29/11/2025
Autumn Budget 2025
After an Autumn Budget overshadowed by an extraordinary leak from the Office for Budget Responsibility (OBR) and months of speculation, the Chancellor Rachel Reeves on Wednesday 26 November 2025 has unveiled tax-raising measures worth up to £26 billion.
The Budget began in a shambolic fashion after the (OBR) report was published online due to a “technical error” more than an hour before the Chancellor even stepped towards the despatch box.
Among the tax measures announced in the speech were:
• Extension of the personal tax bands for three further years
• National insurance on pension salary sacrifice
• Reduction in capital gains tax relief on employee ownership trusts
• Mileage-based charge on electric vehicles
• A high-value council tax surcharge on properties worth over £2m
• Freeze on fuel duty for five months
• Expansion of the sugar levy to milk products like lattes and milkshakes
• Increase in the national minimum wage and living wage
• Introduction of a tourism tax for local authorities
• Introduction of a gambling duty reform
• A reform of the ISA allowance
• Tackling construction industry scheme fraud
• Pursuing promoters of tax avoidance
• Publication of the government’s response to the loan charge review.
Below is a summary of some of the key tax measures announced in the UK Budget 2025, which may be of interest to you.
Income Tax
Dividends
From 2026/27, the dividend ordinary rate will increase from 8.75% to 10.75%, and the dividend upper rate will rise from 33.75% to 35.75%. The dividend additional rate remains unchanged at 39.35%, This change will make it more costly for business owners to extract monies for their owner managed company.
The current £500 of exempted tax-free dividend income will not change, although this has been reduced by successive chancellors and is now very limited.
It fell from £5,000 to £2,000 back in April 2018, then it was slashed to £1,000 in April 2023 and just £500 in April 2024. To make matters worse, the dividend tax rate was hiked in April 2022 too – up 1.25% for every tax bracket.
Savings
Savers will be hit by a further tax blow with a 2% increase in the tax on savings interest.
From 2027/28, the savings basic rate will increase from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%.
The current tax-free savings interest thresholds will be frozen, gradually losing their advantage, so the £1,000 basic rate and £500 higher rate limit will remain, while those in the additional rate tax band never had a tax-free allowance any way.
Property
For the first time, there will be separate tax rates for property income affecting earnings from renting lands and building. From April 2027, income tax on property rental and income will fall under a new property tax.
The property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%. These changes apply in England and Northern Ireland, with devolved administrations in Scotland and Wales retaining the power to set their own rates. Property owners should review their tax position ahead of this change becoming effective.
Finance cost relief will be set at the separate property basic rate (22%). This provides unincorporated landlords income tax relief at the basic rate on their mortgage interest costs.
The rationale given for the tax increase on property and investment income is that it is not subject to national insurance, the top rate of which is 2%.
Personal allowances and income tax thresholds - In a blow for earners, chancellor extends income tax threshold freeze for another three years
Rather than raise income tax rates which would have broken Labour’s manifesto pledge of not increasing the big three taxes on working people, the chancellor took the route of freezing income tax thresholds endlessly into the future.
The personal allowance and the thresholds for income tax will remain frozen until 5 April 2031. The personal allowance and thresholds were already frozen until 5 April 2028, so this extends the freeze by another three tax years. The freeze on personal tax thresholds rather than uprating with inflation has become a recurring measure announced at Budgets since Chancellor Rishi Sunak introduced it in Spring 2021, but it was only set to last until the 2025/26 tax year.
Call it what you will, Fiscal drag or the stealth tax.
The government’s continued reliance on fiscal drag represents the biggest long-term tax challenge for individuals. The extension of the freeze on the Personal Allowance and the Higher Rate Threshold means that as wages naturally rise, more of individuals including pensioners will be pulled into paying tax and existing taxpayers paying tax at the higher 40% rate, simply because the thresholds are not moving with inflation.
ISA limit reduced to £12k
The Chancellor confirmed cash ISA limit will be cut to £12,000. However, savers over 65 will be able to continue to have the full £20,000 limit, at least for now.
