taxes
New legislation will be drafted in the coming months. Many of these changes require Finance Bills and secondary legislation, which may include additional details or transitional arrangements.
In the meantime, brush up on your Bingo skills. Come the 1st of April, 2026, Bingo duty will be abolished, making the ideal post-Budget night out with your friends, family and fellow freelancers.
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