The government presents Autumn Budget 2025 as a continuation of its strategy to cut the cost of living, protect and reform the NHS, reduce borrowing and debt, and make the tax system “fairer” while supporting growth. Behind that narrative, the OBR and HM Treasury costings show a substantial revenue package: the new tax measures are estimated to raise around £26.1 billion a year once fully rolled out, taking the tax burden to about 38.3% of GDP, a post-war high.
Within this, the largest single revenue source is the extended freeze to income tax and NIC thresholds to April 2031, which the OBR expects to raise around £23 billion in total by 2030–31. Further significant contributions come from capping NIC-free pension salary sacrifice at £2,000 per employee (forecast to raise £4.7 billion in 2029–30 and £2.6 billion in 2030–31), the new High Value Council Tax Surcharge (about £0.4 billion a year from 2028–29) and other targeted measures such as higher taxes on dividends, savings and property income and gambling duty reforms, which together add more than £1 billion a year by the early 2030s.
Taken together, the Budget decisions mean total tax receipts in 2029–30 are projected to be around £38 billion higher than under the March 2025 forecast baseline, even after allowing for weaker productivity and higher welfare spending. The stated policy goals therefore sit alongside a clear fiscal strategy: to close the structural revenue gap and finance higher health, welfare and investment spending through prolonged threshold freezes, targeted rate and base-broadening measures, and a tougher, more digitised compliance framework, resulting in a higher long-run tax take from income and wealth.
Executive Summary
Income Tax Changes
The Budget confirmed that the income tax Personal Allowance and higher rate threshold, already fixed at current levels until April 2028, will remain frozen until April 2031. The additional rate threshold of £125,140 will also be held at that level from April 2028 to April 2031.
Before the Change
After the Change
New Income Tax Rates
The government will create separate income tax rates for property income from April 2027. The property basic rate will be 22%, the property higher rate 42% and the property additional rate 47%. Savings rates will increase by 2 percentage points across all bands from April 2027.
Dividend ordinary and upper rates will rise by 2 percentage points from April 2026, to 10.75% and 35.75%, with the additional rate remaining at 39.35%.
Before the Change
Income Type | Band | Tax Rates |
|---|---|---|
Non-savings income (employment, property, trading, pensions) | Basic | 20% |
Higher | 40% | |
Additional | 45% | |
Savings income | Basic | 20% |
Higher | 40% | |
Additional | 45% | |
Dividend income | Ordinary (Basic) | 8.75% |
Upper (Higher) | 33.75% | |
Additional | 39.35% |
After the Change
Income Type | Band | New Tax Rates | Effective Date |
|---|---|---|---|
Non-savings income (employment, trading, pensions) | Basic | 20% | - |
Higher | 40% | - | |
Additional | 45% | - | |
Property income | Basic | 22% | 06-Apr-27 |
Higher | 42% | 06-Apr-27 | |
Additional | 47% | 06-Apr-27 | |
Savings income | Basic | 22% | 06-Apr-27 |
Higher | 42% | 06-Apr-27 | |
Additional | 47% | 06-Apr-27 | |
Dividend income | Ordinary (Basic) | 10.75% | 06-Apr-26 |
Upper (Higher) | 35.75% | 06-Apr-26 | |
Additional | 39.35% | 06-Apr-26 |
Ordering of Reliefs and Allowances
Under the current income tax calculation rules, allowances and reliefs must be used in a way that results in the lowest income tax liability. However, the rules are now changing. Effectively, the available allowances and reliefs, such as personal allowances, will initially be used against non-savings income other than property income.
If the amount of the allowances or reliefs exceeds this income, the balance is then deducted from property income, savings income or dividend income in the way which is most beneficial for an individual.
The Rent a Room Scheme remains unchanged, and the property allowance also remains unchanged.
Aside from these changes, most other aspects of the Income Tax calculation will remain the same.