There will be a split ISA allowance going forward for adults, with £12,000 allocated to cash and £8,000 to stocks and shares for each person. The new limits will come into effect in three years’ time. From 6 April 2027 the annual ISA cash limit will be set at £12,000, within the overall annual ISA limit of £20,000.
Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2031.
3p mileage charge for EVs
EV drivers face a pay-per-mile tax on their annual mileage, due to be added to road tax and monitored at MOTs. The chancellor plans to introduce the tax from April 2028 with a special electric vehicle mileage rate set at 3p per mile. But this will not affect petrol and diesel drivers.
The mileage charge will be payable each year, at 3p per mile and 1.5p for plug in hybrids. Vans, buses, motorcycles, coaches and HGVs will be excluded initially.
Capital Allowances
From 1 April 2026 (corporation tax) and 6 April 2026 (income tax), the main rate writing-down allowance will reduce from 18% to 14%. The writing down allowance cut will hit businesses looking to invest.
A new 40% first-year allowance for main rate assets (excluding cars, second-hand assets, and assets for overseas leasing) will be introduced from 1 January 2026.
The 100% first-year allowances for zero-emission cars and electric vehicle charge points are extended to 31 March 2027 (corporation tax) and 5 April 2027 (income tax).
Businesses should model what this means for their investment timelines and tax positions.
Foreign income and gains regime
Minor corrections have been introduced to ensure the foreign income and gains regime (FIG regime) operates as intended across income tax, capital gains tax (CGT), and inheritance tax (IHT). These changes take effect from 6 April 2025, with some provisions effective from 6 April 2026.
Abolition of Notional Tax Credit for Non-UK Residents:
From 6 April 2026, non-UK residents will no longer be treated as having suffered income tax on UK dividends. This change removes the notional tax credit previously available under ITTOIA 2005, s 399.
These measures reflect the Government’s ongoing efforts to align UK tax policy with international standards, simplify the tax system, and address technical issues.
National living wage rate goes up 4.1%
The government has confirmed above inflation rises in the national living wage with a 4.1% rise, while national minimum wage up 8.5% from 1 April 2026.
From 1 April 2026, the national living wage (NLW) will rise by 4.1% to £12.71 per hour for eligible workers aged 21 and over.
The national minimum wage (NMW) rate for 18 to 20-year-olds will also increase by 8.5% to £10.85 per hour, narrowing the gap with the NLW. This will mean an annual earnings increase of £1,500 for a full-time worker, and marks further progress towards the government’s goal of phasing out 18 to 20 wage bands and establishing a single adult rate.
The NMW for 16 to 17-year-olds and those on apprenticeships will increase by 6% to £8 per hour.
This will come at a cost for businesses. Employers will need to build this into their budgets for next year and consider the implications across their workforce as this adds pay pressure up the pay scales.
National Insurance Thresholds – Class 1
The thresholds for national insurance remain frozen until 5 April 2031. The thresholds were already frozen until 5 April 2028, so this extends the freeze by another three tax years.
National Insurance Thresholds – Class 4
The thresholds for national insurance remain frozen until 5 April 2031. The thresholds were already frozen until 5 April 2028, so this extends the freeze by another three tax years.
Claims to Incorporation Relief
Where a person transfers a business to a company on or after 6 April 2026 and satisfies the conditions for CGT incorporation relief, the relief will only apply if the person makes a claim in their self-assessment tax return for the year of the transfer.
For transfers before that date, the relief applies automatically where the conditions are met, subject to the ability to make a claim to disapply relief.
This is a change to a procedure that has been around for many years and one to be mindful of when carrying out incorporations.
Salary Sacrifice Arrangements
Pension salary sacrifice arrangements allow employees to give up part of their salary in return for their employer making an equivalent contribution to their pension pot. This is instead of the employee making the contributions themselves.
Pension savers will be hard hit when the measure is due to come into force when tough new rules on the use of salary sacrifice for pension contributions start.
