Tax on property income, dividends and savings up 2%

Tax rates on dividends, property income and savings will be raised by 2% from April 6, 2027. This means those paying tax on rental income, will face a basic rate of 22%, rather than the usual 20%; 42% for higher rate taxpayers instead of 40%, and 47% for additional rate taxpayers, up from the usual 45%.

The Rent a Room Allowance is unchanged, and any carried forward property losses must still be offset against property income. Relief for residential property costs will also be calculated at 22% when the rate changes.

When calculating income tax allowances or reliefs, these will be applied first to income that is not generated from property, savings or dividend income. If the allowances or reliefs exceed this type of income, they will then be deducted from these other types of income in the way that is most beneficial for the taxpayer, according to the Budget documents.

What are the new savings and dividend tax rates?

The rates of income tax on savings will follow the pattern of property income tax, at 22%, 42% and 47% for the basic, higher and additional rate taxpayers respectively. The way they are applied will become a little more complicated, as the starting rate for savings income is 0% up to £5,000 for those taxpayers with income up to £17,570 that is not from savings, dividends or property.

The Personal Savings Allowance gives a 0% tax rate on income up to £1,000 for basic rate taxpayers and up to £500 for higher rate taxpayers. These will also apply from April 6, 2027.

The new dividend tax rates will apply earlier, from April 6, 2026, and from that date they will also rise by 2 percentage points. This will put the dividend ordinary rate at 10.75%, the dividend upper rate at 35.75% and the dividend additional rate at 39.35%.

The Budget documents added that the “rate charged to companies under the loans to participators regime is automatically tied to the dividend upper rate and so will also increase to 35.75%”. The dividend allowance will stay at £500.

Claire Trott, Head of Advice at St. James’s Place, said: “Raising dividend, property and savings taxes by 2% only adds further layers to an already overly complicated tax system. Many individuals will now need to rethink how they structure their holdings to remain tax efficient. The justification provided that an extra 2% brings these taxes more in line with the NICs paid on earned income overlooks the fact that business owners are likely to feel the greatest impact, particularly those already affected by earlier NICs increases.

“We now have three separate tests on pension contributions: the annual allowance, the limit on income tax relief, and the new limit on NICs savings. At the same time, income is taxed at different rates depending on whether it is earned, from property, from savings, or from dividends. Layered on top are multiple allowances, many of which taper away as frozen thresholds pull more people into higher tax brackets.”

How do you work out what you need to pay?

Understanding what you need to pay and how each element of the allowances and changes are applied is definitely more complicated than it was. The new, separate rate for property income, will be taxed “after employment, trading and other income but before savings and dividend income”, according to the Budget documents.

Working out your liabilities will be more complicated, and it would be wise to speak to your accountant if you have any uncertainty about what you might need to pay when the new regime is in place.

The Budget documents include an example tax calculation which may help to explain how this new system will work when all new tax rates are in place:

In the tax year the individual has following income:

• employment income (£30,000)
• property income from residential letting (£3,000 share of profit)
• finance cost relief for a rental property (£1,000 share of interest expense)
• interest on savings of £400
• dividend income of £200

The personal allowance and rate bands are unchanged.

Amounts of taxable income after steps one to three:

• personal allowance must be set off against employment income first. Employment income: £30,000 – £12,570 = £17,430

Amounts of Income Tax calculated at step 4 (employment first, then property):

• employment income: £17,430 at 20% = £3,486
• property income: £3,000 at 22% = £660
• savings income: £400 at 0% = £0 (Personal Savings Allowance)
• dividend Income: £200 at 0% = £0 (Dividend Allowance)

Total tax due (step 5):

• employment income (BR): £3,486
• property income (BR): £660
• total tax due: £4,146

Finance cost relief tax reduction at step 6:

£1,000 at 22% = £220

No additional tax charge at step 7.

Total Income Tax due: £4,146 – £220 = £3,926

Source: Gov.uk

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These changes are a lot to take in, and will increase the complexity of your taxes if you have these various types of income. If you need help unpicking all of this, then please contact us and we will do everything we can to assist you.

Cash ISA allowance reduced to £12,000 for under 65s

The Chancellor took aim at cash ISAs in her Budget, and is reducing the amount that can be put into a cash ISA from £20,000 to £12,000, with the remaining £8,000 being eligible for investment ISAs.

These changes, which will apply from April 6, 2027, will not affect those over age 65, who will still be able to put the full £20,000 into a cash ISA each year if they prefer. The move is designed to encourage people who have typically chosen the cash ISA in preference to investment ISAs to broaden their portfolio into investment products, which traditionally have delivered better returns over the long term.

Michael Summersgill, CEO of AJ Bell CEO, said: “The Chancellor clearly recognises the huge benefit of long-term investing and the boost it can provide to people’s finances, but today’s announcement is a missed opportunity to reshape ISAs with the consumer in mind.”

Does this increase the complexity of ISA investing?

The move increases the complexity of ISA investing, at a time when experts are calling for more simplicity and flexibility for individuals, who already often find it difficult to navigate the investment landscape more widely.

Mr Summersgill said: “Government should be focused squarely on simplifying the market to make it easier for ordinary people to navigate, providing flexibility for consumers, rather than adding friction in the form of new allowances and added complexity.”

He would like to see the Government ask itself “two key questions” before implementing these proposals. The first is whether any serious person would design a system with “umpteen ISA products all with different allowances”. The second is whether there is any evidence at all that this measure will encourage people to invest.

