Chancellor Rachel Reeves presented the 2025 Autumn Budget on 26th November. Against a challenging economic backdrop and pressure on the national finances, there was even more speculation than usual in advance of the Budget speech. This was relating to both whether the Chancellor would stick to her “golden rules” in balancing the current budget, and if so, how would this be achieved; by increased taxation, spending cuts or a blend of the two? There have been several spending commitments made in recent days and weeks – but potential corresponding tax increases have been the subject of repeated leaks/announcements which were followed up by rebuttals.
Therefore, it seemed likely there would be tax changes announced, but the question was which taxes, and who would bear the burden of any increases? Following is a summary of key Budget tax points, and a reminder of changes previously announced which are coming into force, along with practical guidance on these points and how they may affect you and your business.
Employers
Increase in National Minimum Wage/National Living Wage
As was announced before the Budget, the National Minimum Wage and National Living Wage rates will increase again from 1st April 2026. There was an announcement in the 2024 Budget that the 18-20 year old rate will merge with the rate to those aged over 21 in the near term. The announced rates are:
- National Living Wage for over-21s: From £12.21 to £12.71 an hour (+4.1%)
- National Minimum Wage for 18 to 20-year-olds: From £10.00 to £10.85 (+8.5%)
- National Minimum Wage for under-18s: From £7.55 to £8.00 (+6.0%)
- The Apprentice Rate: From £7.55 to £8.00 (+6.0%)
Planning point: The increased wage rates will result in some employers (especially those with mainly part time employees) breaching the employer NIC threshold for the first time. We would remind you that you will likely be able to claim the Employment Allowance, which exempts most employers from the first £10,500 of employer NIC per tax year.
Planning point: If staff costs make up a significant proportion of overall costs, it is important to revisit your pricing models in advance of this change to make sure that you can maintain your profit margins.
Increased National Insurance for salary sacrifice schemes
From April 2029, exemption from National Insurance (NIC) for both employees and employers will only be available for pension contributions of up to £2,000 per tax year. It is understood that NIC on any excess will be collected through the PAYE scheme using your normal payroll software.
Planning point: This does not impact salary sacrifice schemes used for alternative qualifying measures, such as electric cars and buying extra holiday.
Planning point: This only impacts pension contributions made under a salary sacrifice agreement. At the time of writing, it is understood that employer pension contributions made outside of such an agreement would not be affected. For example, if you decide to make a director’s pension contribution out of your own company, this would, we understand, be unaffected.
Confirmation of Employment Allowance
It was confirmed that the Employment Allowance, which effectively exempts the first £10,500 of Employer’s National Insurance Contributions in each tax year, will continue unchanged for 2026 onwards.
Planning point: There remain some qualifying businesses which do not claim the Employment Allowance. There are some qualifying conditions to consider, particularly if you have more than one business, but backdated claims are generally possible, so if you have not claimed this previously, please review your position as soon as possible.
Planning point: A common exclusion is that you are not eligible to claim if the only individual in respect of who Employer NIC is due is also a sole director. You may be able to avoid this restriction by appointing a spouse, civil partner or family member to be a director, though they must be paid at a rate greater than the Secondary NIC threshold (currently £5,000 p.a. since thresholds reduced from April 2025).
Confirmation of Benefits in Kind on company cars and vans – changes to double cap pickups
The Chancellor made no changes to the company car tax rates already announced up to April 2028. Rates will continue to incentivise the take up of electric vehicles:
Appropriate percentages for electric and ultra-low emission cars emitting less than 75g of
CO2 per kilometre will increase 1 percentage point in 2026-27, and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars. For 2028-29 and 2029-30, there will be a 2% rise each year.
Rates for all other vehicles bands will be frozen at their 2025-26 levels up to a maximum appropriate percentage of 37% for 2026-27 and 2027-28. This maximum will increase to 38% in 2028-29 and to 39% in 2029-30 following further increases to all bands of 1% each year for those two years.
Planning point: The appropriate percentage is applied to the car’s list price when new to work out the Benefit in Kind. The employee pays income tax and the employer pays Class 1A NIC on this amount. This will often differ from the actual price paid for the car, so care should be taken when completing P11Ds or indeed taxing through payroll.
