Autumn Budget 2025: What This Means For UK Muslims

The most anticipated Budget in recent years has finally landed. After months of speculation, persistent u-turns and drip-fed deliberate leaks, Chancellor Rachel Reeves has just announced a raft of changes that combined amount to the highest tax burden in UK history.

This budget comes off the back of last year’s Autumn Budget which delivered probably the most significant set of tax changes we have seen since 1993.

We’ve gone through the announcements and extracted the key highlights for both workers and businesses. We’ll also comment on the impact on Muslims especially.

What Is The Budget And Why Does It Matter?

The Budget is essentially the UK government’s annual financial master plan, where the Chancellor (currently Rachel Reeves) lays out how the government plans to raise money and, more importantly, how they’ll spend it.

From the taxes you pay to the benefits you receive, the investments in your local area to the support for businesses – the decisions made in the Budget will hit your wallet directly.

What Are The Key Budget Announcements?

The major headline from the Budget is an eye-watering £26 billion increase in taxes. The UK’s tax burden as a proportion of GDP is now projected to reach an all-time high of 38% by 2030-31 compared to 36% today.

Let’s break down the key highlights that will impact you.

1. NI and income tax thresholds frozen for 3 more years

One of the most significant decisions in this Budget is the extension of the freeze on income tax and National Insurance thresholds for another three years beyond 2028.

On paper, nothing changes because the tax bands stay exactly where they are. In reality, this works as a quiet tax rise.

As wages rise with inflation, more people will be pulled into higher tax bands even though their real spending power has not improved. This is known as fiscal drag. The government ends up collecting more tax not by increasing rates but by letting inflation do the work.

What this means for you

What this means in practice:

• Workers who previously sat comfortably in the basic rate band will start paying 40 percent tax.
• Higher-rate taxpayers may drift into the additional rate band without any real increase in wealth.
• People on lower incomes will pay more of their earnings in tax as the personal allowance loses value over time.

For most households, it creates a treadmill effect. Your wages go up, but so does the share taken by the government.

To respond, you should make use of all the allowances and tax planning tools available to you, which we have covered in detail in our article on halal tax planning for UK residents.

2. Cash ISA limit reduced to £12,000 for under-65s

The government has cut the annual Cash ISA allowance to £12,000 for anyone under 65. For most people, this is still more than enough, and it reflects the Chancellor’s intention to push savers toward investing rather than holding large amounts of cash.

In principle, that is a good thing.

But in reality, most people will simply put that money into the US stock market. That means their savings end up boosting the likes of Apple, Microsoft and Tesla rather than supporting the UK economy.

What we really need is support for investment that stays in Britain and funds real local projects, which is precisely what our GBP income fund (which is IF-ISA eligible) does.

What this means for you

This will probably affect Muslims less than everyone else because most Muslims do not use Cash ISAs anywhere near as much as non-Muslims (due to various reasons such as a lack of options).

But Muslims can still get ahead of the curve by educating themselves about the other types of ISAs and the halal options available to them. You can start by checking out our complete guide to ISA investing for UK Muslims.

3. Minimum wage increased

The minimum wage will rise by:

• around 3 percent from £12.21 to about £12.70 per hour for workers aged 21 and over
• by 8.5 percent from £10 to £10.85 per hour for 18 to 20-year-olds

This move is part of the government’s long-term plan to bring all adults onto a single wage rate.

On the surface, this is clearly positive for workers. Anyone on lower wages will see an immediate boost to their income, which is especially important in a period of high living costs.

However, the impact on employers tells a different story.

What this means for employers

Raising the minimum wage increases the cost of hiring staff. Larger companies may absorb this more easily, but many small businesses operate on tight margins. For them, higher wage costs combine with higher employer National Insurance contributions and rising overheads to create significant pressure.

In practice, this often leads to:

• Slower hiring as firms become more cautious about taking on new staff
• Fewer opportunities for young or inexperienced workers
• Limited room for pay rises above the minimum wage
• Greater reliance on part-time or temporary staff
• Increased prices for consumers as businesses try to protect their margins

For many small employers, the higher wage floor simply reduces the financial space they have to grow, invest and reward staff.

What this means for you

If you earn minimum wage, you will receive a pay increase. If you run a business or work in a sector with tight margins, you may feel the indirect effects in the form of slower hiring or smaller annual pay reviews.

To respond, focus on improving your skills, productivity and earning potential so you remain competitive in a labour market where employers are becoming more selective. If you are a business owner, you may need to review staffing structures and costs to ensure your business remains viable in the year ahead.

4. State Pension increasing by 4.5 percent

The State Pension will rise by 4.5 percent from April. This is a meaningful uplift for retirees, many of whom rely heavily on the State Pension to cover core living costs.

At a time when inflation and bills remain high, this increase will provide real relief for older households. However, it raises important questions about sustainability and fairness for future generations.

Is this fair?

The UK now has roughly 2.5 workers for every pensioner. A few decades ago, that ratio was closer to 5 workers per pensioner. As the population ages and birth rates fall, fewer workers are supporting more retirees.

This makes each pension rise more expensive for the government and places a growing strain on public finances. Workers pay more in tax, yet the money must stretch further to cover the rising cost of pensions and healthcare for an ageing population.

What this means for the future

The core challenge is sustainability. With fewer workers and more retirees:

• The State Pension becomes harder to fund
• Each pension increase adds pressure to the overall budget
• The government has limited options without raising taxes or changing the system

One of the most likely outcomes is a continued rise in the State Pension age. This has already been happening for years. Anyone under 40 today should realistically expect to receive the State Pension in their late 60s or even early 70s.

