Earlier today, I shared my initial reaction to the Autumn Budget 2025. In what follows, I detail the material measures that were announced, provide the key facts and figures you should be aware of, and I also take the opportunity to summarise changes announced in previous Budgets which, in some cases, are already in place.
Tax measures announced today
Personal taxation
Income tax rates
Despite all the “will she, won’t she” nonsense before today’s Budget speech, Chancellor Rachel Reeves finally chose not to break the manifesto pledge and increase income tax.
An own goal in my view. An increase in income tax would have enabled her to dispense with a lot of the tinkering that has turned the UK tax code into an impenetrable mess for most hard-working taxpayers.
However, she did announce a further three year extension of the income tax threshold freeze to 2031.
There will also be relief for pensioners from having to pay small amounts of tax through simple assessments from HMRC. Quite how this will work I am not sure at this stage.
The very useful ‘fiscal drag tool’ has been used again as a cynical ploy, which creates issues for many workers and pensioners with low incomes who are now, or will be, brought into the tax net.
Would it not have been fairer to increase income tax for all with, say, an increase in the basic rate to 21% and the additional rate to perhaps 50%?
Fiscal drag is a major income generator for the government. With wage inflation and state pension increases, more individuals end up paying tax, with more also moving into the higher tax brackets.
Ms Reeves has failed to address some glaring anomalies in the income tax regime:
- The 62% rate of tax on income in the band between £100,000 and £125,140; and
- The cliff edge limit of £100,000 for free childcare hours claimants.
The above two measures are a real disincentive for those wanting to progress in their careers but have concerns about the level of any pay rise they might get, which could lose them more than they gain.
The ability to ‘manage’ the above will also take a hit with the proposed changes to salary sacrifice pension arrangements used by those wanting to avoid these anomalies and save more for their retirement. How bonkers is that?!
Dividend tax rates
The rates of tax payable on dividends has been increased with effect from 6 April 2026.
The following rates apply for 2025/26:
- 8.75% for dividends in the basic rate band;
- 33.75% for dividends in the higher rate band; and
- 39.35% for dividends in the additional rate band.
The dividend allowance is £500 for 2025/26.
The following rates will apply for 2026/27:
- 10.75% for dividends in the basic rate band;
- 35.75% for dividends in the higher rate band; and
- 39.35% for dividends in the additional rate band.
The dividend allowance will remain at £500 for 2026/27.
The rate of tax payable by companies on any overdrawn director’s loan account (‘DLA’) is 33.75% for 2025/26 and will be 35.75% for 2026/27 as this rate is linked to the higher rate of tax payable on dividends. As always DLA planning is important for all owner managed businesses.
TIP: Owner managers should review their profit extraction strategies for the current and future tax years to maximise any tax saving opportunities which may be available.
TIP: Reviewing the company’s shareholding structure may give owner managers tax planning opportunities with the use of ‘alphabet shares’. With all such planning, the practical and commercial factors should not be overlooked.
Savings and property income
The rate of income tax on property and savings income will be increased by two percentage points with effect from 5 April 2027.
National Insurance contributions (‘NIC’)
There have been no changes to the NIC rates announced in the October 2024 Budget for individuals and/or employers.
Capital Gains Tax (‘CGT’)
The only change to CGT was for transfers of shares in a business to an Employee Ownership Trust. The relief is currently 100%, but this will be reduced to 50% with effect from today.
Thus, there is still an incentive for owners passing on their business, but it will now be less attractive.
The CGT rates are as below:
| 2025/26 | 2026/27 | |
| Basic rate | 18% | 18% |
| Higher rate | 24% | 24% |
| Basic rate – residential | 18% | 18% |
| Higher rate – residential | 24% | 24% |
| Trusts | 24% | 24% |
| Carried interest | 32% | 32% |
| Business assets (BADR) | 14% | 18% |
The Business Asset Disposal Relief (‘BADR’) lifetime allowance remains at £1 million.
The annual exemption is £3,000 for 2025/26.
This sends a message to entrepreneurs, the Labour Party is not interested, despite what Ms Reeves said in her speech, in supporting those prepared to devote considerable, time, effort and money to create and build new businesses.
Mansion tax
A new ‘Mansion tax’ has been announced. It will apply to residential property with a value of more than £2 million. The rate will be £2,500 per annum for properties worth between £2 million and £2.5 million, rising to £7,500 for a house valued at £5 million or more.
The change will not apply until 2028 at the earliest simply because of the changes needed to allow for the imposition and collection.
