Chancellor Rachel Reeves’ 2025 Budget introduced a wide range of tax, benefit and cost-of-living measures that could have a direct impact on families going through divorce or separation.
Whether you’re negotiating a financial settlement, discussing child maintenance, or considering issuing proceedings in the future, it’s important to understand how these changes could affect your case.
Below, we highlight the key Budget announcements and explain what they could mean for your situation.
- Frozen Tax Thresholds: More Tax Paid on the Same Income
The income tax bands remain frozen until 2031 – three years longer than planned.
Because salaries tend to rise with inflation, many people will drift into higher tax brackets.
Why this matters in family law
- Spousal maintenance payments may need to be reviewed if either party faces a higher tax burden.
- Net income – not gross – is what matters in court or negotiations. If your tax bill rises, your disposable income may fall.
- This could affect affordability assessments, mortgage capacity and the overall fairness of a proposed settlement.
- Some clients may find their child maintenance calculations shift, as CMS assesses gross income but tax impacts affordability.
If you’re mid-negotiation, it may be worth revisiting any draft budgets or offers.
- Minimum Wage Increases: Changing Financial Circumstances
Minimum wage rises from April 2026 will boost earnings for millions.
Impact on cases
- If your ex-partner receives a wage increase, this may alter child maintenance (based on income).
- For lower-income families, higher wages may increase joint financial stability, which can help with settlement discussions.
- Conversely, rising wages could push some individuals into higher tax brackets because of the frozen thresholds.
- Energy Bill Reductions: Small but Helpful
The removal of some levies on energy bills should reduce annual costs by around £150.
Relevance to family cases
- This may slightly improve household budgets, which are often very tight during separation.
- Lower bills help with housing affordability, especially for the spouse seeking to remain in or secure a new home.
- Higher Costs for Landlords – Possible Rent Increases
Budget documents forecast increased taxes for landlords, likely pushing rents upward.
Why this matters
- If you are renting after separation, your cost of living may rise, affecting your financial disclosure and ability to meet commitments.
- Rent rises can also influence spousal maintenance claims or housing needs assessments in financial remedy cases.
- Road Pricing for EVs: New Costs for Parents Who Drive
From 2028, EV drivers will pay per mile (3p/mile), and plug-in hybrids 1.5p/mile.
Impact on family arrangements
- This may affect parents with long contact changeovers, especially where travel costs are already a point of tension.
- In some cases, additional travel costs could become part of maintenance discussions, particularly where one parent shoulders the majority of travel.
- Cash ISA Changes & Savings Tax Increases
The Cash ISA limit for under-65s drops to £12,000, and savings tax rates rise in 2027.
Why this matters in settlements
- Clients saving lump sums post-divorce may face different tax outcomes than expected.
- Investment vs cash decisions (often made during settlement discussions) may need to be revisited.
- Higher savings tax can reduce the net value of capital over time – relevant when assessing long-term fairness of a settlement.
- Two-Child Benefit Cap: Abolished
Families with three or more children can once again claim benefits for all children from April 2026.
Significance for family cases
- This is a major change for separated families, especially single parents.
- Increased support may:
- Improve the financial stability of the primary carer.
- Reduce pressure on the non-resident parent to make additional voluntary contributions.
- Influence budget discussions and overall settlement structure.
- State Pension Rise: Relevant for Older Clients
The state pension rises 4.8% in April.
Why it might matter
- Pension sharing orders rely on accurate future income projections.
- More pension income may affect older couples’ maintenance needs, especially where one party relies heavily on retirement income.
- Salary Sacrifice Pension Cap: Could Reduce Future Contributions
From 2029, only the first £2,000 of salary-sacrifice pension contributions benefit from NI savings.
In relation to the “Mansion” tax please see separate blog and the impact on your strategy.
Implications
- High-earning clients may rethink their pension strategy, which can alter the value of pension assets.
- This could affect future pension sharing order, needs assessments, and long-term planning in financial remedy cases.
What This Means for Your Case
The Budget highlights an important truth: financial settlements are not static.
Changes in tax, benefits, income and living costs can all impact what is fair—and what is realistic.
If you’re currently negotiating, or if your circumstances are about to change because of these measures, you may benefit from:
- A review of your financial disclosure
- A recalculation of child maintenance expectations
- An updated needs assessment
- A refreshed view of mortgage capacity or housing solutions
- Advice on whether a variation application may be appropriate
- Reconsidering the timing of issuing proceedings or finalising a settlement
Need Advice? Paradigm is Here to Help
Whether your case is ongoing or you’re thinking about starting the process, our family law team can provide clear, tailored advice on how the Budget 2025 changes may impact your rights, obligations and long-term financial security.
Please note: this blog provides general information only and is not tax advice. Individual circumstances vary, and specialist tax advice should be sought where required.