Budget Update November 2025

Chancellor Rachel Reeves delivered her second Budget on Wednesday 26 November 2025, introducing £26.1 billion in annual tax rises by 2029/30. While Labour’s manifesto pledge not to increase income tax, National Insurance or VAT for “working people” remained technically intact, a raft of measures will significantly impact your clients’ tax planning strategies. Here’s the comprehensive update for accountants and their practices.

 

 

INCOME TAX AND NATIONAL INSURANCE

Income tax threshold freeze: The silent tax rise

The most significant revenue-raiser continues to be fiscal drag. The personal allowance (£12,570) and higher rate threshold (£50,270) will now remain frozen until 2030/31 – three additional years beyond the previous 2028 deadline. This measure alone will raise £7.6 billion annually by 2029/30.

National insurance contributions (No change)

Employer national insurance now sits at 15% on most earnings above £5,000 per employee, following changes that took effect from 6 April 2025. Employee rates remain at 8% on £12,570-£50,270 and 2% above. These changes have already raised payroll costs significantly, with no relief announced.

 

 

DIVIDEND, SAVINGS AND PROPERTY TAXATION

Dividend tax increases hit business owners

From 6 April 2026, dividend tax rates will increase by 2 percentage points across the board:

• Basic rate: 8.75% becomes 10.75%
• Higher rate: 33.75% becomes 35.75%
• Additional rate: Remains at 39.35%

With the dividend allowance already slashed to just £500 annually, this creates a double burden for owner-managed businesses taking profits via dividends.

Abolition of dividend tax credit for non-UK residents

From 6 April 2026, the notional dividend tax credit previously available to non-UK residents on UK dividend income will be abolished. Non-residents will now be treated identically to UK residents for dividend tax purposes, subject to the same 10.75%/35.75%/39.35% rates.

New property income tax rates

From 6 April 2027, separate income tax rates for property will be introduced (England, Wales, and Northern Ireland):

• Basic rate: 22% (vs 20% on other income)
• Higher rate: 42% (vs 40%)
• Additional rate: 47% (vs 45%)

The ordering of reliefs is also changing: from 6 April 2027, income tax reliefs and allowances will be applied first to non-property income, then property, followed by savings and dividends.

Savings income tax changes

From 6 April 2027, savings income tax rates will increase by 2 percentage points across all bands. The personal savings allowance (£1,000 for basic rate and £500 for higher rate taxpayers) will be maintained but no longer offset property or dividend income.

 

 

INHERITANCE TAX

Major changes to agricultural and business property relief

Effective from 6 April 2026:

• Combined £1 million allowance at 100% relief for Agricultural Property Relief (APR) and Business Property Relief (BPR)
• Assets exceeding £1m receive only 50% relief (effective 20% IHT rate)
• AIM shares: 50% relief only, not covered by the £1m allowance
• Payment: Can be spread over 10 years interest-free

The £1m combined allowance will be indexed to CPI from 6 April 2031, and all APR/BPR thresholds remain frozen until 30 April 2031.

Pensions brought into inheritance tax

From 6 April 2027, unused pension funds and death benefits will be brought into an individual’s estate for IHT purposes.

IHT thresholds frozen until 2030/31

The nil-rate band remains fixed at £325,000 and the residence nil-rate band at £175,000 until 2030/31, with the taper threshold fixed at £2 million. From 6 April 2031, these will increase in line with CPI.

 

 

CAPITAL ALLOWANCES

Writing down allowances: Main rate reduction

From April 2026, the main rate for Writing Down Allowances (WDA) on plant and machinery will be reduced from 18% to 14% on a reducing balance basis. The Special Rate Pool WDA (long-life assets and integral features) remains at 6%.

Introduction of a 40% first-year allowance

From January 2026, a new 40% first-year allowance is introduced for companies investing in qualifying plant and machinery in the main pool. Companies can deduct 40% of eligible costs in year one, with the remaining balance entering the main pool for WDAs at the new 14% rate.

Annual Investment Allowance (AIA) and full expensing

The £1 million AIA is retained, providing immediate 100% relief for qualifying expenditure up to this threshold each year. Full expensing also remains available:

• 100% first-year allowance on qualifying main pool plant and machinery (companies only)
• 50% first-year allowance on special rate pool assets

 

 

PROPERTY TAXES

The “Mansion Tax” on high-value properties

A new annual charge applies to residential properties valued over £2 million from April 2028:

• £2m-£2.5m: £2,500 annually
• £2.5m-£5m: Graduated up to £5,000
• £5m+: Up to £7,500

Properties in council tax bands F, G, and H (approximately 2.4 million) will be revalued to determine liability. The charge can be deferred until sale or death.

 

 

SALARY SACRIFICE AND WORKPLACE BENEFITS

Salary sacrifice pension contributions capped

From April 2029, salary sacrifice pension contributions above £2,000 annually will be subject to both employer and employee National Insurance.

How it works:

• First £2,000: NI-free as currently
• Above £2,000: Subject to 8% employee NI (2% over UEL) and 15% employer NI

Expansion of workplace benefits relief

From 6 April 2026, employers can reimburse employees for eye tests, flu vaccines, and home working equipment with the same tax and National Insurance relief as if providing these items directly. Currently, exemptions only apply to direct provision, creating inconsistency.

Plug-in Hybrid Electric Vehicles (PHEV) benefits-in-kind easement

From 1 January 2025 to 5 April 2028 (retroactively), a temporary easement applies to mitigate PHEV benefit-in-kind tax liabilities due to new emission standards (EU Euro 6e and UN equivalents):

• CO2 emission figure for qualifying PHEVs will be deemed to be nominal (value 1) rather than the actual figure on the registration document
• Vehicles registered on/after 1 January 2025 with CO2 emissions ≥51 qualify

 

 

UMBRELLA COMPANIES AND CONTRACTOR COMPLIANCE

Umbrella company PAYE reforms – from 6 April 2026

Responsibility for PAYE compliance shifts from umbrella companies to either:

• The recruitment agency (if one exists in the supply chain), or
• The end client (if contracting directly with the umbrella company)

Joint and several liability applies. If the umbrella company fails to pay PAYE/NICs, HMRC can pursue the agency or end client for the full amount.

 

 

CAPITAL GAINS TAX

Capital Gains Tax incorporation relief

From 6 April 2026, individuals, partners, and trustees transferring a business to a company in exchange for shares must claim incorporation relief through their Self-Assessment tax return for the year of transfer. The claim will require details of the transaction, tax computations, and business type.

BADR rate increase

As previously announced, Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief) CGT rate increases from 14% to 18% on the first £1m of qualifying gains from 6 April 2026.

 

 

ELECTRIC VEHICLES AND MOTORING

EV mileage tax announced

From April 2028, electric vehicles (battery EV and plug-in hybrid EVs) will face a pay-per-mile tax:

• Battery EV: 3 pence per mile
• Plug-in Hybrid: 1.5 pence per mile

Implementation details (collection mechanism, exemptions) still under consultation.

First-Year Allowances for zero-emission cars and EV charge points

• First-year allowances maintained for qualifying EV charge points
• Zero-emission cars eligible for enhanced relief
• Full expensing relief available for qualifying infrastructure