The charge will feature as part of the Council Tax bill for such homeowners, with a deferral facility to allow a delay in payment until there is a move of house or the householder dies. The charge will see a revaluation of properties in the Council Tax bands F, G and H. This could be a messy process because the valuation can be challenged, which will undoubtedly happen with householders owning houses with a new value close to a threshold.
This is likely to create major problems for the housing market and create another ‘cliff edge’ tax consideration very much like the £100,000 total income limit beyond which Child Benefit is withdrawn. Many may say “so what, it will only affect a select few”, but where will it stop? Might the threshold be reduced in later Budgets?
TIP: Pay close attention to the revaluation process and challenge the findings if appropriate. Also be mindful of the fact that the measure may not see the light of day as the likely implementation will be close to or after the next election.
National Living Wage and minimum wage
It was announced yesterday that the National Living Wage for individuals over the age of 21 will increase from £12.21 to £12.71 per hour with effect from April 2026. This represents a 4.1% increase. This is a cost that employers will have to pick up giving rise to concerns that individuals may be priced out of work.
The minimum wage will also increase for younger workers. Those aged 18 to 20 will get an increase of 8.5% to £10.85 per hour.
Whilst the increases will no doubt be welcomed by affected individuals, it is likely to create further pressure for small and medium sized businesses struggling to survive in these difficult economic times.
Inheritance Tax (‘IHT’)
The only change announced today was to allow the transferability of the 100% threshold for Business Property Relief and Agricultural Property Relief between spouses. This is in line with the treatment of the nil-rate band of £325,000.
No further changes were announced after the wholesale attack on wealth creation with the measures announced last year (more on this below). Sadly, there was no easing of the IHT burden with potential changes either in absolute terms or in timing.
The 2024 IHT changes above all others are the ones which are causing most concern for business owners and farmers. Nobody is listening to the pleas from those potentially affected. The changes pose a great risk to small and medium sized businesses and farms whose owners may now be wondering why they bothered if the cost of family succession is going to be so high.
Child benefit cap
The two-child benefit cap has been removed.
The claim from Ms Reeves that children should not suffer because of the size of the family is somewhat odd. Child poverty has many contributing factors, one of which must be the lifestyle choices of some parents. Child benefit increases may go some way to easing child poverty, but it is not a universal panacea. The cost will be significant, but the political points Ms Reeves may gain may ‘justify’ the cost. Politics to the fore and not sound economic sense.
Other changes
ISAs
The tax-free allowance for cash ISAs will be reduced from £20,000 to £12,000 for the under-65s with effect from 6 April 2027.
The over-65s will still have the full limit of £20,000.
TIP: If you have not used up you full allowance for this tax year, consider topping it up. It is a use it or lose it situation.
Electric vehicles (‘EVs’)
To deal with the reduction in fuel duty resulting from the switch from oil burning vehicles to EVs, there will be a new levy of 3 pence per mile on EVs. This will not apply until 2028. This will be collected alongside the vehicle excise duty.
Pensions
There were no changes to the annual allowance which remains at £60,000.
The ability to take a 25% tax-free lump sum from a pension pot remains as does the lifetime limit for such extraction which is still £268,275.
However, salary sacrifice arrangements in favour of pension contributions has now come to Ms Reeves’s attention.
Ms Reeves announced a cap of £2,000 on the amount of salary which could be NIC free. For any amount beyond £2,000, the normal NIC rates will apply for employee and employer. The change will not apply until 2029.
This is a major initiative which will cost individuals and employers and could create further hiring pressures for employers who may have to rethink their incentive offerings for new and existing staff.
It is a shame that Ms Reeves has chosen to attack what many would see as sound financial planning enabling those involved to save more for their retirement than might otherwise be the case. The arrangements also enable employees to deal with the cliff edge issue with Child Benefit and the tapering withdrawal of the personal allowance.
TIP: Employees with salary sacrifice arrangements will need to review the implications carefully before they act. There are several issues for them to consider which are mentioned elsewhere in this note.
Non-domiciliaries
No further changes were announced in the Budget.
I will share a brief summary of the new rules later in this article.
Business taxation
Corporation tax (‘CT’)
In keeping with the manifesto pledge, no increase in CT was announced. The 19% and 25% rates will be retained for the term of the Labour administration.
See details of the current CT rates later.
A new first year capital allowance of 40% will apply for expenditure incurred on or after 1 January 2026 for specific categories of plant and equipment.
The rate of writing down allowance for capital allowance purposes will be reduced from 18% to 14% for the main rate pool from 1 April 2026.
