Autumn budget 2025: What does it mean for separating and divorcing couples?
Reforms introduced in the Autumn budget which will influence how families manage their finances when separating and divorcing has highlighted the importance of taking specialist legal advice.
The changes have created a more complex financial landscape which means early assessment, careful evaluation, detailed consideration and thorough reviewing of pension division is more important than ever.
What are the key changes affecting separating and divorcing couples in the Autumn budget?
As well as introducing reforms to help lower income families, like the removal of the two-child benefit cap, the budget has also focused on changes to the taxation of wealth, property income and investments which will particularly affect separating couples with complex assets.
Income tax
The Personal Allowance, higher rate and additional rate thresholds, have been frozen for three more years until 2031. This pulls more people, via ‘fiscal drag’, into higher rate tax bands.
This could also mean that those paying retail price index and consumer prices index-linked maintenance orders will see potential increases in payments and also generally introduces a need to effectively plan how cash flow is managed post-divorce.
Pensions and Inheritance Tax
With salary-sacrifice pension contributions to be capped at £2,000, these schemes will become less tax-advantageous. Pension contributions above £2,000 per month may lose their NIC (National Insurance Contribution) benefit from 2029.
This means the ability of divorcing parties to rebuild their pensions post-divorce needs to be factored into the equation and may affect how a settlement is structured.
The Government, whilst continuing its commitment to the pension Triple Lock for the duration of this parliament, is introducing Inheritance Tax (IHT) on pension benefits from April 2027.
Crucially, this means that whilst pension funds nominated for spouses or civil partners will be exempt, those nominated for cohabitees will be subject to an IHT charge.
Benefits and household budgets
The scrapping of the two-child benefit cap on means tested benefits may increase the income available to some families which will affect calculating and structuring any settlement. It could also affect negotiations where one parent earns a lot less than the other.
At the other end of the spectrum, the new high value council tax surcharge, known as the ‘mansion tax’, means residential properties worth over £2 million will pay an annual surcharge of £2,500. This will mean, where appropriate, budgets will need to be adjusted.
Investment income
From April 2026, taxation on income from assets has been increased including on investment portfolios, rental properties, dividends and savings.
If you derive a significant proportion of your income from savings and investments, careful consideration of net earnings and affordability when looking at a settlement will be vital.
The budget also introduced changes to ISA allowances from April 2027 limiting the investment in cash ISAs to £12,000 a year (for those under 65) which could affect financial planning decisions.
Get in touch
This budget highlights the importance of careful thought and structuring to ensure your settlement is not only fair but protects your future options.
The changes are complex and we have only touched on them here – if you are considering separation or divorce, please contact us to talk through your options and plan the next best steps for you and your family.
As well as legal advice, it’s important to get tax guidance from a financial adviser or accountant when considering the potential structures and approaches to settlement.
We offer, where appropriate, a free initial half hour consultation to explain the divorce process clearly, outline all your options and help you make a plan going forward.
Wards Solicitors is endorsed as a South West leading firm in the independent Legal 500 guide for 2026 having received overwhelmingly positive testimonials from clients with our Family Law Team highlighted as a recommended service area.
Please contact any member of our Family Law and Divorce Team for more information.