UK
Ireland
Learning from past mistakes is a key skill when managing a business. The Autumn Budget 2025 signals an attempt by the Chancellor to restore confidence among business owners, after the damage caused in the previous year’s Budget. The general sentiment regarding the 2025 Autumn Budget is that this was not necessarily a good Budget for business, but you can hear the sigh of relief.
Context: The 2024 Budget
The previous Budget hit business owners hard.
- Employers’ NIC increase: We have heard from them how the increase in the employers’ national insurance contributions (NIC) rate to 15%, coupled with reductions to the threshold at which employers start paying it, caused them to rethink plans to expand and hire
- Cap on IHT Business Relief: The £1 million cap on business and agricultural property reliefs is expected to have a significant long-term impact on larger privately owned businesses
- Increased BADR rate: The increase in the rate of business asset disposal relief (BADR, formerly known as entrepreneurs’ relief) from 10% to 14% (from April 2025) and to 18% (from 2026) has increased the rate of capital gains tax paid by entrepreneurs when exiting their business
These tax changes have been seen to dent long term business confidence and, in the short term, have diverted attention from business growth.
Glimmer of hope
It is pleasing that the government appears to have realised that the UK’s community of entrepreneurs will be a key driver of future growth in the UK economy.
An entrepreneurship prospectus and call for evidence on support for entrepreneurs were published, with the aim of restoring confidence among entrepreneurs. These set out the government’s ambition to make the UK the best place for businesses to start, scale up and stay. The call for evidence seeks stakeholder input on how tax policy can be changed to better support high-growth firms, with a view that this will shape future tax policy for businesses. S&W will be responding to this call for evidence and welcomes input from entrepreneurs and business owners.
There was relief that there were no more real shocks, but a sense of frustration that this budget has not delivered the growth levers that businesses are craving. For businesses seeing huge pressures on costs and reduced consumer demand, the tax changes made in this Budget were very much tinkering around the edges:
- Transferrable IHT allowances: A minor, but helpful, change will be made to the reform of business property relief (BPR) and agricultural property relief (APR). A surviving spouse will be able to utilise any unused BPR/APR allowance, bringing the total cap per couple to £2m (£1m each).
While this change will be welcome for smaller businesses, it offers little comfort to larger enterprises facing significant future inheritance tax liabilities, particularly multi-generational family run businesses. The 2024 Budget change could call into question the long-term viability of some succession plans, particularly if family members are faced with a decision of selling the business to settle an IHT liability.
- EIS and VCT investment limits increased: From 6 April 2026, annual investment limits for EIS and VCT schemes will double, which should make it easier for growing businesses to access venture capital funding moving forward (although the income tax relief for VCT has been reduced from 30% to 20%).
- EMI limits increased: Statutory limits for tax-advantaged employee management incentive share awards will also increase significantly, allowing many more businesses to attract and retain key talent in a tax efficient way.
Together, these measures signal a renewed commitment to supporting entrepreneurs, but whether or not they translate into meaningful change will depend on how effectively they are implemented and built upon in future policy.
The other tax changes in the Budget will also impact business owners and two, particularly, stand out:
- Dividend tax increase: From 6 April 2026, the dividend tax rates will be increased to 10.75% (basic rate) and 35.75% (higher rate). The additional rate of 39.35% remains the same.
- The capital gains tax deferral relief for sales of shares to employee ownership trusts will be reduced to 50% (previously 100%) from the date of the Budget. This significantly alters the economics of employee ownership succession planning, but a sale to an EOT still remains a tax efficient option.
Taken together, these measures mean that, while the Budget signals support, the overall tax burden on business owners remains heavy.
Conclusion
Although there is clear positive intent from the government, the measures announced yesterday will not fully offset the impact of previous changes. It is pleasing to see the positive messaging and commitment that is being communicated to the entrepreneurial community to make the UK a more competitive destination. The actual measures announced, however, are likely to have a limited impact on a business looking to scale in the UK, so we may have to wait a little longer for any impactful change.
Ultimately, the 2025 Budget feels more like a gesture of goodwill than a game-changer, and whether or not it marks the start of genuine reform will depend on the government’s response to the call for evidence later this year.
Please reach out to us if you would like us to consider your thoughts as part of our response to this call for evidence.
For more Autumn Budget 2025 analysis
Detailed analysis
APR and BPR reform
Changes to agricultural property relief and business property relief will be modified to make it possible for any unused £1 million allowance to be transferred to a surviving spouse or civil partner, even where the first death is before the introduction of the new rules on 6 April 2026.
Summary
At the 2024 Autumn Budget, the government announced that it would restrict the 100% rate of business property relief (BPR) and agricultural property relief (APR) to a combined £1 million allowance of qualifying property. Agricultural or business property valued over this allowance would only benefit from a 50% rate of inheritance tax relief.
Following representations from taxpayers and professional bodies, the government has modified the proposed measures to allow any unused allowance to transfer on death to a surviving spouse or civil partner.