This could be both positive and negative for those businesses with high capital expenditure.
TIP: Companies should review their capital expenditure plans to see what, if any, changes may be possible to maximise allowances. The reduction in the writing down allowance may not be too painful for those businesses who have been able to use the Annual Investment Allowance to cover past expenditure.
Research & Development (‘R&D’)
No changes were announced. Ms Reeves confirmed her commitment to encouraging innovation, but there was no announcement of any further incentives.
Please see further below for the R&D reliefs which are currently in place.
National Insurance contributions (‘NIC’)
Following the disastrous changes to NIC in the October Budget last year, which have had a major negative effect on the economy, Ms Reeves shied away from any further changes here.
This will be a relief for those sectors such as retail and hospitality which have high headcounts and relatively low salaries where the NIC and the national living wage and minimum wage increases in this and last year’s Budget have created, and will continue to create, major cost issues.
The rate of employer’s NIC remains at 15%.
The salary level beyond which employer’s NIC is payable is £5,000.
The employment allowance is £10,500 for all employers.
Business rates
There will be a range of reliefs for smaller businesses in the retail, hospitality and leisure industries.
Other issues
Private equity
No changes were announced.
VAT
No changes were announced.
Stamp Duty Land Tax (‘SDLT’)
No changes were announced.
Fuel duties
Fuel duty has been frozen until September 2026.
Energy bills
A reduction in energy bills will be secured by removing certain levies currently applying to utility bills. The measures will take a while to have a full effect, with the savings likely to be less than expected – £170 per year by the end of the decade has been suggested.
There has been no change to the VAT treatment of energy bills.
‘Sugar tax’
This has now been extended to cover milkshakes and lattes sold in cardboard containers. It will not affect the coffee in your favourite coffee shop. This move may force makers to change their recipes to remove the sugar and the whole point in the first place – the sugar rush.
Measures which were not announced
In the lead up to the Budget there were an awful lot of ‘leaks’ by Ms Reeves and her team, I suspect in a cynical attempt to flush out the ‘least worst’ options for progressing.
The following are the initiatives which Ms Reeves did not announce as main features:
- An exit tax;
- A wealth tax;
- IHT – changes to the current gifting rules;
- IHT – changes to the seven-year survivorship rule for gifts; and
- Further tax incentives for innovation beyond the current R&D rules.
Please note that I have not had a chance to review all the detail and thus may have missed initiatives hidden away in the small print.
Personal taxation – what we know
Income tax rates
The personal allowance and higher rate thresholds are now frozen until April 2031:
- The personal allowance is £12,570;
- The 40% higher rate of income tax applies on income over £37,700; and
- The 45% additional rate of income tax applies on income over £125,140.
Tapering of the personal allowance starts when total income reaches £100,000 in the tax year. It is fully withdrawn when total income reaches £125,140.
Inheritance Tax
The nil-rate band is £325,000 and is now frozen at this level until April 2030.
The ‘horrid’ changes to Business Property Relief (‘BPR’), Agricultural Property Relief (‘APR’) and the IHT treatment of pension pots announced in the last Budget have been enacted with few changes.
In my view, the changes send out a negative message to all entrepreneurs, farmers, and anyone with pension savings. Creating and building wealth in the UK may be considered by many to be a pointless exercise as much of the effort will go to filling the Treasury’s coffers to pay civil servants to create growth!
The measures could well encourage entrepreneurs to take their skills to more welcoming tax regimes. One thing, among many, the Pandemic taught us is how mobile businesses and those who work for them can be.
From April 2026 the rate of BPR and APR relief is changing. The first £1 million will attract relief at 100%. Any excess will attract relief of 50%.
In addition, AIM shares will no longer qualify for full IHT relief. The relief will be reduced to 50% with effect from April 2026.
With effect from April 2027, it will no longer be possible to transfer IHT free on death pension pots to beneficiaries. The detailed rules are still not clear. There is a widespread concern voiced by those in the pensions sector that the changes to the IHT treatment of pension pots will create complications and uncertainties for all involved with deceased estates.
TIP: Slightly tongue in cheek, do not build a business or buy a farm in the UK and think carefully about how you might save for your retirement. Sadly, stuffing cash under the mattress looks appealing!
TIP: More seriously, think hard, and consider all the issues and options, before making any decisions affecting your business, farming, or pension assets. There are many financial, practical, and commercial issues you may need to address. Expert guidance will be vital as the issues are complex. What you plan for now must be flexible to accommodate potential changes to the legislation and business and family circumstances.
