Chancellor Rachel Reeves presented her highly anticipated second Budget to Parliament yesterday. After the 2024 tax measures, the government was hopeful that broad tax increases would not be necessary in 2025. However, due to ongoing economic challenges, despite a short-term growth upgrade from the Office for Budget Responsibility (OBR), tax increases proved unavoidable. Let’s take a closer look at the highlights of the Autumn Budget 2025 and explore how these changes may impact us all!
Here’s a summary of how the Budget affects you depending on who you are.
I am a “Working Person”
- Income tax rates on earnings remain unchanged, but thresholds will stay the same until 2031. As a result, future pay increases will mean more income is taxed, similar to a tax rate rise.
- If you are paying into a workplace pension scheme under the salary sacrifice method, you will see annual contributions above £2,000 a year, subject to NIC from April 2029.
- If you are on the minimum wage, there will be an uplift of over 8% next April to £12.71 per hour.
I am a “Business Owner”
- The increase in National Minimum Wage (NMW) and National Living Wage (NLW) will have an impact on your overheads from April 2026.
- The corporation tax thresholds and rates remain unchanged.
- If you are an owner shareholder, from next April, there will be an additional 2% tax to pay on the dividends you draw from the company. This is from April 2026.
I am a “Landlord”
- The Chancellor has introduced an extra 2% on your rental profits if you own the property in your own name. This change is from April 2027.
- There are no changes to corporation tax rates if you are operating via a limited company.
- There are no changes to Capital Gains Tax rates if you are thinking of selling.
I am a “Saver”
- Savings income will attract an extra 2% from April 2027 across all tax bands.
- The overall Individual Savings Account (ISA) limits will remain the same at £20,000, but from April 2027, investors under 65 will be limited to £12,000 when it comes to cash investments.
As you know, navigating taxes is never simple. Let’s therefore explore each announcement a bit further to make it helpful.
Income Tax
For 2026/27, the income tax thresholds are unchanged from 2025/26 and are set to remain static until 2030/31. The only rates that will increase from 6 April 2026 are the basic and higher tax rates on dividend income.
After your tax-free ‘personal allowance’ has been deducted, your remaining income will be taxed in bands in 2026/27 as follows:
| ‘Other income’ | Savings income | Dividend income | |||
| 2026/27 (and 2025/26) | 2026/27 | 2025/26 | |||
| Basic rate | £1 – £37,700 | 20% | 20% | 10.75% | 8.75% |
| Higher rate | £37,701 – £125,140 | 40% | 40% | 35.75% | 33.75% |
| Additional rate | Over £125,140 | 45% | 45% | 39.35% | 39.35% |
National Insurance (NIC)
From 6 April 2026, the rate of Class 2 NICs will be increased from £3.50 to £3.65 per week, and the Class 3 NICs rate will be increased from £17.75 to £18.40 per week.
The government will no longer allow people living abroad to pay voluntary Class 2 NICs. Also, the minimum time you need to have lived or paid contributions in the UK to make voluntary payments from overseas will go up from 3 years to 10 years.
Self-employed individuals pay ‘Class 4’ NICs in addition to their income tax liability. The Class 4 NIC rates and thresholds for 2026/27 remain broadly similar to 2025/26.
Business Tax
The corporation tax thresholds and rates remain unchanged. There are however changes to capital allowances you can claim.
For 2026/27, the annual investment allowance (AIA) will remain at £1 million, and the full expensing regime will be available to companies.
The rate of the writing-down allowance (WDA) applicable to qualifying capital expenditure in the main rate pool will drop from 18% to 14% on 1 April 2026 for companies and on 6 April 2026 for unincorporated businesses.
There are no plans to alter the 6% WDA rate for qualifying expenditure in the special rate pool.
For qualifying expenditure incurred on or after 1 January 2026, a new 40% first-year allowance (FYA) will be available to companies and unincorporated businesses.
The new FYA can be used against leased assets (overseas leasing is excluded), but not for cars or second-hand assets. It will mainly be beneficial when the AIA or other FYAs are unavailable.
Capital Gains Tax (CGT)
As we look ahead to the 2026/27 tax year, it’s important to note that capital gains tax (CGT) will apply to most capital asset sales at a rate of 18% for basic rate taxpayers and 24% for higher rate taxpayers.
Additionally, the CGT rate for business asset disposal relief (BADR) will increase from 14% to 18% starting April 6, 2026. You may recall this was increased last year from 10% to 14%.
