Autumn Budget 2025

The main change announced was the ability to transfer the unused APR/BPR £1 million allowance between spouses as you can for other allowances.  When this new cap was originally announced, this was not the case, and many have been in the process of reorganising assets and rewriting wills to maximise the allowances available.  However, depending on the detail of this announcement, this may no longer be required. 

The current thresholds (nil rate band £325,000 and residence nil rate band £175,000) have been maintained at their current level since April 2009, this has now been extended for a further year to 2030/31.

A 2% increase in the basic, higher and additional rates of income tax on rental income will be introduced with effect from April 2027, raising the rates to 22%, 42% and 47% respectively. 

This change may prompt more private landlords to consider incorporation, bearing in mind that corporate tax rates are generally lower than income tax rates (being between 19% to 25%) and as companies can claim full tax relief for any mortgage interest paid.

Alternatively, some landlords may be encouraged to sell their properties. The proposed tax increases may simply be a bridge too far, particularly when combined with other mounting pressures, such as the forthcoming Making Tax Digital reporting requirements, ongoing mortgage interest relief restrictions and the new Renters’ Rights Act 2025 which introduces significant additional obligations on private landlords.

From April 2026, dividend tax rates will rise by 2%. The basic rate will increase from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%, while the additional rate remains unchanged at 39.35%. Dividends paid on investments held within tax-advantaged wrappers such as ISAs and SIPPs will continue to be tax-free. Outside these wrappers, dividend income is subject to income tax, though all taxpayers benefit from a £500 dividend allowance each tax year, in addition to the £12,570 personal allowance. 

While this change will affect investors, it is likely to have a greater impact on business owners and their remuneration strategies. Over recent years, the tax advantage of taking dividends over salary has narrowed, but dividends generally remain more tax-efficient even after this rate increase. The balance begins to shift towards salary when extracting profits of around £450,000. However, dividends still offer a timing advantage: tax on dividends can be payable up to 20 months after payment, compared to salary taxes deducted immediately. With current interest rates, the potential return on funds during this deferral period often outweighs the reduced tax benefit.

Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance Contributions (NICs) from April 2029. 

This means that salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system and therefore be subject to both employer and employee NICs. 

Very broadly, we estimate that where an employee on a £50k salary contributes 5% into their pension, the combined employee and employer NICs might only be around £85 more a year under these new rules, whereas where an employee on a £110k salary contributes 10% into their pension (perhaps to stay under the £100k threshold for childcare funding for example), the combined employee and employer NICs might be around £1,500 more. 

The exact net impact for employees will depend on other factors, for example, if their employer currently ‘passes on’ their employer NIC savings onto the employee or not. 

It was announced in the Budget that from April 2026 the main pool WDA will be reduced from 18% per annum to 14% per annum. This will mean that companies/unincorporated businesses will receive full relief for plant and machinery and other main pool items at a slower rate than before this date. 

Companies will still be able to claim the £1 million Annual Investment Allowance (AIA) and 100% full-expensing relief on new qualifying plant and machinery, with this reduction most likely to affect businesses with large brought-forward balances on the main pool or those purchasing cars that qualify as main pool expenditure, i.e., those with emissions between 1 – 50 g/km. 

For example, a company purchasing a car for £50,000 with emissions of 30 g/km, would, prior to the rate change receive £9,000 of capital allowances in year one (£50,000 x 18%), resulting in a corporation tax saving of £2,250 (£9,000 x 25%) on the assumption the company is subject to the main rate of corporation tax, and 18% capital allowances on the writing balance each year thereafter. Following the rate change after April 2026, the company would only receive capital allowances at 14% on the written down balance. A hybrid rate applies for businesses whose chargeable period spans 1 April for corporation tax or 6 April for income tax.

It was also announced that from January 2026, a new permanent first-year allowance will apply to certain main pool plant and machinery beyond the current availability of 100% full-expensing relief. As a reminder, 100% full-expensing relief can be claimed on assets which would otherwise qualify for the main pool (excluding cars); however, they must not be: 

• Second-hand assets or assets acquired from connected parties; 

• Leased out; or 

• Long-life assets (assets with a useful life of more than 25 years). 

The new first year allowance announced will enable companies/unincorporated businesses to claim a 40% allowance on the cost of assets (excluding cars) which are leased out, with the remaining 60% being subject to the main pool WDA of 14% per annum on a reducing balance basis. Please note, the new relief is not claimable on second-hand assets or assets which are leased to overseas customers. 