A reminder that it was announced in the 2024 Budget that HMRC 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 are treated as cars for the purposes of capital allowances, benefits in kind, and some deductions from business profits. The previous capital allowances treatment continue to 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.
Other Business announcements
Capital Allowances and Annual Investment Allowance (“AIA”) changes
It was announced that a new 40% First Year Allowance would be brought in for main rate expenditure. This excludes certain items which only qualify for “special rate” allowances, such as many cars, integral fixtures etc. This will apply for both corporation tax and also to income tax for sole traders/partnerships. This applies from 1st January 2026.
The 100% First Year Allowance for zero emission vehicles and chargepoints is extended by 12 months to 31st March 2027. For electric and plug-in-hybrid vehicles, a per mile charge was announced which will take effect from April 2028, though the mechanism for collection is not yet clear. This will apply to all electric and plug-in hybrid cars whether they are company or privately owned.
However, for asset pools brought forward, the annual writing down allowance will reduce from 18% to 14% from April 2026.
There is no change to the 100% relief under “full expensing” of qualifying assets, the £1M Annual Investment Allowance on the availability of Structure and Buildings Allowance.
The “full expensing” relief remains available only to limited companies, although as AIA is remaining, it is considered rare that a self employed person or partnership will incur over £1M of capital expenditure!
Planning point: The Annual Investment Allowance is now to continue at a level of £1M ongoing, so you can still claim this in priority to “Full expensing relief”. This would still be a rational choice where you have special rate pool assets, since these will attract First Year Allowance at 50% or AIA at 100%.
Planning point: If you are planning to purchase plant and machinery which does not qualify for AIA/full expensing, it may be sensible to defer this until January 2026. It is unclear how any transitional rules will work for periods encompassing 1st January – for example a March 2026 year end.
Increased limits for Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)
With effect from 6th April 2026, limits for the EIS and VCT schemes will be increased. This will increase the gross assets limit that a company must not exceed for the EIS and VCT to £30 million (from £15 million) immediately before the issue of the shares or securities, and £35 million (from £16 million) immediately after the issue
The annual investment limit that companies can raise will increase up to £10 million (from £5 million) and for knowledge-intensive companies to £20 million (from £10 million) and the company’s lifetime investment limit to £24 million (from £12 million) and for knowledge-intensive companies to £40 million (from £20 million). The Income Tax relief that can be claimed by an individual investing in VCT will fall to 20% from the current rate of 30%
Increased limits for Enterprise Management Incentive (EMI) Scheme
With effect from 6th April 2026, for eligible companies, the maximum value of qualifying company options will be increased from £3 million to £6 million. Maximum gross assets for a qualifying company will be increased from £30 million to £120 million and the maximum number of employees will be increased from 250 employees to 500 employees.
For eligible companies, the changes will apply to EMI contracts granted on or after 6 April 2026 and can also apply retrospectively to existing EMI contracts which have not already expired or been exercised. The limit on the exercise period will be increased from 10 years to 15 years. It was announced that existing contracts can be amended without losing the tax advantages the schemes offer, provided it is in line with the legislation.
Personal tax and other announcements
Increase in tax rates on dividend, property and savings income
The Chancellor announced a 2 percentage point increase in tax rates on dividend, property, and savings income. However, the effective date of the change will differ for each type of income.
From 6th April 2026, the basic dividend rate will be increased by 2 percentage points to 10.75% and the higher dividend rate will be increased by 2 percentage points to 35.75%. The additional dividend rate will remain unchanged at 39.35%.
From 6th April 2027, the basic rate of income tax for both property income and savings income will be increased by 2 percentage points to 22%, the higher rate will be increase by 2 percentage points to 42% and the additional rate will be increased by 2 percentage points to 47%.
It is worth noting the dividend allowance and the personal savings allowance remain unchanged.
Planning point: With the increase in dividend taxation coming into effect from 6th April 2026, this provides opportunity to consider increasing dividend extraction for the tax year ended 5th April 2026, taking full advantage of basic and higher rate tax bands before the tax increase comes into effect.