Mr Summersgill added: “The answer to both those questions is no. Government should go back to the drawing board and examine the evidence in earnest before these proposals move forward.”

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Budget 2025: What it means for you

Chancellor Rachel Reeves delivered her second Budget on November 26, and taxpayers face the highest tax burden on record as a result.

Frozen tax thresholds for everything from income tax to inheritance tax, a change in the use of salary sacrifice to make pension contributions, and a host of other measures mean the Chancellor should swell the Treasury’s coffers by as much as £26 billion in 2029/30.

You could be forgiven for thinking that, under a Labour Government, the richest in the UK would be footing most of the bill. But the reality is very different, and even the Chancellor admitted that “ordinary people will have to pay a little bit more”. That little bit more will take the UK’s overall taxation to the highest level since records began, amounting to 38% of GDP in 2030/31.

Which measures are raising the most money?

The freezing of the income tax and National Insurance thresholds is set to raise the most money. These have been frozen since 2022 and were expected to begin rising again in 2028. But Rachel Reeves has extended the freeze from 2028 to 2031, raising an extra £12 billion due to this extension alone, according to the Office for Budget Responsibility (OBR). This is a volte face compared to her previous Budget, where she said any extension of this freeze would hurt working people.

In a never-seen-before event, information contained in the Budget was released early, hours before the Chancellor stood up to deliver her Budget speech in the Commons, thanks to a mistake by the OBR which put the details on its website too soon.

Rachael Griffin, tax and financial planning at Quilter, said: “The multi‑year freeze on income tax thresholds has now been extended, locking households into one of the most powerful stealth tax rises in modern fiscal policy.

“Reeves has had to renege on what was her rabbit out of the hat moment at her maiden Budget. Given in her speech last year, she said that an extended freeze would hurt working people, this must represent breaking the party’s manifesto pledge.”

A surprising amount of money, up to £4.7 billion in 2029/30, is expected to be raised in additional National Insurance Contributions (NICs) because of the change to salary sacrifice, which will limit the amount of National Insurance relief you can receive to £2,000 a year.

Salary sacrifice is the way that many people put additional money into their pension, as taking an amount from your gross salary means your employer and you as the employee, don’t pay National Insurance contributions on the money. There is currently no limit on how much you can add to your pension this way.

Who will be most affected by this change to salary sacrifice?

The people most affected by this change, which will be in place from April 2029, are those in the private sector who use this method to add money to their pension. This is something that isn’t typically done in the public sector, said Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group.

He added: “Salary sacrifice has long been one of the most efficient ways for workers to boost pension contributions, so limiting it will inevitably increase costs and reduce take-home pay for many.

“At a time when simplicity and engagement are critical to improving savings levels, adding complexity and reducing incentives risks undermining confidence in the system. It’s also vital that consideration is given to the timing of this change.

“People will want to make use of [this] arrangement to the full extent they’re able to. Employers will still face a considerable amount of administration to comply and will need to put thought into communication. It’s also still unclear how the mechanics of the new cap will apply when people move between employers – in all likelihood, this will add further complexity. Payroll systems will need to be updated, and employers will have to manage compliance across multiple schemes and employee movements.”

What other measures were announced?

Other measures announced included a new High Value Council Tax Surcharge which affects properties worth more than £2m. There is a scale of charges for properties worth £2m to £5m or more.

The lowest surcharge, which applies to properties worth between £2m and £2.5m, is £2,500. For those valued between £2.5m and £3.5m, the surcharge is £3,500. Properties worth between £3.5m and £5m will face a surcharge of £5,000, and those worth £5m or more, will pay a £7,500 surcharge.

Landlords will also be hit with an additional 2% tax charge on their rental income from April 2027, which will take the income tax rate paid on rental income up to 22% for basic rate taxpayers, 42% for higher rate taxpayers, and 47% for additional rate taxpayers.

Electric vehicles and plugin hybrid vehicles will also face a new tax. Electric vehicle drivers will pay a charge of 3p per mile from 2028, while plugin hybrids will pay 1.5p per mile, making these vehicles considerably more expensive to run. But fuel duty continues to be frozen for now.

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If you are concerned about how any of the measures might affect you, then please get in touch with us and we will explain what you need to know.

Autumn Budget 2025 – Introduction

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Chancellor of the Exchequer Rachel Reeves set out tax-raising measures worth up to £26 billion in the Autumn Budget on 26 November 2025.

The increases will be achieved through a range of measures, including extending the freeze on Income Tax thresholds for a further three years.

Tax increases

In addition to maintaining Income Tax thresholds, taxes on property, dividend and saving income will be increased.

The Budget also announced employee and employer National Insurance contributions (NICs) on salary sacrifice pension contributions above £2,000 a year and introduced a tax on homes valued at £2 million or more.

That is my choice

On spending, Ms Reeves took action to cut energy bills, freeze rail fares and end the two-child benefit cap.

Ms Reeves said: ‘I can tell you today that, for every family we are keeping our promise to get energy bills down and cut the cost of living with £150 taken off the average household energy bill from April.

‘Money off bills, and in the pockets of working people. That is my choice.’

