Autumn Budget 2025

Income Tax and National Insurance

What was announced?

The government has decided to extend the freeze on the income tax thresholds from April 2028 to April 2031. The personal allowance will also remain frozen at its current level until April 2031. Other than the increases to savings, dividend and property income, the tax rates for other income has not been changed. Income tax rates and thresholds are a devolveddeferred matter in Scotland so the thresholds and rates differ.

Class 1 NICs (employees and self employed) and class 1A NIC (employers) limits are also to remain frozen from April 2028 to April 2031.

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2025 CPI rate of 3.8% from 2026-27. The LEL will be £6,708 per annum (£129 per week) and the SPT will be £7,105 per annum.

For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs rates by September CPI of 3.8% in 2026-27. The main Class 2 rate will be £3.65 per week, and the Class 3 rate will be £18.40 per week.

What does it mean for the planner?

The extension of the freeze on the thresholds is a continuation of what has been in place for the last several years. Quite simply where thresholds are frozen and incomes increase; non tax payers start to pay basic rate tax , basic rate taxpayers start paying higher rate tax and so on. The most pain will be felt by those whose incomes cross thresholds and their marginal rates increases.  Moving up a tax bracket may well see individuals spurred into taking advice on how they can structure their finances more efficiently.

The existing freeze has seen many more millions of people paying rates of tax higher than they did just 5 or 6 years ago. The most pain from the extended freeze will be felt by those whose incomes cross income tax thresholds and their marginal rates increases. Moving up a tax bracket may well see individuals and couples spurred into taking advice on how they can structure their finances more efficiently.

From the financial planners perspective this latest freeze isn’t going to change much in the planning world. The income tax thresholds haven’t increased since 2021 and were expected to continue to 2028 anyway so many advisers will already be factoring tax efficient income into a client’s financial plan.

National insurance contributions are a fact of life for the employed and self employed. Pension contributions via salary sacrifice have been commonly used to minimise the amount of NICs paid by the employed but the benefit of this is going to be limited from 2029.

Savings and Dividend Taxes

What was announced?

The government have announced that an extra 2% will be added to the tax rates on savings income from April 2027. This means that the basic rate will increase from 20% to 22%, higher rate from 40% to 42%, and additional rate from 45% to 47%.

The starting rate for savings will be maintained at its current level of £5,000 until April 2031. The Personal Savings Allowance will also be kept at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

An extra 2% will also be added to the rates of tax on dividends. This will take place from April 2026, a year earlier than the changes to the savings rates. The ordinary rate will increase from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate is not impacted and the dividend nil rate remains at £500 per individual.

What does it mean for the planner?

The increases to savings rates have accompanied a freezing in the savings allowances and a reduction on the Cash ISA limit so there will be fewer options for tax efficient cash holdings from April 2027. However, given most people already contribute significantly less than the new £12,000 cash ISA allowance, there is still scope for some to use their ISA for cash holdings. Those with large cash balances may want to consider investing that cash within an offshore bond wrapper where the interest will roll up free of tax.  

The rates of tax on dividend income has historically made it an attractive income source for business owners and investors alike. However, in recent years, dividends have suffered when it comes to budgets. In 2016 there was a dividend allowance of £5,000. This was reduced to £2,000 in 2018, £1,000 in 2022, and £500 in 2023. Alongside the reduction in the nil rate allowance, the rates of tax also increased in 2018 and now again from April 2026.

How significant an impact these changes will have depends largely on whether you are an investor, or are using dividends as remuneration strategy from your business. 

Other Allowances

Married Couple’s Allowance and Blind Person’s Allowance

What was announced?

The government will uprate the Married Couple’s Allowance and the Blind Person’s Allowance by the September 2025 CPI rate of 3.8%. This will be legislated for and take effect from 6 April 2026.

What does this mean for the planner?

The maximum amount of Married Couple’s Allowance will increase from £11,280 (2025/26) to £11,710 on 6 April 2025)

The minimum amount of Married Couple’s Allowance will increase from £4,360 (2025/26) to £4,520 on 6 April 2026

The Blind Person’s Allowance will increase from £3,130 (2025/26) to £3,250 on 6 April 2026.

Allocation of the Personal Allowance against income

What was announced?