There are two other areas that you need to be careful:
- Employee Ownership Trusts – with immediate effect, disposals into an Employee Ownership Trust will receive half the relief, meaning 50% of the gain will now be chargeable. The remaining 50% of the gain will continue to be “held over” to future gains.
- From April 2026, any claim for incorporation relief must be included in the self-assessment tax returns. Previously, when you set up a limited company and transferred your trade into that company, no specific notification was required.
Mansion Tax
The scary rumours of the mansion tax did indeed come true.
Owners of properties worth more than £2 million are subject to a minimum additional annual council tax surcharge of £2,500 from April 2028.
The mansion tax will range from £2,500 to £7,500 depending on the property’s value. Properties will be valued before the introduction of the tax. The mansion tax is applied to homeowners.
Inheritance Tax (IHT)
The main rate of IHT remains at 40%, reduced to 36% for estates leaving 10% or more to charity.
The IHT nil-rate band will remain frozen at £325,000 until 2030. The additional nil rate band for passing on the family home to direct descendants (residence nil rate band) will also remain at £175,000 until 2031.
This means that married couples and civil partners will generally not pay inheritance tax where their combined estate is valued below £1 million. Note, however, that the residence nil rate band continues to be tapered where the value of the estate exceeds £2 million.
A reminder that from April 2027, most undrawn pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.
Farmers and business owners
The government is continuing to reform IHT agricultural property relief (APR) and business property relief (BPR). From 6 April 2026, the 100% relief will only apply to the first £1 million of combined agricultural and business property, with the relief reducing to 50% on the value that exceeds £1 million.
It was also announced yesterday that from 6 April 2026, any unused APR or BPR allowance will be transferable to the surviving spouse or civil partner. This means that together, a couple may be able to pass on up to £3 million free of inheritance tax where their estates include agricultural and/or business property.
VAT
From 1 April 2026, the VAT registration and deregistration thresholds will remain at £90,000 and £88,000 respectively. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.
Other Announcements in the Budget
Penalties
Late penalties for corporation tax returns due on or after April 1, 2026, will be doubled. A late return will incur an initial penalty of £200, increasing to £400 if it’s more than three months late.
For businesses that miss three consecutive deadlines, the penalty will rise to £1,000, or £2,000 if overdue by more than three months.
The government will soon consult on additional changes to HMRC’s penalty system, aiming to motivate prompt corrections and impose stricter penalties for tax evasion.
Tax Debt
HMRC is continuing to explore ways to reduce unpaid tax and speed up payments.
This includes looking at whether businesses should be required to pay PAYE and VAT by Direct Debit.
They also plan to hire more staff to focus on debt recovery and to use debt collection agencies more often to deal with older or harder-to-recover debts.
Digital Communications
From spring 2026, if you use HMRC’s digital services, you will start to receive digital letters by default instead of letters by post. It will still be possible to opt out if digital is not for you.
EIS / VCT Investments
From 6 April 2026, significant increases to the limits for companies to be eligible for EIS and VCT schemes are proposed as follows:
- The gross assets test will increase from £15 million to £30 million immediately before share issue and from £16 million to £35 million immediately after the issue.
- The annual investment limit for companies will be increased from £5 million to £10 million (from £10 million to £20 million for Knowledge-Intensive Companies (KICs)).
- The lifetime investment limit will increase from £12 million to £24 million (from £20 million to £40 million for KICs).
At the same time, the rate of income tax relief available to an individual investor in a VCT will be reduced from 30% to 20%; this change does not apply to the EIS.
What do you need to do next?
As we look ahead to the 2026/27 tax year, it’s a good time to reflect on how the recent Budget may impact our financial landscapes. The emphasis on fostering growth, tackling inflation, and easing the cost of living has generated essential conversations.
However, it’s clear to us that with a freeze on various income tax rates and thresholds for an extended period, coupled with higher taxes on savings, dividends, and property income, plus possible IHT and CGT, you need to talk to the experts.
Right now is also the perfect opportunity to reassess your business and personal strategies for 2026 and beyond, ensuring you make the most of your tax efficiency.
Remember, we are here to support you in achieving your ambitions. If you have any questions or would like to discuss your plans further, get in touch.
For specific advice on any topic, please get in touch with your usual manager in the first instance.
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This blog is just a summary, and there are lots of other measures which are not significant but will still have some impact, like removal of homeworking expenses, payrolling of benefits, electronic invoicing, etc. We will aim to update you in the coming weeks. It is best if you follow us on social media, especially LinkedIn and Facebook as these channels allow us to make bite-sized updates