Autumn Budget 2025 – Personal Tax

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Tax bands and rates

The basic rate band remains at £37,700, with the higher rate threshold remaining at £50,270. The additional rate threshold remains at £125,140. The freeze of these thresholds will continue until April 2031. The NICs Primary Threshold and Lower Profits Limit remain at £12,570. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 up to April 2031 as well. Other employer NICs relief thresholds aligned to the Upper Earnings Limit will also be maintained at this level.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Scottish residents

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish Income Tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

The rates and bands for 2026/27 will be announced in the Scottish Budget. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

Welsh residents

Since April 2019 the Welsh Government has had the right to vary the rates of Income Tax payable by Welsh taxpayers (other than tax on savings and dividend income). For 2025/26 the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers. This will continue for 2026/27.

The personal allowance

The Income Tax personal allowance is fixed at the current level of £12,570 and will remain frozen until April 2031.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.

The government will increase the married couple’s allowance and blind person’s allowance from 6 April 2026 by the CPI rate for September 2025 of 3.8%.

Tax on property income

Property income is any income from letting land and buildings.

Individuals have a Property Allowance. This exempts property income of £1,000 or less. Property income over £1,000 can be offset either by the £1,000 Property Allowance or by deducting relevant expenses.

The government is introducing the following separate tax rates for property income from 2027/28:

• 22% for basic rate taxpayers
• 42% for higher rate taxpayers
• 47% for additional rate taxpayers.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of Income Tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. This will remain at £5,000 until 5 April 2031. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

The current tax rates on savings income will be maintained for 2026/27. From 6 April 2027, there will be a 2% increase in the applicable tax rates. The basic rate will increase to 22%, the higher rate will increase to 42% and the additional rate will increase to 47%.

Tax on dividends

Currently, the first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2026/27.

These rules apply to the whole of the UK.

From 6 April 2026, there will be a 2% increase in the ordinary and upper rates of Income Tax applicable to dividends. The additional rate will remain unchanged at 39.35%

Dividends received above the Dividend Allowance will be taxed at the following rates for 2026/27:

• 10.75% for basic rate taxpayers
• 35.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Income Tax ordering rules

The Income Tax ordering rules will change from 6 April 2027. The personal allowance will be deducted from employment, trading or pension income first. Currently, individuals can choose which income the allowance is offset against.

Pension tax limits

For 2026/27:

• The Annual Allowance (AA) is £60,000.
• Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000.
• The Lump Sum Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum, is £268,275.
• The Lump Sum and Death Benefit Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum in certain circumstances, is £1,073,100.

Individual Savings Accounts

For 2026/27, the limits are as follows:

• Individual Savings Accounts (ISAs) £20,000
• Junior ISAs £9,000
• Lifetime ISAs £4,000 (excluding government bonus)
• Child Trust Funds £9,000.

These limits will remain frozen until 5 April 2031.

From 6 April 2027, the annual ISA cash limit will be set at £12,000. The remaining £8,000 will be designated for stocks and shares ISA investment. This restriction will not apply for those over the age of 65, where the cash ISA limit will remain at £20,000.

Autumn Budget 2025 – Business

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Corporation Tax

The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2026, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

The penalty for taxpayers submitting a Corporation Tax return late will double for returns for which the filing date is on or after 1 April 2026. 

Capital allowances

The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long-life assets at a rate of 50%.

The government will reduce the main rate Writing Down Allowance (WDA) from 18% to 14% per year from 1 April 2026 for Corporation Tax purposes and 6 April 2026 for Income Tax purposes. For businesses with chargeable periods which span 1 April (Corporation Tax) or 6 April (Income Tax), a hybrid rate will apply. The WDA on the special rate pool remains at 6% per year.

For expenditure incurred on or after 1 January 2026, the government will introduce a new first year allowance (FYA) of 40% for all businesses on main rate assets, including most expenditure on assets for leasing. Cars, second-hand assets and assets for leasing overseas will not be eligible. 

The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.

The 100% FYA for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints have been extended to 31 March 2027 for Corporation Tax purposes and 5 April 2027 for Income Tax purposes.

Targeted Research and Development Advance Assurance Service

The government will pilot a targeted advance assurance service from spring 2026. This will enable small and medium-sized enterprises to gain clarity on key aspects of their Research and Development (R&D) tax relief claims before submission to HMRC. A summary of responses to the advance clearance consultation will also be published.

Advance Tax Certainty Service

A new Advance Tax Certainty Service will be launched in July 2026. This will provide major investment projects in the UK with certainty on the application of tax law to their specific circumstances. Qualifying project expenditure must be at least £1 billion. Subject to full initial disclosure of all material facts, a clearance will bind HMRC for five years, and may be renewed for a further five years.

Enterprise Investment Scheme and Venture Capital Trusts investment limit increase and restructure

The government has announced significant changes to the limits applying to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) from 6 April 2026. The gross assets requirement that a company must not exceed for EIS and VCTs will increase from £15 million to £30 million immediately before the issue of the shares, and from £16 million to £35 million immediately after the issue. The annual investment limit that companies can raise will increase from £5 million to £10 million. For Knowledge-Intensive Companies (KICs), the annual investment limit will increase from £10 million to £20 million. The company’s lifetime investment limit will increase to £24 million and for KICs to £40 million. The Income Tax relief that can be claimed by an individual investing in VCTs will decrease from 30% to 20%.

