Budget could have a ‘big and immediate’ impact on separating couples

Created: 5 December 2025

Despite weeks of rumour and an unusual “scene-setting” speech beforehand, the Chancellor stuck firmly to the pledge: no increases to income tax, national insurance or VAT.

For people working in family and private client law, the Budget may have felt quieter than expected. The freeze on Inheritance Tax (IHT) thresholds until 2031 continues, meaning the main threshold will have been unchanged for more than two decades, but there was one change that many see as genuinely helpful.

Under the new rules, unused business and agricultural tax allowances can be passed between spouses or civil partners. Practitioners say this should make life a little easier for families with farms or trading businesses, potentially giving surviving partners up to an extra £1 million in relief.

Some financial specialists warn that freezing the thresholds will still draw more families into the IHT net over time, with revenues expected to climb significantly as house and asset values rise.

Property taxes: the mansion surcharge arrives

Predicted big changes to stamp duty didn’t materialise, and the idea of doubling the highest council tax bands was quietly dropped. But a new mansion-style tax did make it into the final plans.

From 2028, anyone with a home worth between 2 and 5 million will face a yearly surcharge of £2,500. For homes above £5 million, it jumps to £7,500. Fewer than 1% of properties will be affected, but the measure is expected to raise over £400 million by 2031. The government says it’s about addressing unfair differences in property taxes across the country.

Family lawyers have been quick to point out that this new surcharge could create real difficulties for people who’ve recently separated or divorced. Often, after a breakup, one person stays in the family home but with significantly less income. Adding a yearly charge on top of that could make remaining in the home impossible. There’s also the risk that settlements already agreed may need revisiting. Someone receiving maintenance might now try to increase it to cover the new annual costs.

Pensions: good news on payments, but warning signs ahead

The state pension will rise by 4.8% next April thanks to the triple lock. But there’s a catch: because tax thresholds remain frozen, the full state pension could start nudging pensioners into paying basic-rate tax by 2027. The government says it’s looking at ways to ease the admin for people who rely on the state pension alone.

At the same time, advisers are warning that reducing the ISA allowance for under-65s to £12,000—and including unused pension funds in IHT calculations—may discourage long-term saving. The sense is that saving is becoming more complicated and less rewarding.

Legal sector spared one tax - but not another

One piece of good news for the legal industry: the government dropped the idea of introducing a new tax on LLPs. Many in the profession had argued it would have been a major burden at a time when firms are already adapting to new regulatory demands.

But there was less good news elsewhere. The Capital Gains Tax relief on Employee Owned Trusts (EOTs), a popular route for firms planning succession, has been cut from 100% to 50%. This makes selling to an EOT more expensive for founders. Still, many practitioners think EOTs will remain attractive because they allow firms to preserve their culture and stability, and create an internal buyer without the intensity of an external sale.

Separation and divorce: “More stress, more cost, and more rethinking”

For people currently dealing with separation or divorce, this Budget creates fresh complications. Months of uncertainty have slowed the property market, leaving many couples stuck in limbo with unsold homes and stalled purchases, adding emotional strain at an already difficult time.

The new mansion surcharge won’t help either. It may make it harder for both partners to find suitable homes, and it could disrupt any agreements that were based on previous assumptions about housing costs.

Pension changes add another layer of difficulty. Existing pension-sharing orders may need to be recalculated, and the freeze in income tax thresholds means more people will get caught by “fiscal drag”, paying more tax even when their real income hasn’t increased.

All of this means the process of separating could become more expensive and more challenging. While the changes are driven by financial policy, their day-to-day impact will be deeply personal for the many families trying to rebuild their lives.

Taken together, the latest Budget is a reminder that financial policy doesn’t exist in isolation; it filters directly into the practical realities of people’s lives. While the government has tried to balance stability with revenue-raising measures, the ripple effects are particularly sharp for anyone navigating a separation, managing property, or planning for retirement. Even changes that seem technical on the surface, like tax freezes, pension adjustments or revised surcharges, can reshape decisions about homes, finances and long-term security. For many families, the coming years may require more careful planning, more advice and, in some cases, a return to agreements they thought were settled.