2025 Budget Guide: What the Tax Changes Mean for You (and Your Business)Whats

What's changing and when - Budget 2025 Timeline

TAG Accountants Group has reviewed the Autumn Budget announced on 26 November 2025 and summarised how the measures may affect individuals and businesses.

The Chancellor, Rachel Reeves, set out tax-raising measures worth up to £26 billion. Key themes include an extended freeze on Income Tax thresholds, increases to taxes on property, dividends and savings income, changes affecting National Insurance, and a new High Value Council Tax Surcharge for properties valued at £2 million+.

Read TAG’s full guide here: 2025 Budget Guide – What Tax Changes Mean for You

At-a-glance: What’s changing (and when)

Now to April 2031: extended freezes on several Income Tax and NIC thresholds (details below).
6 April 2026: dividend tax rates increase (ordinary & upper rates +2%); BADR/Investors’ Relief rate rises; incorporation relief becomes claim-based; several employment/payroll changes begin.
1 January 2026: new 40% first-year allowance (FYA) for qualifying main-rate assets.
1 April 2026: National Living Wage/NMW rises; Corporation Tax late filing penalties double (for CT returns with filing date on/after 1 April 2026); main-rate WDA reduces for CT.
April 2027 onwards: Income Tax ordering rules change; savings rates rise from 6 April 2027; Making Tax Digital expands; mandatory payrolling of benefits begins (phased).
April 2028: HV Council Tax Surcharge starts; Electric Vehicle Excise Duty mileage charge starts; MTD expands again.
April 2029: NICs relief limited for salary sacrifice pensions above £2,000; VAT e-invoicing requirement begins (per Budget announcement); more Self Assessment collected in-year via PAYE for some.

Personal Tax: thresholds, allowances, dividends, savings and property

Income Tax bands & threshold freeze (until April 2031)

Basic rate band: £37,700
Higher rate threshold: £50,270
Additional rate threshold: £125,140
NICs Primary Threshold & Lower Profits Limit: £12,570
NICs Upper Earnings/Profits Limit: aligned to £50,270 (to April 2031)

Personal Allowance (frozen) + taper above £100,000

Personal allowance: £12,570 (frozen until April 2031)
Reduced by £1 for every £2 of adjusted net income above £100,000
No personal allowance when adjusted net income exceeds £125,140
Married couple’s allowance and blind person’s allowance to increase from 6 April 2026 by CPI (September 2025) of 3.8%

Property income tax: new separate rates from 2027/28

Property income includes income from letting land and buildings. Individuals can use a Property Allowance that exempts up to £1,000 of property income (or claim actual expenses instead).

From 2027/28, the government plans separate tax rates for property income:

22% for basic rate taxpayers
42% for higher rate taxpayers
47% for additional rate taxpayers

Savings income: allowances stay, rates rise from April 2027

Savings Allowance: up to £1,000 (basic rate), £500 (higher rate), £0 (additional rate)
0% starting rate for savings: up to £5,000 (remains until 5 April 2031, subject to conditions)
2026/27: current savings rates maintained
From 6 April 2027: rates increase by 2% to:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%

Dividends: 2% increase from 6 April 2026 (allowance retained)

Dividend Allowance: £500 retained for 2026/27
From 6 April 2026: ordinary and upper dividend tax rates increase by 2%
Additional rate: remains 39.35%

Dividend rates for 2026/27 (above the £500 allowance):

10.75% (basic rate)
35.75% (higher rate)
39.35% (additional rate)

Income Tax ordering rules: changing from 6 April 2027

From 6 April 2027, the personal allowance will be deducted from employment, trading or pension income first. Currently, individuals can choose which income the allowance is offset against.

Pensions & ISAs: key limits in the guide

Pension limits (2026/27):

Annual Allowance: £60,000
Tapering applies where threshold income > £200,000 and adjusted income > £260,000, down to a minimum AA of £10,000
Lump Sum Allowance: £268,275
Lump Sum and Death Benefit Allowance: £1,073,100

ISA limits (2026/27):

ISA: £20,000
Junior ISA: £9,000
Lifetime ISA: £4,000 (excluding government bonus)
Child Trust Fund: £9,000

These ISA limits are set to remain frozen until 5 April 2031. From 6 April 2027, the annual cash ISA limit is planned to be £12,000 with the remaining £8,000 designated for stocks & shares ISA investment (this restriction is not planned to apply for those aged over 65, where the cash ISA limit will remain at £20,000).