Expanding the eligibility limits of the Enterprise Management Incentives scheme

The government is also increasing certain limits relating to the Enterprise Management Incentives (EMI) scheme. For EMI contracts granted on or after 6 April 2026, the employee limit will increase from 250 employees to 500 employees, the gross assets test will be increased from £30 million to £120 million, and the company share option limit will be increased from £3 million to £6 million. The limit on the exercise period will increase to 15 years, and will also apply retrospectively to existing EMI contracts which have not already expired or been exercised.

UK Listing Relief

The government has announced an exemption from the 0.5% Stamp Duty Reserve Tax (SDRT) charge on agreements to transfer securities of a company whose shares are newly listed on a UK regulated market. This measure will have effect for agreements to transfer made on or after 27 November 2025. The exemption will apply for a three-year period from the listing of the company’s shares. The exemption will not apply to the 1.5% SDRT charge, or where the transfer forms part of a merger or takeover where there is a change of control.

Autumn Budget 2025 – Employment

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

National Insurance contributions

Employees

For 2025/26 the rates of Class 1 employee NICs are 8% and 2%. The employer rate is 15%.

The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £5,000 a year from 6 April 2025. The government announced that this will be maintained at this level until April 2031.

The Employment Allowance allows eligible businesses with employer NICs bills to deduct £10,500 from their employer NICs bill.

The self-employed

For 2025/26 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same for 2026/27.

For Class 2 NICs from 6 April 2025:

• Self-employed people with profits of £6,845 and above get access to contributory benefits, including the State Pension, through a National Insurance Credit, without paying Class 2 NICs.
• Those with profits under £6,845 who pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension, will continue to be able to do so.

Changes for 2026/27

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) from 2026/27. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs for 2026/27.

The LEL will be £6,708 per annum (£129 per week) and the SPT will be £7,105 per annum. The main Class 2 rate will be £3.65 per week and the Class 3 rate will be £18.40 per week.

Employer NICs relief for veterans

The government will extend the employer NICs relief for employers hiring qualifying veterans to April 2028.

This means that businesses continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.

National Living Wage and National Minimum Wage

The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2026. The rates which will apply are as follows:

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Taxable benefits for company cars

The rates of tax for company cars are amended for 2026/27:

• the charge for zero emission cars rises from 3% to 4%
• the charge for other cars with emissions below 75g/km increases by 1%
• the maximum benefit of 37% remains.

The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30.

The government announced that it is introducing a temporary easement to mitigate the increasing benefit in kind tax liabilities of plug-in hybrid electric vehicle (PHEV) company cars due to new emission standards. The easement will apply retrospectively from 1 January 2025 to 5 April 2028. Transitional arrangements will apply to certain PHEVs until 5 April 2031.

Car fuel benefit charge

The government will increase the car fuel benefit charge from 6 April 2026.

Company vans

The government will increase the Van Benefit Charge and the Van Fuel Benefit Charges from 6 April 2026.  

Mandating the reporting of benefits in kind via payroll software

The government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027. This will apply to income tax and Class 1A NICs.

Tackling tax non-compliance in the umbrella company market

To tackle the significant levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE and Class 1 NICs on payments made to workers that are supplied via umbrella companies.

Legislation will be introduced to make employment agencies or end clients joint and severally liable for any amount required to be accounted for under the PAYE provisions, where an umbrella company forms part of a labour supply chain. Further legislation will be introduced which will impose an equivalent joint and several liability for NICs purposes.

This will allow HMRC to pursue an agency in the first instance for any payroll taxes that a non-compliant umbrella company fails to remit to HMRC on their behalf.  The end client will be liable if contracting directly with an umbrella company.

Where there is no agency, the responsibility will fall to the end client business.

This will take effect from 6 April 2026. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.

Ending contrived car ownership schemes

The government is amending the benefit in kind rules so that vehicles provided through employee car ownership arrangements will be deemed to be taxable benefits when made available on restricted terms.

Under these arrangements an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.

These arrangements mean those benefiting don’t pay company car tax, which other employees pay, and so this measure will seek to level the playing field.

Arrangements existing prior to commencement will continue without a change in treatment until the earlier of the arrangement being varied, renewed, or 6 April 2032.

There will also be an exemption from the benefit in kind rules for vehicles provided on arm’s length terms within the motor industry.

The government has confirmed its intention to delay the operative date to 6 April 2030.

Changes to salary sacrifice for pensions from April 2029

The government is changing how salary sacrifice for pension contributions works.

Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.

From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).

Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.

Employers will need to report the total amount sacrificed through their existing payroll. All employer pension contributions will continue to be free of NICs.

Employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice.

Employees who choose to salary sacrifice to receive Tax Free Childcare or Child Benefit can keep doing so.

Expanding workplace benefits relief

This measure will introduce new legislative exemptions for the reimbursement of eye tests, flu vaccines and home working equipment.

Under current law, the exemption only applies where the employer provides the benefit directly. This change will ensure that reimbursements are treated in the same way.

This will have effect on or after 6 April 2026.

Removal of tax relief on non-reimbursed homeworking expenses

This measure will remove the tax relief available to employees who have incurred additional household costs if they are required to work from home. These costs include increased household utility costs and business telephone calls.

It will only apply to those employees who have not had these costs reimbursed by their employer.

This will not impact the existing ability for employers that reimburse employees for costs relating to homeworking where eligible without deducting Income Tax and NICs.

This will take effect from 6 April 2026.

Autumn Budget 2025 – Capital taxes

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Capital Gains Tax

Capital Gains Tax rates

The Capital Gains Tax rates remain unchanged for 2026/27.