Planning point: It is even more important than ever to fully consider legitimate ways in which you can ensure that dividends, rental income and savings income are spread through the family to utilise dividend/savings allowances and basic rate bands/personal allowances for as many members of the family as possible. However, it is critical that any planning is correctly executed, so please do seek professional advice.
Planning point: If share portfolios and savings are held outside of ISAs, it could be worth considering gradually moving portfolios into ISAs in light of the increase tax on dividends and savings. Further benefit would be received if this could be actioned before the Cash ISA allowance reduction from £20k to £12k takes effect from 6th April 2027.
Changes to non-domiciled (“non-dom”) tax rules
From 6th April 2025, a new set of tax rules for “non-doms” has been in place. No changes to this were announced in the 2025 Budget.
For Inheritance Tax, the test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. The time the individual remains in scope after leaving the UK will be shortened where they have only been resident in the UK for between 10 and 19 years.
From 6th April 2025, individuals arriving in the UK (who have not been UK resident in the previous 10 years) will not pay UK tax on foreign income and gains (“FIG”) in their first four years of tax residence in the UK. This income can be remitted to the UK free of tax in that period. Overseas workday relief will continue to be available for the first four years, where employment duties are carried out overseas.
A new Temporary Repatriation Facility (TRF) will be available for individuals who have previously been taxed on the remittance basis. Individuals who have previously claimed the remittance basis and have untaxed FIG will be able to make an election to designate amounts derived from previously untaxed and unremitted FIG that arose prior to 6 April 2025 for a period of 3 tax years, from 6 April 2025. Designated amounts will be charged to tax at a rate of 12% in tax years 2025 to 2026 and 2026 to 2027, with the rate rising to 15% in tax year 2027 to 2028. Any remitted ‘designated amounts’ will not otherwise be charged to UK tax. The TRF will be available provided the individual is UK resident in the relevant tax years.
Existing non-doms who have been resident for less than four years as at 5th April 2025 will benefit from the new treatment until the end of their four-year period, not for a further four years from 2025.
For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.
Increase in Capital Gains Tax (CGT) rates and changes to Business Asset Disposal Relief
A reminder that CGT rates were increased in the 2024 Budget to the same as the rates for disposal of residential property. This means increases for gains falling into the basic rate are now taxed at 18% rather than 10%, and gains falling into the higher rate are taxed at 24% rather than 20%. Tax rates for gains on residential property remain unchanged.
The availability of Business Asset Disposal Relief will remain at £1M lifetime allowance, with the current rate of 10% for gains within this band applying up to 5th April 2025. From 6th April 2025 this increased to 14%, and from 6th April 2026 it will increase again to 18%.
Planning point: A reminder that if you have a CGT liability on a residential property disposal, this must be reported to HMRC and CGT paid within 60 days of completion in most cases. If you need assistance with this process, CRM are happy to assist.
It was announced in the 2025 Budget that the CGT relief on sales of controlling interests in a company to an Employee Ownership Trust (“EOT”) would no longer escape CGT entirely, but would be charged on half of the gain. The remaining 50% of the gain is held over, and effectively reduces the base cost of the EOT in the event that the Trust itself sells the shares at a later date.
Changes to Inheritance Tax – including pension funds and Business Property Relief
Firstly, the Chancellor announced at the 2024 Budget that the freeze on Inheritance Tax bands, including the property nil rate bands, would remain in place until April 2030 – an extension of two years beyond the announcements made by her predecessors. This was extended by one further year to April 2031 in the 2025 Budget. It was confirmed (as announced in the 2024 Budget) that from 6th April 2026, the availability of Business Property Relief (“BPR”) and Agricultural Property Relief (“APR”) at 100%, both of which are currently unlimited, would be restricted to a combined limit of £1M. For assets in excess of £1M, there would be a 50% relief available on the excess amount giving an effective 20% Inheritance Tax charge. For shares which currently benefit from BPR purely due to being unquoted (e.g. AIM portfolios), will have a 50% relief but no £1M allowance. Shares in your own business should benefit from the £1M allowance (subject to meeting the trading conditions, which are unchanged).
