Insights

Autumn Budget 2025: Further change for landed estates and rural businesses

27 Nov 2025

After the trials and tribulations of last year’s Budget, rural businesses and landowners hoped for a period of stability and changes for the better. The Autumn Budget 2025 delivered a mixed bag for the rural sector.

Direction of travel

While the media painted a scary picture of the changes the Budget might bring, landed estates and rural businesses will feel mixed emotions after the announcements. A sensible change in inheritance tax relief, contrasted with a tax raid on diversified estates where farming is supported by letting income. While it remains to be seen what future changes the rural sector might see, for the time being, landowners enjoy a period of stability with an eye towards planning prior to 6 April 2026.

The transferable £1 million allowance

The Autumn Budget 2024 announced radical reforms to agricultural property relief (APR) and business property relief (BPR), restricting 100% relief from inheritance tax to the first £1 million of combined qualifying agricultural and business property from 6 April 2026.

These changes received much media attention and public scrutiny. One particular area contested by land and business owners, as well as advisers and professional bodies, was the proposal that any unused £1 million allowance could not be transferred between spouses and civil partners on death. At the Autumn Budget 2025, the Chancellor rowed back from the proposals, stating that the £1 million allowance will indeed be transferable between spouses and civil partners, even where the first of the couple dies before 6 April 2026. This brings it into line with other inheritance tax thresholds, such as the nil-rate band and residence nil-rate band.

This is a very welcome change and gives business owners and landowners a slight reprieve from concentrating efforts on not losing out on a valuable £1 million allowance in family-owned businesses. It feels too little too late, however, given the level of lobbying since the announcements were made last year. Many landowners and business owners have spent significant time and incurred professional costs over the last year in restructuring their affairs to ensure they, as a couple, did not lose out on up to £200,000 of IHT relief.

Impacts for property owners

The Chancellor made two key announcements targeting property owners. The first, expected to only impact 1% of properties in England, is the introduction of the high value council tax surcharge from April 2028 for residential properties worth more than £2 million in 2026. The surcharge will be an annual charge, to be administered alongside council tax, starting from £2,500 and increasing to £7,500 for properties worth more than £5 million (with charges increased in line with CPI inflation from 2029/30 onwards).

The charge will be levied on the property owner, rather than the occupier, and so, for landed estates and rural businesses owning high value property, this could have a significant cashflow impact. Where these properties are let, this is another in a long list of tax impacts for landlords.

The government has said it will consult on a full set of reliefs and exemptions, including rules for more complex structures, such as companies, trusts and partnerships, as well as where job-related accommodation is concerned. This consultation will provide an opportunity for rural businesses and professional bodies to voice their concerns over the cashflow impact for certain properties, such as heritage properties.

The second change for property owners sees an increase of 2% in income tax rates on property income from 6 April 2027. This rate change will see basic rate tax increase from 20% to 22%, higher rate from 40% to 47% and additional rate from 45% to 47%. Basic rate tax relief for residential finance costs will increase to 22%. Where property is let out by trustees, the rate of income tax will increase to 47% for discretionary trusts and 22% for interest in possession trusts.

An additional rate taxpayer owning a high value property (£2m) let out at an annual yield of 5% will see their post-tax profits reduce by a little over 6% - a further cashflow impact for the landlord.

Rising costs for a rural workforce

The Chancellor announced further increases to national minimum and national living wage rates, putting more pressure on labour-intensive rural businesses. However, with a further freeze to income tax and national insurance thresholds until April 2031, no change in employer tax or national insurance rates and the fuel duty freeze continuing to September 2026, rural employers will welcome a period of stability for employment-related costs.

Incorporation of a rural business

With changes impacting the rural sector introduced over the last two Budgets, many landed estates and rural businesses might be considering whether or not their operating structure is fit for purpose.

Where rural businesses look to incorporate into a company structure, changes announced today mean that incorporation relief, which was previously applied automatically, will now need to be claimed by the taxpayer. While this administrative burden isn’t overly onerous, it will provide another opportunity for HMRC to look into a rural business’s tax affairs and request a raft of information to ensure the conditions for incorporation to apply have been adhered to.

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.

Mansion tax: High value council tax surcharge

The government has confirmed plans to impose an additional charge on homes worth more than £2 million, to apply from 6 April 2028. The new charge will start at £2,500 per year, rising to £7,500 for homes worth more than £5 million.

Summary

The new “high value council tax surcharge” will be administered alongside council tax and will be collected by local authorities. Liabilities will fall solely on owners of homes rather than occupiers. The charge will be introduced from April 2028 and will be tiered, with initial charges as follows:

From 2029/30, the annual charges will rise in line with CPI inflation. The government also plans to conduct a targeted valuation exercise to assign properties to the relevant bands, after which homes will be revalued every five years.