Our comment
The reform to APR and BPR has been described as one of the most emotive and controversial measures announced at the 2024 Autumn Budget. It has prompted many business owners and landowners to shift focus from growth to restructuring ownership and setting aside funds to cover potential future inheritance tax (IHT) liabilities.
This measure is a welcome concession, and aligns the new rules with those applying to other IHT allowances and reliefs. It should also significantly reduce the number of estates to which the new rules apply, which will be a relief to many small and medium sized businesses and landowners. This measure already exists for the £325,000 nil-rate band and £175,000 residential nil-rate band. Extending it to APR/BPR means a surviving spouse can now leave up to £3 million in qualifying assets without suffering an IHT charge.
It does little, however, to address the wider concerns of larger business and landowners, faced with significant future inheritance tax charges. Careful thought will need to be given to how these businesses can be left to the next generation, as well as how families will meet the IHT liabilities they are now exposed to.
This could call into question the long-term viability of some succession plans, particularly if family members are faced with a decision of selling the business to settle an IHT liability.
Understanding your IHT exposure is therefore crucial, particularly if your estate includes high value business assets, agricultural land or an inherited pension fund.
Venture capital
The government has announced changes to venture capital trusts (VCTs) and the enterprise investment scheme (EIS). The existing annual and lifetime funding limits will be increased for EIS/VCT companies, along with an increase to the gross assets limit. The upfront income tax relief rate for VCT investors will be reduced.
Summary
The government announced it will increase the annual EIS and VCT company investment limit to £10m (previously £5m), and to £20m (previously £10m) for knowledge intensive companies (KICs).
In addition, the lifetime EIS and VCT company investment limits will increase to £24m (previously £12m), and to £40m (previously £20m) for KICs.
The gross assets test will also increase to £30m (previously £15m) immediately before the share issue, and £35m (previously £16m) immediately after.
Alongside the increases in the investment and gross asset size limits, the rate of up-front income tax relief for VCT investments will decrease from 30% to 20%.
These changes will be legislated in the Finance Bill 2025/26, and will take effect from 6 April 2026.
Our comment
These changes to investment limits will be positively welcomed by EIS/VCT companies, fund managers and investors alike and underline the government’s commitment to UK growth and incentivisation.
The increased fundraising and size limits will allow established and larger companies to attract additional follow-on investment beyond the initial start-up and scale-up phases, where previously companies would have exceeded the fundraising limits or breached the gross asset size limit.
This will in turn allow more EIS/VCT investors to continue to benefit from the generous tax benefits that the schemes offer for investors, and encourage continued investment in qualifying companies.
By contrast, the reduction in up-front income tax relief for VCT investors will potentially reduce the attractiveness of VCT investments compared to EIS. However, this is partly balanced by the tax-free treatment of dividends received from VCTs and is intended to ensure VCT funds target the highest growth companies.
Unfortunately, though, there was no change to the permitted age test which remains at 7 years, and 10 years for KICs, nor any changes to help simplify the current EIS rules.
Venture capital trusts: Reduction in income tax relief
The Chancellor has announced a reduction to income tax relief available to taxpayers who invest in venture capital trusts (VCTs), with the relief reducing from 30% to 20% from 6 April 2026.
Summary
Investors in qualifying VCT companies currently obtain a tax reducer at 30% of the lower of £200,000 and the amount invested. The maximum amount of tax relief that can be obtained is £60,000, being 30% of £200,000.
The Chancellor confirmed that, from 6 April 2026, the tax reducer will decrease to 20%, therefore reducing the tax relief available to investors.
Capital gains tax is not due on the sale of VCT qualifying shares, and no changes were made to the capital gains tax exemption for VCT shares.
No changes have been made to the income tax relief available on investments into enterprise investment scheme companies.
Our comment
It is disappointing to see a reduction in the income tax relief available to investors. The Chancellor stated a desire to improve investment in Britain. Reducing the benefit to investors seems to be contradictory.
Taxpayers may wish to accelerate any investments in VCTs to before 6 April 2026, to benefit from income tax relief at the higher rate of 30%.
Share incentives - EMIs
The Autumn Budget 2025 included increases to several important statutory limits for tax-advantaged enterprise management incentive (EMI) employee share options.
Summary
From 6 April 2026 (other than for Northern Irish companies):
- The maximum market value for tax purposes of the shares in a company over which tax-advantaged EMI options can be granted will increase from £3 million to £6 million
- The limit on the value of the gross assets of a company, together with those of any subsidiaries, which can qualify for EMI options over its shares, will increase from £30 million to £120 million
- The limit on the number of full-time employees of a company and its subsidiaries that can qualify for EMI options over its shares will increase from 250 to 500
- The maximum term of an EMI option will increase from ten years from the date of grant to 15 years. It will also be possible for companies and option holders to agree to extend the terms of EMI options granted before 6 April 2026 to up to 15 years without losing EMI tax reliefs in respect of those options
Our comment
These changes will substantially expand the scope for companies with qualifying trading activities to grant EMI options, which offer the most generous tax reliefs of the UK’s four types of tax-advantaged employee share schemes.