It was clarified in the 2025 Budget that the £1M allowance can be passed on to a spouse/civil partner, such that this allowance is doubled on the death of the surviving spouse, in the same way as the nil rate and additional property bands can be transferred to a surviving spouse/civil partner.
Planning point: Currently the value of your qualifying business interests would attract 100% BPR on death, including on transfers made within 7 years before death. Where this exceeds £1M, then from April 2026, you may wish to consider whether gifting some shares down the generations and claiming holdover relief for Capital Gains Tax is a good option. Individual circumstances may vary. Remember that assets left to a spouse or civil partner will retain IHT exemption on first death under spousal exemption rules – this applies to all assets.
Planning point: Although it has now been confirmed that BPR/APR qualifying assets can be transferred to a surviving spouse/civil partner who will also be able to pass on your £1M exemption on their death, if the underlying asset (shares or farm for example) are likely to increase in value over that time, there may be a benefit in passing up to £1M worth on first death, such that future growth sits outside your spouse’s estate. Of course, this would mean loss of access to income/capital from the underlying asset, and this is a decision that should be made considering all factors and not just tax.
A significant change was announced in the 2024 Budget to the IHT position of inherited pension funds. Currently, these will generally be outside of an estate for IHT, and so escape charge. If the deceased person died age under 75, then the fund is available to their beneficiaries free of all tax. If they are over 75, it remains exempt from IHT but is charged to income tax on the beneficiaries as drawn (subject to 25% tax free lump sum potentially).
From 6th April 2027, this is to change. Pension funds will now be charged to IHT in the same way as other assets. The proportion of the IHT charge on the estate which relates to the pension may be paid out of the pension fund, which does not trigger any additional tax charge.
However, the fly in the ointment is that the income tax position is unchanged. This means that is someone dies aged over 75, their undrawn pension fund will be potentially subject to IHT (subject to spousal exemption if applicable) but the remainder will also be charged to income tax on the beneficiaries when drawn.
Planning point: For some years, there has been a general position to leave pension fund monies intact and spend other savings first as a way of mitigating IHT charges. From April 2027, this position is likely to reverse for many people, particularly if they are over, or approaching, 75 years old. Of course, it is vital to take proper financial advice before making any decision based on the taxation position, other factors should be considered. Similarly, it would appear that from April 2027 the decision on whether to make a full 25% tax free lump sum withdrawal may require re-appraisal – some people with sufficient headroom in their pension and other savings may wish to take a lump sum and give it away with the hope/expectation of surviving 7 years. Again, it is vital to take proper financial advice before making any decisions.
Tax relief for non-reimbursed homeworking expenses to be scrapped
From 6th April 2026, employees who do not have additional homeworking expenses reimbursed by their employer will no longer be able to claim tax relief against their employment income for these expenses. It will still be possible for employers to reimburse these amounts tax free.
However, this is an area which HMRC have taken an interest in recently, so it is vital to make sure that where such allowances are paid, that the employer ensures that the relevant criteria have been met.
Increase in HMRC debt management and compliance funding
It was unsurprising to hear an increase in funding for HMRC’s debt management activities in the 2025 Budget, on top of previous increased funding in 2024. In addition to previous announcements of increased spend on compliance activities, Budget 2025 announced that HMRC staff employed in compliance activities will be tasked with collecting a further £2.5bn annually in tax by 2029/30, in addition to the £7.5 bn per year targeted in Budget 2024 and Spring statement 2025. In total therefore, HMRC is targeting an extra £10bn annually through compliance activity by 2030 compared with 2024.
Therefore, we expect tax, VAT and PAYE enquiries to increase for small business clients and non-business taxpayers. The profession is already seeing an increase in enquiry activity from HMRC for the first time post pandemic, with HMRC clearly tasked with increasing the tax take.
Planning point: You can protect yourself and your business from the cost of defending yourself from HMRC enquiries by subscribing to our tax investigation service. The cost for businesses starts at just £175 + VAT per annum. Please get in touch with your usual contact at CRM if you would like to find out more about this service.
Please note that this is designed as a generic guide rather than specific advice. As always, it is impossible to include every nuance in a publication such as this, so if you have a question about how a given measure may affect you or your business, or if you have a general tax query, please get in touch with us on 01865 379272.
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