What this means for you

If you want the option to retire earlier than the State Pension age, you will need your own investments and savings in place. Relying on the State Pension alone is becoming increasingly risky.

The takeaway is simple. The earlier you start investing, the more control you have over your retirement age and the lifestyle you can afford once you get there. If you need help getting started with your investment journey, download our free halal investment checklist.

5. Higher taxes on property, savings and dividends

The government is increasing tax rates on dividend income, property income and savings income by 2 percentage points. This is a major change for anyone who earns investment income, and it is especially significant for property investors who are already dealing with higher mortgage costs and tighter regulations. For many landlords, the return on traditional buy-to-let is becoming less and less attractive.

What this means for you

If you earn money from dividends, savings or rental property, your tax bill will rise.

These changes underscore the importance of using tax wrappers such as ISAs to invest where possible. Particularly when it comes to investing in property – it is increasingly becoming far less appealing to hold property directly if you have a small portfolio sub-£5m. 

For most folks, the most tax-efficient way of getting exposure to the property market is either by owning REITs via their ISA wrapper, or investing in property finance via an IFISA. (sharia-compliant options include Cur8 Capital’s GBP Income Fund and Nester).

6. Salary sacrifice for pensions capped at £2,000

The government has introduced a new £2,000 cap on how much workers can put into their pension through salary sacrifice without paying National Insurance. Salary sacrifice has long been one of the most effective and tax-efficient ways to boost pension contributions, so this cap is a major change.

For many employees, especially higher earners or those who make large annual contributions, this will significantly reduce the tax advantages of pensions. It also runs the risk of discouraging people from saving for retirement at a time when pension participation should be going up, not down.

What this means for you

This cap makes pension saving through salary sacrifice less attractive, but it does not remove the benefits altogether. Pensions will still work well for many people, especially those receiving employer-matched contributions.

However, there is now a clear shift in the balance. As the tax advantages narrow, more people may eventually decide that ISAs offer better long-term value because they remain fully tax free and flexible.

Over time, the balance may tip in favour of ISAs, which remain fully tax free and flexible, but it remains to be seen how people will actually behave.

One thing you can do in the meantime is maximise the other tax reliefs available to you, such as Gift Aid contributions, which can help offset your net income.

7. Scrapping the 2-child benefits cap

The government is removing the cap that previously stopped households on Universal Credit and Child Tax Credit from receiving support for a third or later child. This will take effect from April.

This is clearly positive for low-income families who struggled under the previous cap. However, it will also spark backlash because it increases pressure on the welfare budget, which has been growing steadily for years. The OBR forecasts that welfare spending will rise by £73.2 billion over the next five years, reaching £406.2 billion. This change adds further momentum to that long-term trend.

What this means for you

If you are a low-income family with more than two children, you will receive more support. For everyone else, the key point is the broader direction of travel: the welfare bill keeps rising, which will continue to place pressure on public finances and future tax decisions.

8. Mansion tax introduced

The Budget introduces a new annual levy on high-value homes. Properties worth more than £2 million will face a yearly charge of £2,500, rising to £7,500 for homes valued above £5 million.

This affects a very small segment of households, but it is symbolically significant. It is a clear shift toward taxing wealth held in property rather than income, especially at the top end of the market.

What this means for you

Unless you own a £2 million-plus home, this does not affect you directly. The wider takeaway is the government’s increasing willingness to tax property wealth more aggressively, which could influence future policy and the broader housing market.

9. Green levies removed from energy bills

Household energy bills will fall by around £150 per year as the government removes several green levies currently added to bills. This is one of the more straightforward “good news” announcements in the Budget.

The move provides immediate relief to households after several years of high energy prices. The cost of these levies will now be absorbed elsewhere in the system rather than appearing directly on bills.

What this means for you

Most households will see lower energy bills from April. This is a simple, tangible saving and does not require any action from you. It is a helpful change, even if it is unlikely to transform household finances on its own.

10. Business rates reduced for most, increased for the largest

The government is cutting business rates for around 750,000 retail, hospitality and leisure properties. This is welcome support for high street businesses that have faced years of rising costs.

The change is funded by increasing business rates for properties with a rateable value of £500,000 or more. In practice, smaller businesses receive relief, while larger properties shoulder more of the cost.

What this means for you

If you run a small shop, café or hospitality business, you should benefit from lower business rates. If you operate from a large commercial property, expect higher bills. This creates a clearer split between small and large operators, with relief targeted at those most under pressure.

12. Customs duty relief removed for low-value imports

Currently, overseas retailers can ship goods worth less than £135 to the UK without paying import duties. This has given companies like Shein a clear advantage over UK brands and retailers. The government is removing this relief, meaning all imports will face the same duty rules regardless of value.

This levels the playing field between UK businesses and overseas fast-fashion or low-cost retailers.

What this means for you

If you shop frequently from ultra-cheap overseas brands, expect prices to rise. For UK businesses, this is a positive step that reduces unfair competition and supports domestic retailers who previously could not compete on price.

How Should You Respond To The Budget?

These are just some of the key highlights from a packed Budget. The bottom line is whilst workers have been directly protected, investors and business owners have been hit hard which in turn will trickle down to workers. That being said, there are workarounds available for savvy individuals which we plan on covering more in the coming months. 

The important thing is not to panic and to use this as an opportunity for you to review your financial situation, seek professional advice where necessary and adjust your plans accordingly.

What do you think of the changes announced in the Budget? Let us know in the comments!