Autumn Budget 2025: Personal taxes

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 ofallowances 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.

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.

In a well trailed change to salary sacrifice for pension contributions, the Chancellor confirmed that a £2,000 limit will be imposed on the amount of salary sacrifice pension contributions that will benefit from relief from national insurance contributions (NIC). This change will be implemented later than expected, at the start of the 2029/30 tax year.

Summary

While contributions above the £2,000 cap will continue to attract income tax relief, from the start of the 2029/30 tax year both employees and employers will pay NIC on salary sacrifice contributions made above this limit.

Our comment

Pension salary sacrifice has long been one of the ‘protected’ salary sacrifice schemes. It appeared to only be a matter of time before this was reconsidered, due to the perception that predominantly higher earners benefit the most from its easements.

Following the changes, it is expected that a higher rate taxpayer contributing £12,000 to their pension via salary sacrifice will be £200 per year worse off and their employer £1,500 worse off, based on current NIC rates.

While the changes are still more than three years away, employers should consider commencing their preparations now to understand the potential additional employer NIC costs. The impacts this could have on total reward packages for existing employees, and how to structure pension contributions for new joiners to the business between now and April 2029, will also need to be considered.

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.

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.

The government has announced changes to the cash ISA limits from April 2027 and new offerings from financial services firms to encourage UK investment. A consultation has also been announced to simplify lifetime ISAs to assist first time buyers purchasing their own homes. 

Summary

While the overall annual ISA limit will remain at £20,000, from 6 April 2027 the cash ISA limit will be restricted to £12,000 for savers under the age of 65. As part of this, the government has announced that financial services firms will provide new services to help savers find the right UK investments for their savings. 

The annual subscription limits for lifetime ISAs (£4,000), junior ISAs (£9,000) and child trust funds will remain unchanged until April 2031, with no indication of what will happen after this date. 

In addition, a consultation will be launched in 2026 to look at introducing a new ISA product, which will eventually replace lifetime ISAs. This product is intended to assist first-time buyers in purchasing their first home. 

Our comment

Changes to cash ISA limits have been rumoured for several months now, so it was unsurprising that the government announced the reduction. What was unexpected, however, was that the limit will only be levied on those under 65, perhaps reflecting that the older community may need quicker access to cash savings. 

The changes are not intended to raise revenue directly, but rather aim to encourage individuals to invest, instead of holding large cash balances that are seen as less economically beneficial to the wider economy. The Chancellor also pointed out the potential benefits to investors from investing in equities over cash in the longer-term.

There are no further details on what financial services firms will be offering to assist savers in diversifying away from cash ISAs, and the limit of £12,000 is still a significant sum for many savers, so the cash ISA is likely to remain a popular option for more risk-averse savers.  

A consultation into lifetime ISAs is likely to be welcomed by those who have previously criticised the restrictions that products, currently in existence, place on purchasing properties, however, how far the changes will go towards making lifetime ISAs more attractive remains to be seen. 

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%.

Small changes have been announced to existing legislation regarding excluded property trusts, dividends paid to temporary non-UK residents and tax credits on dividends received by non-UK residents.

Changes to widen the scope of UK capital gains tax and inheritance tax in respect of some non-UK companies and structures holding UK property and agricultural property have also been announced. 

Summary

The government has announced a cap of £5 million on inheritance tax (IHT) charges for formerly excluded property trusts settled prior to 30 October 2024 and now subject to the relevant property regime. This change has been introduced retrospectively from 6 April 2025 and applies to all inheritance tax events from this date.

Immediate changes to anti-avoidance provisions to bring more offshore structures into the scope of IHT and prevent individuals from changing the nature of holdings to limit exposure to UK IHT have also been announced. From 6 April 2026, further provisions will be introduced, aligning the treatment of non-UK structures holding UK agricultural property with those that hold UK residential property. 