Capital Gains Tax annual exemption

The annual exempt amount will remain at £3,000 for 2026/27. 

Employee Ownership Trusts

The current relief available for qualifying disposals by business owners selling their shares to Employee Ownership Trusts (EOTs) is a 100% exemption of any gain. From 26 November 2025, the relief will only exempt 50% of the gain. Business Asset Disposal Relief and Investors’ Relief will not be available where the 50% exemption has been claimed. The remaining 50% of the gain on disposal will not form part of the disposer’s chargeable gain. Instead, 50% of the gain will be held over and deducted from the trustees’ acquisition cost. This will mean that it will come into charge on any subsequent disposal or deemed disposal of the shares by the trustees of the EOT.

Incorporation Relief

The government will introduce a requirement for taxpayers to actively claim incorporation relief for transfers of a business to a company on or after 6 April 2026. The relief previously applied automatically.

Business Asset Disposal Relief

The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase to 18% for disposals made on or after 6 April 2026.

Carried interest rates and reform

From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.

Inheritance Tax

Inheritance Tax nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and will continue to be frozen until 5 April 2031. An additional nil rate band, called the ‘residence nil rate band’ is also frozen until 5 April 2031 at the current £175,000 level, as is the residence nil rate band taper starting at £2 million.

Unused pension funds and death benefits

The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for Inheritance Tax (IHT) purposes from 6 April 2027.

All death in service benefits payable from registered pension schemes will be excluded from the value of an individual’s estate for IHT purposes.

The personal representatives will be responsible for paying any IHT due on unused pension funds and death benefits in a person’s estate. However, pension beneficiaries of registered pension schemes will be able to request the pension scheme administrator pay their IHT liability directly to HMRC in specific circumstances. They may also direct scheme administrators to withhold 50% of taxable benefits for up to 15 months.

Agricultural Property Relief & Business Property Relief

From 6 April 2026, agricultural and business property will continue to benefit from the 100% IHT relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Such property in excess of the limit will benefit from a 50% relief.

The £1 million limit applies per person and is refreshed every seven years. From 6 April 2026, this allowance will be transferable between married couples or civil partners. This will include where the first death was before 6 April 2026.

There may be a further £1 million allowance for trusts in certain situations but the rules are complex.

The £1 million limits for both individuals and trusts will be frozen until 6 April 2031.

Cap for excluded property in trusts

With effect from 6 April 2025, the government has retrospectively put in place a cap of £5 million for excluded property held in trust as at 30 October 2024. This cap applies to settled property which was excluded property situated outside the UK at the time of the relevant charge. The £5 million cap applies to each ten-year cycle.

Autumn Budget 2025 – Other matters

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

The VAT registration threshold

From 1 April 2026 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.

Making Tax Digital for Income Tax Self Assessment

The government is committed to delivering Making Tax Digital for Income Tax Self Assessment, which starts in April 2026 for those with qualifying income over £50,000. The government will expand the rollout of the programme to those with incomes over £30,000 in April 2027 and £20,000 in April 2028. However, the government will not proceed with Making Tax Digital for Corporation Tax.

Enforcement and tax collection

The government has announced a variety of compliance initiatives, which include the following:

• investing further in HMRC’s debt management work and publishing a new tax debt strategy which outlines plans to deliver year-on-year reductions to the overall tax debt balance as a percentage of tax receipts
• requiring Income Tax Self Assessment taxpayers with Pay As You Earn (PAYE) income to pay more of their Self Assessment liabilities in-year via PAYE from April 2029
• investing in HMRC to modernise the tax system and help taxpayers get their taxes right first time through greater digitalisation. This investment will improve how HMRC uses information from third parties, and to build new technology to increase the use of data-driven prompts to help taxpayers avoid errors when submitting tax returns
• investing £64 million over the next five years in HMRC’s existing partnerships with private sector debt collection agencies to collect more tax debt.

In addition, from April 2029 businesses will be required to issue all VAT invoices as e-invoices, with a roadmap on implementation to be published next year.

High Value Council Tax Surcharge

The current Council Tax system uses property values from 1991. From April 2028, properties valued at £2 million or more will be liable to a new High Value Council Tax Surcharge (HVCTS).

The HVCTS will be staggered depending on the value of the property. For property over £2 million, the annual charge will be £2,500. For property valued between £2.5 – £3.5 million, the annual charge will be £3,500 and for those properties valued between £3.5 – £5 million, the annual charge will be £5,000. Properties valued in excess of £5 million will have an annual charge of £7,500.

The surcharge will be collected alongside the existing Council Tax due for the property.

Employment

The government is working to extend right to work checks to cover businesses hiring gig economy and zero-hours workers. This will restrict the ability of employers to take advantage of illegal workers and ensure that legitimate businesses acting lawfully will not be undercut on labour costs by those who exploit the system.

The government will set up a dedicated ‘hidden economy’ team within the new Fair Work Agency from April 2026 to take action in sectors known to have breaches of employment rights legislation alongside illegal working and tax issues. The team will initially target hand car washes but will then move onto other high‑risk areas.

Electric Vehicle Excise Duty

The government is introducing Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, which will come into effect from April 2028. Drivers will pay for their mileage alongside their existing VED.

The government will work closely with industry and motoring representative groups on the delivery of the new tax.