The changes are likely to be welcome to many companies that either cannot currently grant EMI options or have limited scope to do so under the existing restrictions.
Northern Irish companies seem to have been excluded because of the continuing relevance of EU state aid requirements (applicable to EMI options before Brexit) and the commitment to maintain an open border with the Republic of Ireland.
Increases to income tax rates
Dividend tax rates are to rise from April 2026 to 10.75% (basic rate) and 35.75% (higher rate), while savings and property income rates increase to 22%, 42% and 47% (basic, higher and additional rates respectively), from April 2027.
Allocation of personal allowances and some loss reliefs will be applied to other income, taxed at 20%, 40% and 45%, respectively, before property, savings or dividend income. Existing allowances will remain unchanged at £500 for dividends and £1,000/£500 for savings.
Summary
Income tax rates on passive income, being rental income from property, interest on savings and dividend income from shares, will rise for taxpayers in England, Wales and Northern Ireland.
The timing and extent of the change differs depending on the nature of the income:
- From 6 April 2026, the rates of tax on dividend income will be 10.75% (basic rate) and 35.75% (higher rate). The additional rate of tax on dividend income remains unchanged at 39.35%
- From 6 April 2027, the rates of tax on savings interest will be 22% (basic rate), 42% (higher rate) and 47% (additional rate)
- New property income tax rates will also be introduced from 6 April 2027, and will mirror the savings rates at 22%, 42% and 47%
An accompanying change will be made to the allocation of allowances and reliefs. The announcement confirms these deductions must be taken against income taxed at the 20%, 40% and 45% rates, in priority to passive investment income.
Existing savings and dividend allowances will remain. These allowances shelter the first £500 of dividend income and the first £1,000 (basic rate taxpayers), or £500 (higher rate taxpayers) of savings income.
The deduction available to landlords for finance costs will also be increased from 20% to 22%. The proposed rate increases for property income and savings income will also apply for trustees who are subject to the rates applicable to trusts. For non-discretionary trusts, the proposed increase in rates for property income, savings income and dividend income will also be felt by trustees.
The changes to savings and dividend rates will apply UK-wide. The separate rates of tax for property income will apply to England, Wales and Northern Ireland.
Our comment
These measures have been narrowly targeted as the Chancellor seeks to raise revenue by increasing taxes on income, without breaking manifesto pledges to raise the income tax rates for working people. The form of the change will add a degree of complexity to the future computation of tax liabilities, while necessitating the accompanying clarification of the allocation of reliefs and allowances, including the personal allowance.
The decision not to increase the additional rate of dividend taxation should moderate the impact of these changes. However, shareholders, with the flexibility to do so, should consider the merits of accelerating the payment of dividends before 6 April 2026, so that they will be subject to tax at the current rates.
Savers should ensure that they are taking full advantage of the ability to contribute funds to an individual savings account (ISA) each tax year, inside which interest and dividend returns are not subject to tax.
Employee ownership trusts
At the Autumn Budget 2025, the government announced that the exemption from capital gains tax (CGT) on the sale of a controlling interest in a company to an employee ownership trust (EOT) would be restricted to 50% of a seller’s chargeable gain.
Summary
With effect from 26 November 2025, on the acquisition of a controlling interest in a company by the trustees of an employee ownership trust (EOT):
- The exemption from CGT will apply to only 50% of a seller’s chargeable gain, rather than to 100%, as it did before that date
- A seller will not be able to claim business asset disposal relief (BADR) or investors’ relief in respect of their disposal of shares to the EOT trustees
- The EOT trustees’ CGT acquisition cost for the shares they acquire will be the total consideration paid for them less the 50% of the seller’s chargeable gains exempt from CGT. This is an improvement from the trustees’ perspective, as previously a disposal to an EOT was deemed to be made on a no-loss, no-gain basis, with the EOT trustees assuming the CGT base cost of the seller(s).
Our comment
With the scheme on course to cost £2 billion, 20 times beyond the original costings when the scheme was announced in 2013, it is somewhat unsurprising that CGT relief has been restricted. These changes will clearly make a disposal to an EOT less tax-efficient and, as result, somewhat less appealing as a possible exit route for shareholders.
Sales to EOTs seem likely to continue to interest company owners, given that the effective CGT rate for a higher rate taxpayer on a sale to an EOT will now be 12%, rather than 24%. This compares favourably with the 14% effective CGT rate, capped at £1 million of lifetime gains, for disposals qualifying for BADR.
The need to pay CGT on a disposal to an EOT will raise practical concerns about paying tax in respect of a non-cash consideration: In other words, giving rise to the possibility of a dry CGT charge since a substantial proportion of the consideration for an EOT’s acquisition of a controlling interest in the relevant company often takes the form of trustee loan notes.
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