It is an interesting fact, which I admit I have not fully researched, but there is legislation in place which protects Mr Starmer’s pension pot from the IHT changes!
Non-domiciliaries (‘non-doms’)
The non-dom regime has now gone. We now have a simple system based on residence.
As of April 2025, new arrivals to the UK have a four-year tax break following which, if they remain resident in the UK, they will be taxed as any other UK tax resident. There will of course be transitional rules being navigated by those affected.
Ms Reeves expects to raise £2.7 billion in additional tax with the changes. Perhaps not surprisingly, to me at least, the sums will be nowhere near this amount. There has been a marked increase in the number of high net worth individuals leaving the UK since the changes were announced. What Ms Reeves and her advisors seem to have overlooked is the simple fact that, for the very wealthy, tax is discretionary – they can choose the territory in which they pay tax, and they will hold on to assets. It would be interesting to see the loss of tax revenue attached to one wealthy family leaving the country and taking their business and personal interests with them.
The new non-dom rules are complex and beyond the scope of this note. If you require further advice, please get in touch.
As a side, but related, issue the UK economy has suffered with the abandonment of the VAT refund scheme for wealthy shoppers from abroad. Short-sighted or what.
Business taxation – what we know
Corporation tax
The rate of corporation tax is 25% for companies with taxable profits of more than £250,000.
For small companies, with taxable profits below £50,000, the rate of corporation tax is 19%. The rate tapers for companies with taxable profits between £50,000 and £250,000. This will provide a gradual increase in the effective rate of corporation tax. The rate of corporation tax on taxable profits in the margin is 26.5% so many small companies try to avoid this with suitable planning.
The lower and upper limits will be proportionately reduced for short accounting periods and where there are associated companies. Group loss relief planning is likely to become important for many groups.
The above rates mean that company tax planning may now become more important for a lot of companies.
TIP: If you have a small company with profits in the margin, it’s worth examining the ways in which the corporation tax liability could be managed. Zero emissions cars and pension contributions can all help to lower the tax bill, but cash may be the issue.
Capital expenditure – full expensing
Where a company incurs capital expenditure on assets that would otherwise qualify for the main pool, such as plant and machinery, furnishings, manufacturing equipment, IT equipment and capital investment on software, it is entitled to claim a first year allowance and take a 100% in year deduction in respect of the expenditure. The expenditure must be on new and unused items.
There are separate rules for motor cars, as briefly referred to elsewhere in this summary.
R&D
The merged R&D tax relief scheme is now in force. This sees the existing R&D tax relief incentives brought together into a single scheme:
- R&D expenditure credit (‘RDEC’) for large businesses, SME subcontractors and subsidised R&D expenditure; and
- Loss-making R&D-intensive SME companies, can continue to claim under the Enhanced R&D Intensive Support scheme.
The merged scheme works like the existing RDEC scheme.
If you are an SME, you will need to identify whether you fall under the R&D intensive company rules or the merged scheme rules. The R&D intensive scheme is for companies with 30% or more of their total expenditure spent on R&D activities.
The merged scheme will provide relief for profit-making companies of all sizes at the current RDEC rate of 20%. The gross RDEC is subject to corporation tax, which means that the most profitable companies, paying tax at the full rate of 25%, will receive a net benefit of 15%.
The notional tax rate for loss-making companies of all sizes is 19% in the merged scheme, resulting in a payable credit worth 16.2% of a company’s R&D expenditure.
The procedure for making an R&D claim:
- Make an application for advance assurance, eligible new claimants;
- Make a claim notification, unless an R&D claim has been made in one of the last three periods, within six months after the end of the accounting period;
- Submit an additional information form with your CT600 or earlier; and
- Claim tax relief via the corporation tax computation and the CT600 and attach an R&D report.
The above procedure must be followed in every case. If it is not, HMRC will remove R&D claims from submitted computations.
Creative tax reliefs
The reliefs available to those companies involved in the creative sectors (museums, art galleries, theatres, orchestras etc.) are as shown in the following table:
| Relief
From 1/4/25 |
(%) |
| Theatre – non-touring/touring | 40/45 |
| Orchestras | 45 |
| Museums, galleries, exhibition – non-touring/touring | 40/45 |
The expenditure credits are 34% for film, high end television and video games and 39% for the animation and children’s TV sectors.
TIP: As with a claim for R&D relief, it is now necessary to submit an additional information form separately from the CT600. This must contain all the relevant details and figures which agree to the CT600. In many respects there is duplication, but a claim will not be accepted and processed without the additional information form.