But the chancellor will not introduce the measure immediately, leaving pension savers and employers to contemplate possible alternative approaches for a few years. The plan will see the capping of national insurance contribution (NICs) relief on salary sacrifice into pension schemes to the first £2,000 of pension contributions per person from 2029.
The Chancellor branded the £2,000 cap as a “pragmatic step”.
High Value Council Tax Surcharge - £2.5k mansion tax for expensive houses
The new mansion tax means properties worth over £2m face £2,500 annual charge and £7,500 for £5m plus properties owners from April 2028in England for residential properties.
This charge will be based on updated valuations to identify properties above the threshold and will be in addition to existing council tax.
Properties above the £2m threshold will be placed into bands based on their property value. Charges will increase in line with CPI inflation each year from 2029-30 onwards.
The charges will be levied on property owners rather than tenants, meaning landlords will have to pay the charge, unlike council tax. Local authorities will collect this tax charge.
Business rates
Expect several changes to business rates. The government announced changes to the multipliers used to uprate business rates, reducing rates for retail, hospitality and leisure properties.
The Chancellor introduced permanently lower tax rates for over 750,000 retail, hospitality and leisure properties.
The next digital frontier: Chancellor mandates e-invoicing by 2029
A significant development for business compliance was the announcement of e-invoicing in the UK for VAT invoices from 2029.
The government will require electronic invoicing for all VAT invoices for business-to-business and business-to-government transactions from 2029.
Following the path of many global jurisdictions, the government is moving to digitise transactions between businesses, requiring invoices to be issued and exchanged electronically via a structured format.
‘E-invoicing refers specifically to structured, machine-readable invoices designed for direct system-to-system exchange. These invoices use standardised data fields that enable automation, validation and effective integration with accounting and tax systems’,
Why e-invoicing matters now
The move to mandatory e-invoicing is not just about compliance; it’s a massive shift towards efficiency and real-time data.
• Automation: e-invoices remove the need for manual data entry, reducing human error, accelerating reconciliation and speeding up payment cycles.
• Compliance certainty: because the invoices are generated in a structured digital format and potentially flow through a government-approved network, they provide a high degree of confidence in the audit trail.
The Budget 2025: WHAT IT MEANS TO YOU
Working Persons
While income tax rates on earnings from a job or self-employment were not increased, income tax thresholds will now remain unchanged until 2031.
Future pay increases will see a greater proportion of income brought into tax, achieving the same result as a tax rate rise.
Workers on either the national minimum wage or national living wage will see increases in their pay from April 2026.
The rates of National Insurance Contributions (NIC) paid by employees and employers remain unchanged.
Employees paying into a workplace pension scheme under the salary sacrifice method will see annual contributions above £2,000 a year subject to NIC from April 2029.
Business owners
If you have employees, increases to both the national minimum wage and national living wage will have a cost impact.
Both employer and employee NIC will be payable on salary sacrifice pension contributions above £2,000 per year from April 2029.
Both measures could have further implications on staffing and recruitment decisions for your business.
From January 2026, investing in equipment will benefit from an increase in first year capital allowances for most main rate assets, where other allowances are not available. This is offset to some extent by a reduction in the main writing down allowance rate from 18% to 14%.
For companies, corporation tax rates and thresholds remain unchanged.
If you are a company shareholder, from April 2026 dividends drawn from the company will be subject to higher rates of tax.
The basic and higher rates of dividend tax will rise by 2% to 10.75% and 35.75% respectively.
Following these changes, ensuring you are still on the most tax-efficient route to extract profit from the company will be important.
Property owners
If you own a rental property personally, profits earned will be subject to higher property income tax rates, with a 2% rise across the basic, higher and additional rate bands from April 2027.
If you sell a rental property, the rates of capital gains tax remain unchanged.
The widely anticipated introduction of a ‘mansion tax’ was announced with owners of properties worth more than £2 million subject to a minimum additional annual council tax surcharge of £2,500 from April 2028.
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Disclaimer: Whilst we take care to ensure the accuracy of this document, no responsibility for loss incurred by any person acting or refraining from action as a result of this information can be accepted by the authors or firm.
