26/11/2025
The 2025 UK Autumn Budget introduces significant measures affecting both personal and business taxation, with a strong emphasis on frozen thresholds, changes to salary sacrifice, and targeted business reliefs.
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📌 Personal Taxation
• Income Tax & National Insurance thresholds frozen until April 2031
o Personal allowance remains at £12,570.
o Higher-rate threshold stays at £50,271.
o This extended freeze is expected to bring nearly 1 million new taxpayers into the system and push around 750,000 into higher-rate tax.
• Salary sacrifice for pensions
o From April 2029, National Insurance relief on pension contributions via salary sacrifice will be capped at £2,000 per year.
• Dividend and savings income
o Dividend tax rates will rise from 2026, and higher rates on savings and property income will apply from 2027.
• ISAs
o The annual cash ISA allowance is expected to be reduced to encourage investment in shares rather than cash savings.
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🏢 Business Taxation
• Business rates relief
o Permanent lower business rates for 750,000 retail, hospitality, and leisure properties, worth nearly £900m annually from April 2026.
o A £4.3bn support package will cap increases in business rates bills for sectors hardest hit by revaluations.
• Capital allowances
o Introduction of a new 40% first-year allowance to encourage investment in plant and machinery.
• Film studios
o One-year extension of 40% business rates relief for UK film studios.
• Compliance & VAT
o Strengthened HMRC compliance, including tighter Construction Industry Scheme (CIS) rules and mandatory VAT e-invoicing from 2029.
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⚖️ Key Takeaways for Clients
• Individuals will face higher effective tax burdens due to frozen thresholds and reduced reliefs.
• Businesses benefit from targeted reliefs and investment incentives, but must prepare for stricter compliance obligations.
• Planning ahead for ISA changes, dividend taxation, and capital allowances will be crucial for both personal wealth management and corporate investment strategies.
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✅ Key Action Points
1. Review your salary-vs-dividend mix (if you run a limited company):
o From April 2026, dividend tax rates increase 2 percentage points (basic → 10.75%, higher → 35.75%).
o If you’ve traditionally paid yourself via a small salary + dividends, now’s a good time to recalculate what that will cost you — higher dividend tax may erode some of the benefit.
2. Make use of tax-efficient wrappers now (ISAs, pensions, SIPPs):
o Taxes on savings income will increase by 2 percentage points from April 2027.
o Dividends and interest inside tax-free ISAs or pensions remain shielded — so consider shifting investments into those before changes take effect.
3. Re-assess pension contributions via salary sacrifice (or alternative pension contributions):
o From April 2029, only the first £2,000 of salary-sacrificed pension contributions will avoid National Insurance; above that, both employer and employee NICs apply.
o Directors of small companies (or self-employed who use company pension schemes) should consider topping up now — or evaluate whether non–salary sacrifice pension contributions (e.g. via SIPP) might make more sense.
4. Plan for “fiscal drag” as income thresholds are frozen:
o Income tax thresholds (personal allowance, higher-rate threshold, etc.) are frozen until 2030-31.
o As your income grows over time (e.g. via business profitability or salary), you’ll gradually get pushed into higher tax bands even without explicit rate rises — so budget accordingly, and consider income-smoothing or tax-efficient planning.
5. If you have rental/property or other non-salary income: model the impact:
o From April 2027, property-income tax rates will rise (basic rate 22%, higher 42%, additional 47%).
o If you hold rental property or receive other property-derived income, build the increased tax burden into your cash-flow forecasts now.
6. Revisit your business structure and dividend strategy before next financial year end:
o Given higher dividend taxes, for some small-company directors, being a sole trader / unincorporated business might become relatively more attractive versus limited-company + dividend mix.
o At minimum, run a “what-if” comparison (take-home pay, tax liability, pension contributions etc.) for both options before April 2026.
7. Use favourable pension-wrap or savings-wrap opportunities while they remain more attractive:
o Because the dividend and savings income tax hikes take effect only from 2026 / 2027, there is a short window to shift savings or surplus profits to tax-advantaged pensions or ISAs — especially helpful for self-assessment taxpayers planning to save or invest surplus income.
8. For SMEs employing staff: plan for potential cost pressures from wage increases:
o Minimum wage / living wage hikes (or inflation-linked pay rises) may continue — this raises wage costs which, alongside tighter tax regime, can squeeze margins. (This is indirectly referenced by broader Budget context.)
Adams Watkins and Co,
Licensed UK Accountants.
[email protected]
0800 0614844