Other reminders of recent tax changes
The following are measures which are already in place.
Residential property sales
Many taxpayers are still unaware of the new rules, so this is a brief reminder.
The reporting and payment requirements for CGT in connection with UK residential property sales are still causing problems for taxpayers with investment property and/or second homes. The sale of a main residence does not normally need to be reported in this way.
The reporting and tax payment deadline is 60 days from the date of completion.
With suitable planning, the calculations taxpayers need to prepare should be straightforward to complete, perhaps with a little help from their accountant!
Once a taxpayer has set up their CGT account with HMRC, it is then easy enough for them to appoint an agent to make the necessary return on their behalf. Once that has been completed the payment process is routine.
TIP: If you have a UK residential disposal which is due to complete before 5 April 2026, you can avoid the above if you can file your 2026 income tax return within 60 days of completion. The other benefit of this approach would be that the tax due would be payable in accordance with the self-assessment regime, i.e., by 31 January 2027, and not 60 days from completion.
Making tax Digital (‘MTD’)
MTD for VAT is now mandatory for all VAT registered businesses. All new VAT registrations result in an automatic inclusion within the MTD regime.
MTD for income tax commences on 6 April 2026 for self-employed individuals, and property owners with turnover, not profit, over £50,000. The turnover limit is assessed by reference to the tax return for the year ended 5 April 2025. Thus, HMRC are likely to be in touch once that return has been filed if they believe MTD will be relevant for you.
The threshold will reduce to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028.
I have already contacted all my clients who I believe will be caught by the new rules, but if you believe you might be affected, please get in touch.
TIP: You will be able to use a spreadsheet to record all your transactions, so you may not necessarily need to buy accounting software to comply with MTD. This is on the basis that your accountant will be filing the quarterly returns on your behalf using their software with a bridging capability.
MTD for corporation tax has now been abandoned as an initiative.
Penalties
We now have a new points-based penalty regime for filing failures.
The new regime is effective as follows:
- For VAT accounting it is now in place;
- For businesses, self-employed individuals, and property owners with turnover over £50,000 from 6 April 2026; and
- For businesses, self-employed individuals, and property owners with turnover over £30,000 from 6 April 2027.
The new regime is intended to ‘punish’ more harshly those who miss deadlines regularly, rather than those who occasionally default due to a simple oversight. The penalties are clear because they are fixed.
There is no ‘soft landing’, so all taxpayers will need to be aware of the rules to avoid unexpected fines.
Zero emissions vehicles
There are 100% first year capital allowances for business expenditure on new and unused zero emission business cars, and zero emission good vehicles for expenditure incurred prior to 1 April 2026.
With the company car benefit in kind percentage at 3% for 2025/26, now could be a good time to consider switching to an electric company car. With the BIK rate increasing in the coming years, they will still be at a very low level, which should encourage many company car drivers to make the switch.
TIP: A company does not need to purchase a car outright. Any lease/HP contract which gives the company a clear purchase option will give the company the right to claim capital allowances.
Vehicle excise duty is now payable on electric vehicles.
VAT and private schools
The changes announced in the last Budget have had unwelcome consequences. Perhaps not surprisingly, several schools have had to close as parents decided to move their children in advance of the new rules coming in to force. HMRC are also looking at the pre-emptive planning some schools and parents undertook. I fear that some planning may be deemed ineffective with potential consequences for schools and parents alike.
TIP: Ensure that you keep all documentation and associated detail on any planning you may have undertaken just in case HMRC challenge your planning.
Furnished holiday letting (‘FHL’)
The favourable FHL regime was abolished with effect from 1 April 2025.
The beneficial tax treatment of interest and deductible expenses, the reduced rate of CGT, and potential IHT reliefs have all now gone. FHL landlords will be subject to the same rules as buy to let landlords. The FHL financial model may no longer work for FHL landlords with perhaps only one or two properties.
TIP: Existing FHL landlords may need to carefully consider their options for addressing the changes to minimise any costs. Selling up may not be so easy with the 24% CGT cost and the number of properties which may be on the market in FHL ‘hot spots’. I know from personal experience how difficult this is.
Contact
If you have any questions, or other points, in connection with the contents of this summary of the November 2025 Budget, please do not hesitate to get in touch through the normal channels.
Disclaimer
Please bear in mind that this is a general overview of the November 2025 Budget announcements.
Please take appropriate detailed professional advice before acting on any of the points made in this or my earlier overview.