For example, if a company purchases plant and machinery qualifying for the main pool for £100,000 after April 2026, the company will receive immediate relief of £40,000 (£100,000 x 40%) in the year of purchase. The remaining £60,000 would be allocated to the main pool and in subsequent years the company could claim only 14% WDA amounting to £8,400 per annum (£60,000 x 14%). 

It should be noted that the new first year allowance will be available to all businesses, not just incorporated businesses and we expect this to have a significant impact for businesses which primarily lease out assets to customers who will benefit from some accelerated relief. 

As mentioned in the previous section, businesses will still be able to claim the AIA on qualifying expenditure up to £1 million, with companies also able to claim 100% full-expensing relief on assets not restricted by the above criteria.

With the increase to 24% in the main rate of Capital Gains Tax (CGT) affecting share disposals, which took effect following the October 2024 Budget, there was some speculation this time last year that this might lead to the Government reviewing the CGT relief available to disposals to Employee Ownership Trusts (EOTs) of a controlling interest in a trading company/group. An EOT is a special type of UK trust, established to benefit all eligible employees of a particular business or group of businesses.   

However, in the build up to the 26 November 2025 Budget, there hadn’t been much comment in the tax press about this idea (possibly because employee ownership and incentivisation has always been regarded as a key pillar of the Labour movement), so it came as a bit of a surprise that the Government intends to immediately reduce the relief to 50%, with effect for disposals on or after Budget Day (26 November 2025).   

The Government has explained this change by saying that the cost of the relief has increased significantly in recent years. The original costing from 2013 suggested the entire EOT tax regime would cost less than £100 million in 2018-19, whereas the cost of the CGT relief alone reached £600 million in 2021-22 and forecasts suggest it could rise to more than 20 times the original costing to £2 billion by 2028-29.  

Whilst undoubtedly a setback for those considering this type of succession strategy for their business, our initial reflection is that the majority who were exploring this idea will still be motivated to pursue an EOT sale. With the 50% relief, in effect the maximum CGT rate will be 12%, compared to 24% for a more conventional third-party sale or Management Buy-Out (MBO).

In a move aimed to encourage savers to invest in stocks rather than keeping their investments in cash, a change to the ISA allowances has been announced which will take effect from April 2027. The overall annual ISA allowance will remain at £20,000 but a maximum of £12,000 per year can be paid into a cash ISA, and the balance can only be invested into a stocks and shares ISA. This change does not apply to over 65s, who will be able to continue to invest up to £20,000 into cash ISAs each year. 

Investments into VCTs currently attract tax relief of 30% of the amount invested (up to £200,000 per year), which is deducted from the tax liability for the year of investment. This relief will be reduced to 20% of the amount invested from 6 April 2026, perhaps making these investments a little less attractive from a tax perspective. This relief is clawed back if the shares are sold within 5 years of the date of investment. VCT shares do still have the benefit that dividends are tax free, and the gains are also exempt from Capital Gains Tax on sale as long as they remain approved VCTs and subject to the annual investment limit of £200,000. 

The eligibility requirements of EMI Schemes are being expanded with effect from 6 April 2026 to make it easier for larger and growing companies to attract high calibre staff and to better reward them in a tax-efficient way. 

This includes: 

• Increasing the limit on the maximum value of options a company can grant over its shares from £3 million to £6 million. 

• Increasing the size-limits of the company granting the options: those with gross assets of £120 million and up to 500 employees will be able to qualify (up from £30 million and 250 employees respectively) 

• Extending the period in which the option can be exercised from 10 years to 15 years. Eligible companies will be able to request for this measure to be applied retrospectively to existing EMI contracts which have not already expired or been exercised by April 2026.

Personal tax thresholds have been ‘frozen’ since April 2019 and were due to be ‘defrosted’ in April 2028. However, the Chancellor announced today that the freeze will continue for a further three years, until at least April 2031. She said this was her way of “asking everyone to make a contribution” to her Budget plan and the expectation is that this will raise around £8 billion for the Treasury.

The income tax personal allowance, the higher-rate threshold and additional-rate threshold will therefore remain at £12,570, £50,270 and £125,140, respectively. The NICs secondary threshold will also be frozen at £5,000 until 2030-31. So best to keep those jumpers on for a while yet!

From April 2028, a new high value council tax surcharge will be introduced for properties valued at over £2 million (in 2026 prices). This will be an annual charge, payable in addition to existing council tax.

The intention is that there will be four price bands with the annual surcharge rising from £2,500 for a property valued in the lowest £2 million to £2.5 million band, to £7,500 for a property valued in the highest band of £5 million or more. The property values are to be uprated by CPI inflation each year. 