The tax paid by EV drivers will be around half the fuel duty rate paid by the average petrol/diesel driver, with a reduced rate for plug-in hybrid drivers. When eVED takes effect in April 2028, an average EV driver will pay around £240 per year or £20 per month.

Other vehicle types, such as vans, buses, motorcycles, coaches and HGVs, will be out of scope of eVED when it is introduced, with the transition to electric power for these vehicle types being currently less advanced than for cars.

Other points

Other announcements made by the government include:

• the £35,000 threshold for Winter Fuel Payments will be maintained for this Parliament
• the government is seeking views on the effectiveness of existing tax incentives, and the wider tax system, for business founders and scaling firms, and how the UK can better support these companies to start, scale and stay in the UK.

Budget 2025 – Introduction

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Chancellor Rachel Reeves delivered her Budget on Wednesday 30 October 2024. She pledged to ‘invest, invest, invest’ to drive growth and ‘restore economic stability’.

Billions in tax rises

Ms Reeves said the Budget will raise £40 billion in taxes. Employers’ National Insurance contributions (NICs) will be increased from next April while Capital Gains Tax rates will also rise. Inherited pensions will fall within the Inheritance Tax net from April 2027 while reliefs will be reformed on the passing down of agricultural and business assets. The Chancellor also confirmed the introduction of VAT on private school fees and the abolishment of the tax regime for non-UK domiciled individuals.

Protecting living standards

Ms Reeves said she would protect living standards by unfreezing the thresholds on Income Tax and employee NICs from 2028 while she extended the cut in Fuel Duty for another year. The Chancellor also pledged a decade of ‘national renewal’ with increased funding for schools and the NHS. Further spending announcements included housing, transport and the aerospace and automotive sectors.

Budget 2025 – Personal tax

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Tax bands and rates

The basic rate of tax is 20%. For 2025/26 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% rate applies is £50,270 for those who are entitled to the full personal allowance.

The basic rate band is frozen at £37,700 until April 2028. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these tax years as well. The government has suggested that, from April 2028, these limits will then be uprated in line with inflation.

For 2025/26 the point at which individuals pay the additional rate of 45% is £125,140.

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

Scottish residents

The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish Income Tax rates and bands apply to income such as employment income, self-employed trade profits and property income.

In 2024/25 a new 45% rate was introduced, making six Income Tax rates which range between 19% and 48%. The rates and bands for 2025/26 will be announced in the Scottish Budget on 4 December 2024. Scottish taxpayers are entitled to the same personal allowance as individuals in the rest of the UK.

Welsh residents

Since April 2019 the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). For 2024/25 the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers. The Welsh rates for 2025/26 will be announced in the Welsh Budget on 10 December 2024.

The personal allowance

The Income Tax personal allowance is fixed at the current level of £12,570 until April 2028. The government has suggested that, from April 2028, it will then be uprated in line with inflation.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.

The government will uprate the married couple’s allowance and blind person’s allowance for 2025/26.

The marriage allowance

The marriage allowance permits certain couples to transfer £1,260 of their personal allowance to their spouse or civil partner.

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax on dividends

Currently, the first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2025/26.

These rules apply to the whole of the UK.

Dividends received above the allowance are taxed at the following rates for 2025/26:

• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers.

The Corporation Tax due on directors’ overdrawn loan accounts is paid at 33.75% and remains unchanged.

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.

To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.

Pension tax limits

For 2025/26:

• The Annual Allowance (AA) is £60,000.
• Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000.
• The Lump Sum Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum, is £268,275.
• The Lump Sum and Death Benefit Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum in certain circumstances, is £1,073,100.

Individual Savings Accounts

For 2025/26, the limits are as follows:

• Individual Savings Accounts (ISAs) £20,000
• Junior ISAs £9,000
• Lifetime ISAs £4,000 (excluding government bonus) and
• Child Trust Funds £9,000.

High Income Child Benefit Charge

The High Income Child Benefit Charge (HICBC) is a tax charge that applies to higher earners who receive Child Benefit or whose partner receives it.

For 2025/26, the income threshold at which HICBC starts to be charged is £60,000. The rate at which HICBC is charged is 1% of the Child Benefit payment for every additional £200 above the threshold. This means that Child Benefit will not be withdrawn in full until individuals have adjusted net income of £80,000 or more.

The government will not proceed with the reform to base HICBC on household incomes as proposed by the previous government.

Non-UK domiciled individuals

Significant changes are made to the tax regime relating to non-UK domiciled individuals. Broadly, from 6 April 2025, changes will be made to replace the remittance basis of taxation, which is based on domicile status, with a new tax regime based on residence. The new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival.

The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four-year foreign income and gains regime.

Transitionally, for CGT purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them.

Any foreign income and gains that arose on or before 5 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK under the current rules. This includes remittances by those who are eligible for the new four-year foreign income and gains regime.

A Temporary Repatriation Facility (the Facility) will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit, at a reduced rate, foreign income and gains that arose prior to the changes. The Facility will be available for a limited period of three tax years, beginning in 2025/26. The Facility rate will be 12% for the first two years and 15% in the final tax year of operation.

The current domicile-based system of Inheritance Tax will be replaced with a new residence-based system, which will affect the scope of non-UK property brought into UK Inheritance Tax for individuals and trusts.

Overseas Workday Relief will be extended to four years to align with the new four-year foreign income and gains regime and will be subject to a financial limit on the amount of relief that can be claimed, namely the lower of £300,000 or 30% of an individual’s total employment income.