Plans were also announced to consult in early 2026 on the operation of the new surcharge, including on appropriate reliefs, support schemes and how to treat homes held in companies, trusts or other structures. The government has also indicated that it will consider how to apply the charge where owners are required to live in a property as part of their job.

Our comment

The concept of a ‘mansion tax’ has been on the political agenda since former Labour leader Ed Miliband promised to introduce such a charge in the run up to the 2015 general election.

Council tax bandings are widely seen as outdated, as they are based on valuations obtained in 1991. This has led to distortions, with some high-value homes paying a relatively low amount of council tax when compared to less valuable properties elsewhere in the country.

It is therefore unsurprising that the government has introduced this measure which is anticipated to impact fewer than 1% of properties and, according to polling, enjoys broad voter support. It is encouraging that the government plans to consult, particularly on support schemes, as paying the charge may be challenging for those whose income is relatively low compared to the value of their home.

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.

National minimum wage (NMW)

From 1 April 2026, national minimum wage (NMW) and national living wage (NLW) rates will be increasing. The NLW will rise by 4.1% to £12.71 per hour. Younger employees will receive an even greater increase with the 18–20 years’ rate rising by 8.5% to £10.85 per hour.

Summary

At the Autumn Budget 2025, the Chancellor announced that the government had fully accepted the recommendations of the low pay commission resulting in a further increase to the NMW rates. This means that for pay reference periods beginning on or after 1 April 2026, the following rates should be applied by employers:

NLW for those aged 21 years and over: £12.71 per hour, an increase of 4.1% from the current rate of £12.21 per hour
NMW for those aged 18-20 years: £10.85 per hour, an increase of 8.5% from the current rate of £10.00 per hour
NMW for those aged 16 or 17 years, or individuals completing an apprenticeship that are aged under 19 years or aged 19 years or over and in the first year of their apprenticeship: £8.00 per hour, an increase of 6.0% from the current rate of £7.55 per hour
Accommodation offset rate for those provided with accommodation by their employer: £11.10 per day, an increase of 4.1% from the current rate of £10.66 per day

Our comment

While the headline NMW increase is smaller than increases in recent years, it still represents an above-inflation increase in costs for employers already grappling with significant recent increases in employment costs.

In the space of four years, the headline NMW rate will have increased by 33.8%, up from £9.50 per hour in April 2022 to £12.71 per hour from April 2026. Following the change in rates from 1 April 2026, an employee working 40 hours per week on NMW will be entitled to an equivalent salary of £26,437, an increase of £1,040 compared to April 2025.

The NMW increases create a greater risk of inadvertent non-compliance with the NMW rules. Many entry level and graduate roles, which often come with overtime and training requirements, are now being paid at, or close to, NMW. These roles, which have historically been paid well above NMW, often do not come with stringent monitoring of working time. However, as entry level role salaries start to converge with NMW, employer processes to track all working time are increasingly becoming necessary to remain compliant.

Freezes to tax rates and thresholds

The government previously announced specific tax thresholds would be frozen until April 2028. These have now been frozen until April 2031.

Summary

The income tax personal allowance will remain at £12,570 from April 2028 until April 2031. The higher rate and additional rate income tax thresholds will also remain at the current levels until April 2031, at £50,270 and £125,140 respectively.

The starting rate for savings will be retained at £5,000 for 2026/27, and will remain at this level until 5 April 2031.

The primary threshold and lower profits limit for national insurance will remain at £12,570, from April 2028 until April 2031. The upper earnings limit and upper profits limit for national insurance will be maintained at £50,270, from April 2028 until April 2031. The secondary threshold for national insurance will remain at £5,000, from April 2028 until April 2031.

In addition, from 6 April 2026 the government will increase the lower earnings limit and small profits threshold to £6,708 and £7,105 per annum, respectively. The Class 2 rate will be £3.65 per week and the Class 3 rate will be £18.40 per week, from the same date.

It had been previously announced that inheritance tax nil-rate bands would remain at current levels until April 2030. These will now remain at current levels until April 2031. The combined allowance for 100% rate of agricultural property relief and business property relief will also be fixed at £1 million for a further year, until 5 April 2031.

Our comment

Although widely rumoured, and not unexpected, taxpayers will feel the result of fiscal drag with a further freeze of national insurance, income tax thresholds and allowances for a further three years until April 2031.

With the further freeze in the inheritance tax nil-rate band until 2031, it will be 22 years since the nil-rate band was last changed in 2009. This results in more taxpayers becoming liable to IHT given inflationary increases in property and other asset values over the intervening period.

With these further freezes, it becomes even more important for taxpayers to ensure their affairs are structured in the most tax-efficient way.