Employment & Payroll: NICs, wages, cars, benefits and compliance

National Insurance contributions (NICs)

Employees (2025/26): Class 1 NICs are 8% and 2%. Employer rate is 15%.

Secondary Threshold: currently set at £5,000 a year (from 6 April 2025) and maintained at this level until April 2031
Employment Allowance: eligible businesses can deduct £10,500 from their employer NICs bill

Self-employed: for 2025/26, Class 4 rates are 6% and 2%, and these rates remain the same for 2026/27.

Changes for 2026/27 (Class 2/3 & thresholds):

LEL: £6,708 per annum (£129/week)
SPT: £7,105 per annum
Class 2 rate: £3.65 per week
Class 3 rate: £18.40 per week

National Living Wage / National Minimum Wage (from 1 April 2026)

NLW (21+): £12.71 per hour
18–20 year-olds: £10.85 per hour
16–17 year-olds: £8.00 per hour
Apprenticeship rate: £8.00 per hour (for apprentices under 19, or 19+ in first year)

Company cars, fuel benefit and vans

Company car benefit rates (2026/27):

Zero emission cars: 3% → 4%
Other cars under 75g/km: +1%
Maximum benefit remains 37%

The government also announced a temporary easement to mitigate increasing benefit-in-kind liabilities for certain plug-in hybrid electric vehicles (PHEVs), applying retrospectively from 1 January 2025 to 5 April 2028, with transitional arrangements for some PHEVs until 5 April 2031.

Car fuel benefit charge: will increase from 6 April 2026 (amount not yet announced in the guide)
Van benefit & van fuel benefit: will increase from 6 April 2026 (amount not yet announced in the guide)

Benefits in kind: mandatory payrolling (phased from April 2027)

The use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027 (applies to Income Tax and Class 1A NICs).

Umbrella companies: new responsibility for PAYE/NICs (from 6 April 2026)

To tackle non-compliance, recruitment agencies will become responsible for accounting for PAYE and Class 1 NICs on payments made to workers supplied via umbrella companies. Joint and several liability rules will also apply, allowing HMRC to pursue agencies (or end clients in some cases). This takes effect from 6 April 2026.

Salary sacrifice pensions: NICs relief limited above £2,000 (from April 2029)

From April 2029, only the first £2,000 each year of employee pension contributions made via salary sacrifice will be exempt from NICs. Amounts above this will be subject to employer and employee NICs (pension contributions remain exempt from Income Tax subject to normal limits).

Workplace benefits relief: expanded reimbursements (from 6 April 2026)

New exemptions will cover reimbursements for eye tests, flu vaccines and home working equipment, aligning reimbursement treatment with employer-provided benefits. Effective on or after 6 April 2026.

Homeworking expenses relief: removed for employees (from 6 April 2026)

Tax relief for employees on non-reimbursed additional household costs when required to work from home will be removed from 6 April 2026. (This does not affect employers reimbursing eligible costs without deducting Income Tax/NICs.)

Business: Corporation Tax, capital allowances, and certainty services

Corporation Tax rates unchanged

Main rate: 25% for profits over £250,000
Small profits rate: 19% for profits of £50,000 or less
Marginal relief applies between £50,001 and £250,000
Late filing penalties: will double for CT returns where the filing date is on/after 1 April 2026

Capital allowances: key changes

Main rate Writing Down Allowance (WDA): reduced from 18% to 14%
- From 1 April 2026 (Corporation Tax)
- From 6 April 2026 (Income Tax)
Special rate pool WDA: remains 6%
New 40% First-Year Allowance (FYA): for expenditure incurred on/after 1 January 2026 on main-rate assets (including most leasing), excluding cars, second-hand assets and assets leased overseas
Annual Investment Allowance (AIA): remains at £1 million
100% FYA extensions: zero-emission cars and EV charge points extended to:
- 31 March 2027 (Corporation Tax)
- 5 April 2027 (Income Tax)

R&D and investment certainty initiatives

Targeted R&D Advance Assurance: pilot from spring 2026 for SMEs to get clarity on aspects of R&D tax relief claims before submission
Advance Tax Certainty Service: launching July 2026 for major UK investment projects (qualifying expenditure at least £1 billion), with clearances binding HMRC for five years (renewable)

Capital Taxes: CGT, reliefs, and carried interest

Capital Gains Tax (CGT)

CGT rates remain unchanged for 2026/27
Annual exempt amount: remains at £3,000 for 2026/27

Employee Ownership Trusts (EOTs): relief reduced from 26 November 2025

From 26 November 2025, the EOT disposal relief changes so that only 50% of the gain is exempt (previously 100%). The guide notes that Business Asset Disposal Relief and Investors’ Relief will not be available where the 50% exemption has been claimed.