Business 2025 – Employment

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

National Insurance contributions

Employees and NICs

From 6 April 2024 the main rate of Class 1 employee NICs is 8%. The employer rate is 13.8%.

The government announced that it will increase the employer rate from 13.8% to 15% from 6 April 2025.

The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings, and is currently set at £9,100 a year. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.

The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. From 6 April 2025 the government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills.

The self-employed and NICs

From 6 April 2024 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same from 6 April 2025.

For Class 2 NICs from 6 April 2024:

• Self-employed people with profits of £6,725 and above get access to contributory benefits, including the State Pension, through a National Insurance credit, without paying Class 2 NICs.
• Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension will continue to be able to do so.

Other changes for 2025/26

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2024 CPI rate of 1.7% from 2025/26. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs by 1.7% in 2025/26.

The LEL will be £6,500 per annum (£125 per week) and the SPT will be £6,845 per annum. The main Class 2 rate will be £3.50 per week and the Class 3 rate will be £17.75 per week.

Employer NICs relief for veterans

The government is extending the employer NICs relief for employers hiring qualifying veterans for a further year from 6 April 2025 until 5 April 2026.

This means that businesses will continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.

National Living Wage and National Minimum Wage

The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2025. The rates which will apply are as follows:

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Taxable benefits for company cars

The rates of tax for company cars are amended for 2025/26:

• The charge for zero emission cars rises from 2% to 3%.
• The charge for other cars increases by 1%.
• The maximum benefit of 37% remains.

The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30.

Car fuel benefit charge

The government will uprate the car fuel benefit charge by CPI from 6 April 2025.

Treatment of double cab pick-up vehicles

The government will treat double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes.

From 1 April 2025 for Corporation Tax, and 6 April 2025 for Income Tax, DCPUs will be treated as cars for the purposes of capital allowances, benefits in kind and some deductions from business profits.

The existing capital allowances treatment will apply to those who purchase DCPUs before April 2025. Transitional benefit in kind arrangements will apply for employers that have purchased, leased, or ordered a DCPU before 6 April 2025. They will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.

Company vans

The government will uprate the Van Benefit Charge and the Van Fuel Benefit Charges by CPI from 6 April 2025.  

Mandating the reporting of benefits in kind via payroll software

The government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2026. This will apply to income tax and Class 1A NICs.

Tackling tax non-compliance in the umbrella company market

To tackle the significant levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies.

Where there is no agency, the responsibility will fall to the end client business.

This will take effect from April 2026. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.

Ending contrived car ownership schemes

The government will publish draft legislation relating to loopholes in car ownership arrangements, through which an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.

This arrangement means those benefiting don’t pay company car tax, which other employees pay, and so this measure will seek to level the playing field.

The changes will take effect from 6 April 2026.

Taxation of Employee Ownership Trusts and Employee Benefit Trusts

The government is introducing a package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts.

These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees.

The changes will take effect from 30 October 2024.

Clarification of taxable status of Statutory Neonatal Care Pay

The government will legislate to clarify the Income Tax treatment of Statutory Neonatal Care Pay. This will ensure the payment is liable to Income Tax and ensure consistency with the tax treatment of other statutory maternity and paternity pay schemes.

Budget 2025 – Business

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Corporation Tax rates

The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2025, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

Capital allowances

The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long life assets at a rate of 50%. The government will explore extending Full Expensing to assets bought for leasing or hiring, when fiscal conditions allow.

The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.

The 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints have been extended to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.

Furnished Holiday Lettings

The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. The effect of abolishing the rules will be that FHL properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses. This will apply to individuals, corporates and trusts who operate or sell FHL accommodation.

There are a number of implications from 2025/26 which are detailed below.

Pensions – individuals will no longer be able to include this income within relevant UK earnings when calculating maximum pension relief.

Dwelling-related loans – the amount of income tax relief landlords can receive on residential property finance costs is restricted to the basic rate of income tax of 20%.

Replacement of domestic items – capital allowances will no longer be available for expenditure on new plant and machinery (subject to transitional rules) but instead businesses may claim relief on the replacement of certain items.

Capital gains – the rules which allowed FHL to be treated as a trade for various capital gains tax reliefs are withdrawn in relation to disposals made on or after 6 April 2025 (1 April 2025 for Corporation Tax). Roll-over relief on the replacement of business assets will no longer apply to acquisitions which take place on or after those dates. However, there are a number of detailed transitional rules to preserve certain reliefs such as Business Asset Disposal Relief in specific situations.

Losses – broadly, any unused losses can be carried forward to set against future years’ profits of either the UK or overseas property business as appropriate.

Multinational

The government will introduce the Undertaxed Profits Rule, being the final part of the G20-OECD Global Minimum Tax agreed by over 135 countries and jurisdictions. It will take effect for accounting periods beginning on or after 31 December 2024. The government confirmed that the Offshore Receipts in Respect of Intangible Property rules will be abolished in respect of income arising from 31 December 2024.

Additional amendments will also be made to the Multinational Top-up Tax and Domestic Top-up Tax legislation.

Energy Profits Levy

The Energy Profits Levy (EPL) (the temporary levy on profits arising from the upstream production of oil and gas) will increase from 35% to 38% and the end date of the levy will be extended to 31 March 2030. The EPL’s Investment Allowance will be removed and the Decarbonisation Investment Allowance reduced to 66%. These measures will take effect from 1 November 2024. The government will publish a consultation in early 2025 on how it will respond to price shocks once the EPL ends.