Let’s take an example of the tax calculation of a taxpayer with the following income:
Particulars | Amount (£) |
|---|---|
Employment income | 30,000 |
Property income from residential letting | 3,000 |
Finance cost for a rental property | 1,000 |
Interest on savings | 400 |
Dividend income | 200 |
Before the Change
Particulars | Non-Savings | Savings | Dividend |
|---|---|---|---|
Employment Property income Interest income Dividend income | 30,000 3,000 | 400 | 400 |
Total | 33,000 | 400 | 200 |
Less: Personal allowance Less: Savings allowance Less: Dividend allowance | (12,570) | (400) | (200) |
Taxable income | 20,430 | - | - |
Income tax liability at 20% Less: Finance costs at 20% | 4,086 (200) | Cell | Cell |
Income tax liability | 3,886 | Cell | Cell |
After the Change
Particulars | Non-Savings | Property | Savings | Dividend |
|---|---|---|---|---|
Employment Property income Interest income Dividend income | 30,000 | 3,000 | 400 | 400 |
Total | 30,000 | 3,000 | 400 | 200 |
Less: Personal allowance Less: Savings allowance Less: Dividend allowance | (12,570) | Cell | (400) | (200) |
Taxable income | 17,430 | 3,000 | - | - |
Income tax liability at 20% / 22% Less: Finance costs relief at 22% | 3,486 | 660 -220 | Cell | Cell |
Total tax liability (3,926) | 3,486 | 440 | Cell | Cell |
Abolition of the dividend tax credit for non-UK residents
As of now, non-UK residents are not subject to dividend tax on dividends from UK companies. This is because the legislation treats it as if the tax has already been deducted at source, even though that has not actually been paid.
The government will abolish the notional tax credit that non-UK residents currently receive for dividends from UK companies. It meant that if a non-Uk resident extracted profits from a UK company, the income would not be subject to UK tax.
Before the Change
After the Change
National Insurance and voluntary contributions
NIC Threshold Freezes and Re-Rating
The NIC Primary Threshold and Lower Profits Limit are maintained at £12,570 from April 2028 to April 2031, with the Upper Earnings Limit and Upper Profits Limit held at £50,270 for the same period. Employer NIC secondary thresholds and certain employer relief thresholds aligned to £50,270 are also frozen.
Separately, from 2026–27:
These changes will be made via secondary legislation as part of the annual NICs process.
Voluntary NICs While Abroad
From 6 April 2026, the government will:
Before the Change
After the Change
This has three key implications:
- The cost of filling gaps will increase significantly for many expatriate clients.
- The window to secure Class 2 rates before April 2026 becomes a time-critical planning point.
- Record-checking and forecasting for State Pension entitlement will need to be prioritised early for mobile clients.
Salary Sacrifice for Pension Contributions
Currently, salary sacrifice is a common arrangement whereby an employee sacrifices a part of their income for contributions into pension schemes. That way, the salary is not subject to national insurance. However, from 6 April 2029, employer and employee NICs will be charged on pension contributions above £2,000 per annum made via salary sacrifice.
Given the scale of National Insurance liabilities for both employers and employees, this is a significant policy shift. Larger employers will need to review the design of their pension arrangements, plan clear communications with staff and consider whether continuing to maximise salary sacrifice remains appropriate.
Capital Taxes and Wealth
IHT thresholds and APR/BPR allowance
The inheritance tax nil rate band and residence nil rate band are already fixed until April 2030. The Budget extends that freeze for a further year, to April 2031.
In addition, the forthcoming combined allowance for the 100% rate of agricultural property relief (APR) and business property relief (BPR) will be fixed at £1 million for an extra year to 5 April 2031.
A further measure allows unused amounts of this £1 million APR/BPR allowance to be transferred between spouses and civil partners, including where the first death occurred before 6 April 2026.
Before the Change
After the Change
High Value Council Tax Surcharge
The High Value Council Tax Surcharge (HVCTS) will apply to residential properties in England valued at £2 million or more from April 2028. While the detailed banding and valuation rules will follow consultation, independent reporting suggests annual surcharges ranging from about £2,500 to £7,500, collected alongside ordinary council tax but with revenue passed to central government.
Before the Change
After the Change
For clients with portfolios of prime residential property, it will be important to consider:
Trusts and excluded property
The government will introduce a cap of £5 million on relevant property IHT charges over each ten-year cycle for trusts that held excluded property on 30 October 2024.