In addition, there will be alterations to some rules affecting non-UK resident individuals, from 6 April 2026:

• The exemption for dividends paid out of post-departure trade profits of close companies will be removed from the temporary non-UK residence rules. From this date, all dividends received from close companies during a period of temporary non-UK residence will be subject to UK tax
• The deemed tax credit on UK dividends received by non-UK residents will be removed, bringing the treatment of non-UK resident individuals in line with that of UK residents
• Non-UK residents will no longer be able to make voluntary class 2 national insurance contributions, which could impact their ability to claim the UK state pension. Class 3 national insurance contributions can still be made if the individual lived in the UK for 10 years in a row and paid at least 10 years of national insurance contributions while in the UK.  This change to class 2 will coincide with a wider review of voluntary national insurance contributions expected in the new year
• Minor changes to capital gains tax were also announced to bring more protected cell companies holding UK residential property into the scope of UK CGT

Our comment

The Autumn Budget 2025 has been relatively quiet on offshore taxation announcements. Whereas the Autumn Budget 2024 brought in sweeping legislative changes, this Budget seems far more focused on smaller amendments to existing legislation. It is unlikely that these changes will have as significant an impact or create as much excitement as last year’s. Rumours about the introduction of an exit tax, however, appear to have been misleading, and there may be some breathing a sigh of relief. 

While the £5 million inheritance tax cap may be seen as a way to reduce the impact of the April 2025 changes on offshore trust structures, ultimately this is only likely to affect the largest structures with a value of more than approximately £84 million. Although this may be a welcome change for those with wealth of this level in such structures, it is likely to be seen as too little too late for those with offshore trust structures who either restructured them or chose to leave the UK as a result of the April 2025 changes. 

Changes affecting non-UK residents are unlikely to have a significant tax impact, although preventing non-UK residents from contributing and potentially claiming the UK state pension may be popular. The abolition of the non-UK resident dividend tax credit removes an anomaly that remained in the system after previous dividend tax reforms. 

From 6 April 2027, the personal representatives of a deceased taxpayer will be able to request that IHT arising from unused pension funds is paid directly from the pension fund of the deceased.

Currently, this can only be done by the beneficiaries of the deceased’s estate. 

Summary

The government announced in the Autumn Budget 2024 that unused pension funds will be within the scope of IHT from 6 April 2027.

Where pension funds are left to charity or the deceased’s spouse, they will remain IHT free. 
If the pension fund includes a death in service benefit because of the death of the pension holder, the payment of this benefit will also not be liable to IHT.

The Chancellor confirmed at the Autumn Budget 2025 that the deceased’s personal representatives will be responsible for reporting and paying the IHT due. The personal representatives will be able to direct the administrators of the pension scheme to withhold 50% of the taxable benefits within the fund, for up to 15 months.

In some scenarios, the personal representatives can also request that the IHT due is paid directly from the pension fund to HMRC.

Until 6 April 2027, only the beneficiaries of the estate can instruct the pension administrators to pay IHT due directly from the pension fund.

If the personal representatives receive clearance from HMRC that all IHT has been paid and it later transpires that the deceased had a pension fund not previously declared, the personal representatives will be discharged from paying the IHT due on the pension fund.  

Our comment

Following the announcement that the IHT exemption for unused pension funds was to be removed, several practical issues remained, such as how the IHT liabilities would be settled and whether or not this would result in additional taxes on the beneficiaries. The proposals to allow for IHT to be paid directly from pension funds at the direction of the personal representatives, without any income tax charges for this on the beneficiaries is, therefore, a sensible change and will be welcomed by both beneficiaries and personal representatives.

The government plans three administrative changes: easing tax collection for pensioners as the state pension exceeds the personal allowance from 2027/28, consulting in 2026 on collecting more self-assessment tax through PAYE, and requiring formal claims for incorporation relief on business transfers from 6 April 2026.

Summary

The government has announced that it is reviewing administrative changes in three areas:

• Measures to ease the administrative burden for pensioners whose only source of income is the state pension. As the state pension continues to increase, it will shortly exceed the £12,570 personal allowance, meaning that many pensioners will have a small amount of tax to pay from 2027/28. We await more detail in 2026 as to how these aims will be met. 
• The government is looking at measures to increase the amount of income tax paid through pay as you earn (PAYE) by self-assessment taxpayers.  Few details have been provided, but a consultation is expected in early 2026.
• A procedural change will require taxpayers to actively claim incorporation relief on the transfer of their business to a company for transfers on or after 6 April 2026.  Previously, the relief applied automatically. 

Our comment

The taxation of the state pension has been a widely trailed issue in the run-up to the Autumn Budget 2025, with the significant increases in the state pension over the past two decades outpacing those made to the personal allowance. One possible solution could be restoring the age-related personal allowance, which applied until it was abolished in 2013.

