Budget 2025: Your Essential Guide to the Latest Tax Changes
Who had “budget leaked early” in the sweepstakes? Joking aside, that was probably the biggest news on the day, especially given all the negative headlines in the previous weeks.
Given the financial position of the country, it was always going to be a question of how the government could increase income. For context, the UK government borrowed £20.2 billion in September 2025 alone (a five-year high) and public sector net debt is at 95.3% of GDP – the highest level seen in more than 60 years. However, the budget actually delivered a lot less negativity than expected.
So, what was announced?
Key tax changes for individuals
Income tax thresholds frozen until 2031
The Chancellor has extended the income tax threshold freeze for three more years until April 2031. The Personal Allowance stays at £12,570 and the basic rate limit at £37,700, which keeps the higher rate threshold at £50,270. This measure will bring 700,000 more people into Income Tax by 2030/31.
National living wage
From April, the hourly rate for over-21s will rise by 50p to £12.71, with workers aged 18-20 seeing an 85p rise to £10.85, and under-18s and apprentices getting 45p more to £8 an hour. Whilst this is great news for the individual, it will naturally have an impact on businesses as it means an increase to their cost base.
National Insurance changes and salary sacrifice cap
Starting April 2029, salary sacrifice pension contributions will face a strict limit. National Insurance contributions will be capped at £2,000 per year. Both employers and employees must pay NICs on contributions above this threshold under the new rule. This means if you’re a higher earner or making larger contributions, you’ll see less take-home pay.
Dividend and savings income tax increases
The basic and higher rates of dividend tax will rise by two percentage points from April 2026. The basic rate jumps from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The additional rate stays at 39.35%. The savings income tax will also increase by two percentage points from April 2027 in all bands to 22% (basic), 42% (higher) and 47% (additional).
Homeworking and image rights tax updates
Tax relief for unreimbursed homeworking expenses ends April 2026. This affects about 300,000 employees who now claim either actual expenses or a flat rate of £6 per week without receipts. Basic rate taxpayers will see their tax bills rise by £62, while higher rate taxpayers face a £124 annual increase. Image rights payments linked to employment will be treated as employment income from April 2027, making them subject to income tax and National Insurance.
ISA Allowances
The amount of money that can be saved tax-free each year in a cash ISA (Individual Savings Account) will be reduced from £20,000 to £12,000 a year for the under 65s. If investing in stocks and shares, you can still invest the full £20,000.
Electric Vehicles
Electric vehicle and some hybrid car drivers will be taxed for using the road from 2028. EV drivers will be charged per mile, on top of other road taxes, in new road pricing.
Electric car drivers will pay 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile, with the rates going up each year in line with inflation. Given many business owners have purchased or leased electric vehicles through their company, this is one to keep an eye on.
Capital gains, inheritance, and property tax updates
Capital gains tax relief changes
The relief available on qualifying disposals to Employee Ownership Trusts (EOTs) will drop from 100% to 50% starting November 26, 2025. This most important change addresses the scheme’s growing cost to the Treasury but still encourages employee ownership. The new rules mean half of the gain will face capital gains tax when disposed, and the other 50% will be held over until trustees sell the shares later. Business Asset Disposal Relief and Investors’ Relief won’t be available for disposals with EOT relief claims.
Inheritance tax thresholds and trust caps
The inheritance tax nil-rate band of £325,000 and residence nil-rate band of £175,000 will stay frozen until April 2031. The combined £1 million allowance for 100% Agricultural Property Relief and Business Property Relief will also remain fixed until April 5, 2031. A positive change allows this £1 million allowance to transfer between spouses and civil partners. This could provide a £2 million allowance when the second partner dies.
A £5 million cap now applies to relevant property inheritance tax charges for trusts that held excluded property on October 30, 2024. This cap works on a 10-year cycle and covers property located outside the UK when the charge applies.
New High Value Council Tax Surcharge
The new High Value Council Tax Surcharge (HVCTS) stands out as the budget’s headline reform. It takes effect from April 2028 and applies to English properties worth over £2 million in 2026. The charges increase based on property value:
| Property Value (£m) | Annual Charge (£) |
| £2.0-2.5 | £2,500 |
| £2.5-3.5 | £3,500 |
| £3.5-5.0 | £5,000 |
| £5+ | £7,500 |
Property owners must pay the HVCTS while occupiers continue paying standard Council Tax. The charges will rise with CPI inflation yearly from 2029-30. Early 2026 will see a public consultation about reliefs, exemptions, and complex ownership structures. This affects all but one of these properties in England, but should raise around £430 million each year from 2028-29.
Business tax reforms in the Autumn Budget 2025
New capital allowances and changes to writing down allowance
The main rate of writing down allowances will drop by 4% to 14% from April 2026. A new first-year allowance of 40% for main-rate assets will begin from January 2026 to preserve investment incentives. This allowance will help unincorporated businesses and those leasing assets, though cars, second-hand assets and overseas leasing won’t qualify.
VAT reliefs and changes for charities and disabled schemes
A new VAT relief for businesses donating goods to charities will take effect from April 2026. Businesses won’t need to account for VAT on eligible donated goods, with value limits in place to prevent misuse. Technology and household appliances will have higher limits of £200 instead of £100. The standard rate VAT will apply to top-up payments for motor vehicle leases through qualifying disabled schemes starting July 2026.
Transfer pricing and multinational reporting updates
Small and medium-sized enterprises will keep their existing exemption from transfer pricing. Multinationals within scope must file an International Controlled Transactions Schedule (ICTS) from January 2027 to report specific information about cross-border related party transactions.
Expansion of EMI and EIS/VCT investment limits
EMI eligibility will expand substantially from April 2026. The gross assets will increase from £30 million to £120 million while employee limits will rise from 250 to 500. The option pool will grow from £3 million to £6 million. EIS and VCT investment limits will also double from April 2026. Annual limits will reach £10 million, with knowledge-intensive companies getting £20 million. However, VCT income tax relief will decrease from 30% to 20%.
Other notable tax measures
Fuel duty freeze and phased reversal
The Chancellor’s fuel duty freeze will continue until September 2026. The government will reverse the 5p cut from 2022 through a “staggered approach,” and rates will rise with the Retail Prices Index from April 2027. The new Fuel Finder scheme will launch in early 2026, requiring all petrol stations to report their prices so drivers can find cheaper fuel.
Removal of two-child benefit cap
The government will completely scrap the two-child limit on Universal Credit from April 2026. This landmark decision should help 450,000 children escape poverty by 2029/30. About 560,000 families will receive an average of £5,310 more each year. The government’s cost estimates range from £2.4 billion in 2026/27 to £3.2 billion by 2030/31.
Conclusion
This was a budget of lots of small changes, which combined will have an impact on our individual finances. The income tax threshold freeze until 2031 stands out as the most influential change. This freeze could pull 700,000 more people into the tax system through fiscal drag. On top of that, it introduces a new salary sacrifice pension contribution cap that will hit higher earners hard. The government wants to arrange taxation across different income sources, which explains the rise in dividend and savings income tax.
Business owners will see mixed results from these changes. The reduced writing down allowances might worry some businesses. However, the new 40% first-year allowance creates strong investment opportunities. Without doubt, growing companies looking to attract talent and investment will benefit from expanded Enterprise Management Incentive eligibility and doubled EIS/VCT investment limits. Of course, the increase to minimum wage could also have a significant impact.
As always, if you would like to talk though the changes, or would like guidance on actions to take, please get in touch. We’d love to hear from you.