Before the Change
After the Change
Capital Allowance and Corporate Compliance
New 40% first year allowance (FYA) and reduced WDA
A major change was announced regarding capital allowance for both unincorporated and incorporated businesses.
It was announced that a new 40% FYA will apply for main-rate expenditure incurred on or after 1 January 2026. Additionally, the main rate of Written Down Allowance (WDA) is reduced from 18% to 14%, effective 1 April 2026. The Annual Investment Allowance (AIA) is not affected.
Before the Change
After the Change
Capital Gains Tax anti-avoidance: Share Exchanges and Reorganisations
The Budget announces that the government will modernise the anti-avoidance provisions applying to share exchanges and company reorganisations with immediate effect, with legislation to follow in Finance Bill 2025–26.
Under the new rules, effective for share issues or reorganisations on or after 26 November 2025, any group restructure or share exchange could be denied tax-advantaged “rollover” treatment if one of the main purposes of the transaction was a tax advantage.
The bar for the clearance being received for the relief is extremely low with this change.
Incorporation Relief: No longer automatic
The incorporation relief rules in TCGA 1992 s162 currently apply automatically where a business is transferred as a going concern to a company wholly or partly in exchange for shares, unless the taxpayer elects out in whole or part.
HMRC has recognised a risk that incorporation proceeded without full appreciation of the immediate CGT implications. Therefore, it has been confirmed that the claim for incorporation relief will only be successful if made in a return.
Before the Change
After the Change
ATED Relief: Time Limit for Claims
The ATED change is modest but useful. ATED legislation will be amended so that relief can be claimed in an initial ATED return for any chargeable period for a dwelling held for qualifying commercial purposes.
Before the Change
After the Change
Corporation Tax penalties and digitalisation
From 1 April 2026, fixed late filing penalties for Corporation Tax returns are increased, with the purpose to counteract the effect of inflation since penalties were last set.
The following are the differences in penalties, as announced:
Particulars | Current Rate | New Rate |
|---|---|---|
Return late | £100 | £200 |
Return is more than 3 months late | £200 | £400 |
Three successive failures, return late | £500 | £1,000 |
Three successive failures, return is more than 3 months late | £1,000 | £2,000 |
Alongside this:
VAT: Tour Operators’ Marginal Scheme (TOMS)
Under TOMS, VAT is charged only on the margin between sales and direct costs, which has historically produced substantial VAT savings for operators that could legitimately use the scheme.
The forthcoming change is narrowly focused but has major implications for intermediaries and aggregators in the taxi and private hire sector. From 2 January 2026, suppliers of standalone private hire and taxi journeys will no longer qualify as “tour operators” for TOMS purposes unless the journey forms part of a broader package of specified travel services.
Before the Change
After the Change
Further Administration Measures
The Budget devotes a large section to “closing the tax gap”, with measures including:
Particulars | Current Rate | New Rate |
|---|---|---|
Return late | £100 | £200 |
Return is more than 3 months late | £200 | £400 |
Three successive failures, return late | £500 | £1,000 |
Three successive failures, return is more than 3 months late | £1,000 | £2,000 |
Alongside this:
Conclusion
The Autumn Budget 2025 delivers a significant shift in the tax landscape, driven by long-term freezes to key thresholds, targeted rate increases and a focus on widening the tax base. Although framed as supporting public services and maintaining stability, the measures clearly point towards a sustained rise in the overall tax burden, particularly through personal tax and National Insurance. Property, savings and dividend income will face higher rates, while the extended freezes ensure more taxpayers are drawn into higher bands through fiscal drag.
For businesses and wealth holders, the introduction of a new 40% first year allowance, changes to capital allowance rates, reforms to share exchange rules and the move to claimed rather than automatic incorporation relief represent notable compliance and planning considerations. The extension of IHT freezes, the APR/BPR cap and the forthcoming high-value council tax surcharge will also influence longer-term structuring decisions for individuals with land, trading interests or high-value property.
Alongside these policy changes, the government has set out a firmer compliance agenda, substantially expanding digital reporting, increasing penalties and strengthening enforcement powers. Taken together, the Budget outlines a clear direction: a higher and more broadly based tax take, supported by a tougher administrative framework that will require careful monitoring and timely planning.
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