This may lead to price bunching just below each band threshold, potentially pushing down the selling prices of affected houses, particularly in the short to medium term.

There was much speculation that an ‘exit’ or ‘settling up’ tax would be introduced where UK residents were choosing to move overseas. This wasn’t the case, and therefore there are no new tax charges to consider where individuals are moving from the UK.

It is, however, important to remember that there were a large number of changes announced in the 2024 Budget that are relevant to UK residency and to those individuals who were previously classed as ‘non-doms’. 

• A ‘look through’ for UK agricultural land owned by overseas Trusts or other entities is being introduced to ensure that UK IHT can be collected on these assets regardless of whether they are owned outside of the UK. This is similar to the existing rules applying to UK residential property owned by overseas entities.

• It was announced that a cap of £5 million would apply to IHT periodic charges applying to Trusts which previously held excluded property status but were brought into the scope of IHT by the 2024 Budget.

Currently, non-residents who work abroad can make voluntary Class 2 National Insurance contributions each year which count towards their entitlement to the state pension and other benefits. This is at a low cost of just £3.50 per week, compared to voluntary Class 3 contributions, which are at £17.75 per week. It has been announced that from 6 April 2026 non-residents will no longer be able to choose to pay Class 2 contributions. They will instead only be able to pay Class 3, and only if they have previously lived in the UK for at least 10 years or paid at least 10 years of NI contributions while in the UK. It is possible to apply to fill in gaps in your record for recent years, so it would be wise to review and do so while this can be paid at the Class 2 rate.

Charity Tax Relief  

The Chancellor announced the introduction of a new VAT relief for business donations of goods to charities for onward distribution or for use in the delivery of their charitable services. A consultation was launched in April 2025 to consider various businesses and charities’ views on how best to design the relief, whilst of course avoiding fraud and misuse. Currently, VAT registered business must account for output VAT on goods given away to charity (unless certain conditions are met).  

There will likely be conditions attached to the relief i.e. the types of goods that will qualify, the types of organisations that can receive these goods and the purpose for which they receive the goods. This new relief will incentivise charitable donations and is set to be introduced from 1 April 2026.  

VAT and PAYE timely payments  

HMRC are always looking at new measures that can be applied to ensure tax is paid promptly and on time. Currently, you can opt to pay your VAT/PAYE liabilities by direct debit by setting this up in your government gateway account. This is an optional arrangement and requires a UK bank account that can facilitate Direct Debits and a Government Gateway account. HMRC will be holding a consultation in early 2026 to consider ways that prompt payment can be achieved including requiring more tax payments by direct debit. This may become an issue for those clients who are not established in the UK and do not currently have a UK bank account.  

E-invoicing  

By 1 April 2029, the government will require all VAT invoices to be produced and sent electronically, specifically for business-to-business and business-to-government transactions. The aim being to improve productivity by reducing paperwork, cutting errors and improving cashflow. Cloud-based accounting packages like Xero, Sage and Quickbooks already have capabilities to perform this, so perhaps clients should be encouraged to begin using these features sooner rather than later. We will keep our eyes peeled for the government’s implementation roadmap, which is set to be published at the 2026 Budget.   

VAT treatment of land intended for social housing 

The government plans to launch a consultation on the reform of the VAT rules surrounding the development of land intended for social housing to incentivise growth in this area. The main issue facing these types of developments is the ability to recover input VAT incurred during the construction of such sites therefore, we imagine that the review of the rules for these types of developments will involve ways to unlock the recovery of this input VAT.  

VAT on private hire vehicle services 

It was announced that suppliers of private hire vehicles and taxi services will no longer be allowed to operate under the Tour Operator’s Margin Scheme (TOMS) which enables taxpayers operating over the VAT threshold to only pay VAT on their profits, rather than offsetting the VAT on their expenses against the VAT on their takings. This change is set to take effect from 2 January 2026, the exception being where these services are ancillary to other certain travel services that are still able to use TOMS. The driving force for this change is to prevent ride-sharing taxi apps from exploiting the TOMS scheme to avoid paying higher rates of VAT.  

Low value imports  

As it stands, goods with a consignment value of £135 or less are not subject to customs duty (unless they are excise goods, like alcohol or tobacco). The government is looking to remove this customs duty relief from March 2029 at the latest and will be consulting on implementing a new set of customs arrangements for these goods. The aim behind this measure is to support fair competition between high street businesses and online retailers following the recent rapid growth in low value imports.