Index
- Universal Credit two-child limit removed
- New tax rates on property, income, dividends, and savings
- Limit on pension contributions from overseas
- Lifetime ISA (LISA) to be scrapped
Universal Credit Two-Child Limit Removed
Important changes are coming to the Universal Credit (UC) system that could affect many low-income families across the UK. The government has announced that the two-child limit in the Universal Credit Child Element will be removed from April 2026. This limit, introduced in 2017, restricts UC and Child Tax Credit payments to the first two children in a household. Removing it is intended to help reduce child poverty and increase financial support for families.
The change is expected to benefit 95,000 children in Scotland and 69,000 in Wales, with government estimates suggesting it could reduce child poverty by up to 450,000 children by 2029–30. However, many households may still not receive full payments because the overall benefit cap remains in place. This cap limits the total amount a working-age household can receive to £25,323 per year in Greater London and £22,020 elsewhere in the UK.
Universal Credit provides financial support for people who are out of work or on a low income. Payment amounts vary depending on individual circumstances, including income, savings, number of children, caring responsibilities, disabilities or health conditions, and housing costs.
New Tax Rates on Property Income, Dividends, and Savings
The latest Budget introduces several significant changes to the way property income, dividends, and savings interest will be taxed over the coming years. These measures mark a clear shift in the government’s approach to taxing income derived from assets, bringing it more closely into line with the taxation of earnings.
From 2027/28, property income will be pulled out of the existing income-tax structure and taxed under its own rate schedule:
- 22% – Property basic rate
- 42% – Property higher rate
- 47% – Property additional rate
Dividends and savings income have always had their own separate rate schedules, but the budget announced that they will both see a 2% tax increase. From 2026/27, dividends will be taxed as follows:
- Ordinary (basic) rate: 10.75%
- Upper (higher) rate: 35.75%
- Additional rate: unchanged at 39.35%
From 2027/28, savings income will be taxed at similar rates to property income:
- Savings basic rate: 22%
- Savings higher rate: 42%
- Savings additional rate: 47%
The Starting Rate for Savings—the 0% band for low earners—will remain at £5,000 until April 2031.
These higher tax rates are expected to modestly reshape investment behaviour rather than dramatically reduce saving overall. Rental property may become slightly less attractive for some landlords, while savers and investors are likely to make greater use of ISAs and pensions to shelter returns from the higher rates. Dividend investors may also pivot towards growth-oriented funds or accumulation shares. Overall, these changes are designed to narrow the gap between the taxation of investment income and earnings, raising additional revenue for the government while encouraging households to pay closer attention to how—and where—they save and invest.
Limit on Pension Contributions from Overseas
From 6 April 2026, the government is closing loopholes in current Voluntary National Insurance contributions (VNICs) rules that allow those with a limited connection to the UK to build UK State Pension entitlement at a cheaper rate whilst overseas. Class 2 voluntary contributions can no longer be used to preserve or build UK state pension entitlement; class 3 contributions must be used instead. This means that rather than costing £3.50 a week or £182 per year, it will now cost individuals living overseas £17.75 per week or £923 per year, a significant increase. To qualify, they will also need to have either lived in Britain continuously or paid National Insurance in the country for 10 years, up from 3.
The Government has made clear the objective is to restrict state-pension benefits to those with a stronger and more consistent link to the UK. For many—especially those living and working in the UK—the impact will be limited. But for globally mobile workers or long-term expatriates, these reforms may materially change the attractiveness and feasibility of certain pension strategies.
Lifetime ISA (LISA) to Be Scrapped?
A Lifetime ISA (LISA) is a UK savings account for people aged 18–39 to help them save for a first home or retirement. You can save up to £4,000 a year, and the government adds a 25% bonus. You can withdraw the money to buy your first home or after age 60, but other withdrawals incur a 25% penalty.
The UK Government has indicated that the LISA may be replaced following concerns about flaws in the current scheme. A formal consultation is expected in early 2026, which will explore options for a new savings product designed to support first-time homebuyers.
The LISA was launched to help people save either for a first home or retirement, with a 25% government bonus. However, several issues have been widely criticised, including:
- The house-price cap for first-time buyers
- The penalty for early withdrawals
- The scheme’s attempt to serve two very different purposes (housing and retirement)
Recent government budget announcements suggest that the LISA will be phased out and replaced once a new scheme is finalised. The Treasury Select Committee has publicly highlighted the LISA’s structural problems and called for reform. Although the government has not yet legislated to scrap the LISA, the direction of travel strongly indicates significant change.
A new ISA-type product is expected to replace the LISA, with details to be consulted on in 2026. Existing LISA holders’ arrangements have not yet been clarified—including whether bonuses will continue or accounts remain active. If you currently save into a LISA, be aware that the scheme may not remain available long-term. We will have to wait to review the consultation once published in early 2026 and provide a full update then.
The information provided in this guide is intended as a general overview to help readers understand the key measures introduced in the UK Budget 2025. It does not claim to be exhaustive and should not be relied upon as a substitute for tailored professional advice. If you have any questions or require specific guidance, please
speak to one of our experts.