Business rates

For 2025/26, eligible retail, hospitality and leisure (RHL) properties in England will receive 40% relief on their business rates liability. RHL properties will be eligible to receive support up to a cash cap of £110,000 per business.

For 2025/26, the small business multiplier in England will be frozen at 49.9p. The standard multiplier will be increased to 55.5p.

Creative industries

From 1 April 2025, film and high-end TV productions will be able to claim an enhanced 39% rate of Audio-Visual Expenditure Credit (AVEC) on their UK visual effects (VFX) costs. UK VFX costs will be exempt from the AVEC’s 80% cap on qualifying expenditure. Costs incurred from 1 January 2025 will be eligible.

UK films with budgets under £15 million and a UK lead writer or director will be able to claim an enhanced 53% rate of AVEC from 1 April 2025. This is known as the Independent Film Tax Credit.

From 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be set at 40% for non-touring productions and 45% for touring productions and all orchestra productions, applying UK-wide.

Other

The government will ensure shareholders cannot extract funds untaxed from close companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change will apply from 30 October 2024.

The government will support charitable giving by legislating to prevent abuse of the charity tax rules, ensuring that only the intended tax relief is given to charities. These changes will take effect from April 2026 to give charities time to adjust to the new rules.

From 30 October 2024, alternative finance tax rules will be amended to put certain tax consequences of alternative and conventional financing arrangements on a level playing field.

Budget 2025 – Capital taxes

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

Capital Gains Tax rates

The Capital Gains Tax rates will increase for disposals, other than of residential property and carried interest, made on or after 30 October 2024. The basic rate of 10% will increase to 18% and the 20% rate will increase to 24%.

No changes will be made to the rates applying to the disposal of residential properties of 18% and 24%.

The rate applying to trustees and personal representatives will increase from 20% to 24% from the same date.

Capital Gains Tax annual exemption

The annual exempt amount will remain at £3,000 for 2025/26.

Business Asset Disposal Relief and Investors’ Relief

The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025. The rate will increase again to 18% for disposals made on or after 6 April 2026.

In addition, the lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. This limit takes into account any prior qualifying gains where the relief was claimed.

Carried interest rates and reform

The rates that apply to carried interest of 18% and 28% will increase to a flat rate of 32%. This will apply to carried interest arising to an individual on or after 6 April 2025.

From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.

Capital Gains Tax on liquidation of a Limited Liability Partnership

Where a member of a Limited Liability Partnership (LLP) has contributed assets to the LLP, chargeable gains that accrue up to the contribution will be charged to tax when the LLP is liquidated and the assets are disposed of to the member, or a person connected to them. The charge to tax will be on the member and the measure will have effect for liquidations that commence on or after 30 October 2024.

Reducing tax-free overseas transfers of tax relieved UK pensions

The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS), unless an exclusion from the charge applies. Transfers to QROPS established in the EEA and Gibraltar were included within the exclusion but this exclusion will no longer apply for such transfers made on or after 30 October 2024.  

Inheritance Tax

Inheritance Tax nil rate bands

The nil rate band has been frozen at £325,000 since 2009 and this will continue to be frozen up to 5 April 2030. An additional nil rate band, called the ‘residence nil rate band’ is also frozen at the current £175,000 level, as is the residence nil rate band taper starting at £2 million. These are also frozen until 5 April 2030.

Unused pension funds and death benefits

The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027.

Agricultural Property Relief & Business Property Relief

From 6 April 2026, agricultural and business property will continue to benefit from the 100% Inheritance Tax relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Property in excess of the limit will benefit from a 50% relief, as will, in all circumstances, quoted shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.

Extension of Agricultural Property Relief to environmental land management

From 6 April 2025, the existing scope of Agricultural Property Relief will be extended to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.

Budget 2025 – Other matters

• Introduction
• Personal tax
• Employment
• Business
• Capital taxes
• Other matters

The VAT registration threshold

From 1 April 2025 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.

Removal of VAT exemption for private school fees

Private school fees for education and vocational training will no longer benefit from VAT exemption and will be subject to VAT at the standard rate (20%). The change will apply to terms beginning on or after 1 January 2025 although certain prepayments made after 29 July 2024 will also be included.

Stamp Duty Land Tax changes

Individuals who purchase additional residential properties, such as second homes or buy-to-let properties, in England and Northern Ireland, generally pay Stamp Duty Land Tax (SDLT) at 3% above the standard SDLT rates. This rate is increased to 5% for transactions with an effective date (usually the date of completion) on or after 31 October 2024.

Similar changes are made for companies and other non-natural persons purchasing residential property in England and Northern Ireland.

In addition, there is also an increase in the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%, from the same date.

Making Tax Digital for Income Tax Self Assessment

The government is committed to delivering Making Tax Digital for Income Tax Self Assessment, which is supposed to start in April 2026. The government will expand the rollout of the programme to those with incomes over £20,000 by the end of this Parliament and will set out the precise timing for this at a future fiscal event.

Other changes

HMRC has announced a variety of compliance initiatives, which include the following:

• investing in additional HMRC compliance staff and debt management staff
• modernising HMRC debt management IT systems
• pre-populating tax returns with Child Benefit data (for the purposes of the High Income Child Benefit Charge)
• increasing the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5%.