Incorporation relief: claim required from 6 April 2026

For transfers of a business to a company on or after 6 April 2026, taxpayers will need to actively claim incorporation relief (it previously applied automatically).

Business Asset Disposal Relief (BADR) / Investors’ Relief: rate rises to 18%

The rate for individuals claiming BADR and Investors’ Relief will increase to 18% for disposals made on or after 6 April 2026.

Carried interest: moved into Income Tax framework

From April 2026, all carried interest will be taxed within the Income Tax framework, and a multiplier of 72.5% will be applied to qualifying interest brought within the charge.

Inheritance Tax (IHT): bands frozen + major pension and relief changes

IHT thresholds remain frozen

Nil rate band: £325,000 (frozen until 5 April 2031)
Residence nil rate band: £175,000 (frozen until 5 April 2031)
Residence nil rate band taper starts at £2 million (also frozen)

Unused pension funds and death benefits brought into estates (from 6 April 2027)

From 6 April 2027, unused pension funds and certain death benefits payable from a pension will be brought into a person’s estate for IHT purposes. The guide notes that death in service benefits payable from registered pension schemes will be excluded.

Personal representatives will be responsible for paying any IHT due, with options in specific circumstances for scheme administrators to pay IHT directly to HMRC and to withhold 50% of taxable benefits for up to 15 months.

Excluded property trusts: £5m cap (retrospective measure)

With effect from 6 April 2025, a retrospective cap of £5 million applies to excluded property held in trust as of 30 October 2024 (applies per ten-year cycle).

Agricultural Property Relief (APR) & Business Property Relief (BPR): new limits from 6 April 2026

From 6 April 2026, 100% IHT relief continues up to a combined limit of £1 million (APR + BPR combined)
Excess above the limit receives 50% relief
The £1m limit applies per person, refreshed every seven years
From 6 April 2026, the allowance becomes transferable between spouses/civil partners (including where first death was before 6 April 2026)
Limits frozen until 6 April 2031

Other matters: VAT, Making Tax Digital, enforcement, Council Tax, EV duty

VAT registration threshold

From 1 April 2026: VAT registration threshold remains £90,000
Deregistration threshold remains £88,000

Making Tax Digital (MTD) for Income Tax Self-Assessment

April 2026: starts for qualifying income over £50,000
April 2027: expands to incomes over £30,000
April 2028: expands to incomes over £20,000

The guide also states the government will not proceed with Making Tax Digital for Corporation Tax.

Enforcement and tax collection

The government announced multiple compliance initiatives, including further investment in HMRC debt management and digitalisation. The guide also notes that from April 2029:

Some Income Tax Self-Assessment taxpayers with PAYE income will be required to pay more liabilities in-year via PAYE
Businesses will be required to issue all VAT invoices as e-invoices (a roadmap is expected)

High Value Council Tax Surcharge (from April 2028)

From April 2028, properties valued at £2 million+ will be liable to a new surcharge, collected alongside Council Tax:

Over £2m: £2,500 per year
£2.5m–£3.5m: £3,500 per year
£3.5m–£5m: £5,000 per year
Over £5m: £7,500 per year

Electric Vehicle Excise Duty (eVED): new mileage charge from April 2028

A new mileage-based charge for electric and plug-in hybrid cars will come into effect from April 2028. The guide states the average EV driver may pay around £240/year (about £20/month). Other vehicle types (vans, buses, motorcycles, coaches, HGVs) will initially be out of scope.

What should you do next?

Individuals: review exposure to dividend and savings rate changes, and consider how the extended threshold freezes could affect long-term planning.
Landlords: plan ahead for the separate property income tax rates from 2027/28.
Employers: prepare for payrolling benefits in kind (from April 2027), umbrella supply chain changes (from April 2026), and salary sacrifice NIC changes (from April 2029).
Business owners: revisit capital expenditure timing and claims in light of WDA reductions and new FYAs; keep an eye on late-filing penalty increases for Corporation Tax.
Everyone: if MTD for Income Tax will apply to you, start planning systems and record-keeping early.

This article is a general summary of measures described in TAG’s Budget guide and is not personal tax advice.

Need help applying this to your situation?

There is plenty to digest from this Budget whether you are an individual or a business. If you would like to discuss how these changes could affect you or your business, call TAG Accountants Group on 01902 783172 or contact us via the form on our website.

Want the full detail? Read the complete guide here: 2025 Budget Guide – What Tax Changes Mean for You