The announcement of the consultation into collecting more self-assessment income tax through PAYE contained little detail. It may become necessary for taxpayers to have other investment income coded in so that tax is effectively collected at source on such income. Given that investment returns are unpredictable, such a change would come with significant complexity, and it is pleasing to see that there will be a wider consultation on any measures before a change is made.

Making the availability of incorporation relief subject to a formal claim means that HMRC will be more aware of these claims and so be able to request more details of the transaction, the associated tax computations and businesses transferred. This will likely lead to more enquiries into such claims, and taxpayers will need to take even more care to ensure claims are appropriate.

Various new measures aimed at reducing tax avoidance and fraud were announced at Autumn Budget 2025, including a headline-grabbing new reward scheme for informants on high value tax fraud.

Summary

As previously trailed, the government will now pay rewards of up to 30% of the additional tax collected where informants provide information to HMRC and over £1.5m of tax is recovered as a result. Rewards under existing arrangements for smaller value cases will continue.

Promoters of tax avoidance schemes face further sanctions, as will tax advisers who facilitate non-compliance. The government has decided against regulating tax advisers but remains committed to raising standards in the tax advice market.

Tax evasion on the high street, including fraud through electronic sales suppression, faces a further clampdown from HMRC, through a new small business evasion and enforcement team of 350 officers. A new recklessness criminal offence, in relation to direct taxes, will also be consulted on in early 2026. 

Further investment of £25m is planned, allowing recruitment of more insolvency service staff to disqualify more rogue directors.

Tax conditionality, where registration with HMRC is required to legally operate, will be extended to the waste and animal welfare sectors, and additional transport licenses. 

The government also announced reforms in other areas of tax anti-avoidance, relating to share reorganisations and offshore personal tax and inheritance tax, with further detail to follow. 

Finally, the government will also consult on giving HMRC new powers to ensure errors made by taxpayers in their tax returns are corrected, and the framework for publishing details of deliberate tax defaulters will be strengthened.

Our comment

With a tax gap in 2023/2024 of approximately £47 billion, further measures to crack down on tax avoidance, evasion and non-payment were inevitable. 

Whistleblowers who have information about high value tax fraud stand to be handsomely rewarded under a new US style scheme, with payments of up to 30% of amounts recovered over £1.5m. Expect the HMRC fraud hotline to get hotter, as those with knowledge of tax crime look to cash in.

Further measures to combat tax evasion in small businesses specifically are unsurprising, given HMRC estimates 60% of the tax gap is attributable to them. This includes extending the programme of making particular trading licenses conditional on tax compliance. The introduction of mandatory e-invoicing for VAT invoices, albeit from 2029, will further enhance HMRC’s compliance programme. 

The level of fraud through rogue directors, particularly relating to Covid support fraud, has inevitably led to the government’s plan to strengthen the insolvency service. 

The decision not to regulate tax advisers might be seen as surprising by some, and it remains to be seen as to what other measures might be considered in future to increase standards in the tax advice market. 

The government has accepted the recommendations of the McCann review in relation to the loan charge, in some cases going further to allow long-term payment plans and writing-off additional liabilities. A final settlement opportunity will open in 2026, when HMRC will begin to contact those affected.

Summary

A final settlement opportunity is set to open in 2026, which will allow those who have used disguised remuneration loan schemes to agree a settlement with HMRC at reduced rates.

Although the McCann review proposed to suspend some liabilities conditionally to be written off later, the government prefers to write off those liabilities at the time of settlement.

The settlement terms include a new methodology, which will reduce tax liabilities and allow for suspension of amounts related to promoters’ fees and late payment interest. Also, penalties will not be sought as standard and HMRC will not seek inheritance tax liabilities as it has done in previous settlement opportunities.

The government is going further than the review in providing an additional £5,000 reduction on top of any other amounts written off, subject to a maximum write off of £70,000. Five years’ time to pay will be available by default, with up to 10 years and beyond with HMRC approval. Employers will be able to access the same settlement terms as employees. 

Our comment

Many thousands of people and employers, who have unresolved disguised remuneration disputes with HMRC, will have the opportunity from 2026 to settle with HMRC on improved terms. These include reductions in overall liabilities, capped at £70,000, such as a government-proposed ‘bonus’ reduction of £5,000.

While generous payment terms will be available, that will come at a cost of a forward interest charge, locked in at the prevailing rate at date of settlement, currently 9%. HMRC will begin to contact those affected from early 2026, with a staged approach through to 2028. Given the volume of cases, it is hoped that HMRC can properly resource teams processing settlements.