Under current tax rules, allowances and reliefs must be used in a way that minimises an individual’s overall liability to income tax.

These rules will be changed so that any available allowances and reliefs which can be used against income not from property, savings or dividends must be used against this income first.

This will mean that any available allowances or reliefs (including the personal allowance) are deducted from income which is not property, savings or dividend income first. If the amount of the allowances or reliefs exceeds this income, the balance is then deducted from property income, savings income or dividend income in the way which is most beneficial for an individual.

Once the available allowances and reliefs have been used up, any remaining income is allocated to the rate bands of income taxation: basic rate (£37,700), higher rate (£87,440) and additional rate in order.

What does it mean for the planner?

There are tax rules which state in which order income should be taxed after the deduction of the personal allowance.  However, the law also says that an individual can choose which income to offset their personal allowance against in the way which produces the lowest tax liability. In most cases it makes sense to use your personal allowance against income which would otherwise be taxed at 20% (non-savings non-dividend income).

There are situations however where that does not result in the best tax outcome and this is often to referred to as “beneficial ordering”. Normally the non-standard beneficial ordering situations arise where income could be covered by allowances other than the personal allowance e.g. starting rate for savings, dividend nil rate.

In terms of what this means for the planning, where there are still allowances or reliefs available after taxing income which is not derived from property, savings or dividends, beneficial ordering can still be used against the remaining income. 

Impact on investors

There has already been an increase in tax efficient investing including an increased interest in insurance bond wrappers due to the changing tax landscape, especially around dividends and capital gains especially for higher and additional rate taxpayers. Dividends have gone up again and other savings income has now received an increase.  

As has always been the case, whether an unwrapped investment or a wrapped investment such as an investment bond is more appropriate for a particular client requires taking into account both the internal taxation of the investment and the tax position of the investor.  

Broadly speaking how the returns from the underlying assets in a UK investment bond depend on whether they are dividends, other income such as interest, or capital gains.  Dividends received are exempt, whilst other income and capital gains are subject to a special rate of corporation tax of 20%. Our understanding is that non-dividend income within a UK bond will be taxed at the increased rate of 22% from April 27 and that the tax credit will reflect this and become 22% on chargeable gains.  

The tax case for onshore insurance bonds has always been strong for higher  and additional rate taxpayers, especially where they are basic rate taxpayers on encashment. For basic rate taxpayers it has been a bit more nuanced but the increase in the tax rates on dividends has changed this. Basic rate taxpayers will have tax free dividends within a bond and a basic tax credit to offset against the tax on resultant any gains. This change should see more basic rate taxpayers looking to the insurance bond wrapper to boost returns, especially where their allowances are being used elsewhere.

Let’s assume you have a basic rate taxpayer who has pension income of approximately £25,000 and is looking to invest £250,000. They already have some savings and investments which are using their savings allowances and annual exemption. If we assume a return of 6%, made up an equal amount of dividends, savings income and capital gains, the effective rate tax could look like the table below based on the proposed changes.

Obviously with the investment bond, you also need to consider the tax on encashment but with a bit of planning, the basic rate tax credit on encashment and top slicing relief could easily eliminate the tax due on the gain in this scenario meaning no further tax to pay. 

How the investment return is made up and the availability of allowances, will have an impact on the overall return but it is clear that in the current tax landscape sheltering income and gains within a bond wrapper could be beneficial.

Impact on business owners

Business owners with limited companies have tended to draw a small salary to build up entitlement to state benefits such as the state pension. When it comes to extracting profits above this level, pensions are generally the most tax efficient option. However, where the money is needed now and the member is below normal minimum pension age, dividends tend to be the best option. Business owners using the dividend route will now need to extract more income from their businesses to keep the same take home pay or suffer a bit more tax.  In the round dividends will still be more favourable than salary across the tax bands but the gap between dividends and salary has slightly narrowed (again).  

If you’re not making pension contributions, with corporation tax rates at between 19%-25%, it makes sense to draw up to the personal allowance as salary with anything further drawn as dividends. At todays tax rates, a business owner with £100,000 of profit who wanted to extract all this from their company would end up with £66,543 after tax . From April 2026 the same scenario would result in a bank balance of £65,209.  Whilst this is a reduction of £1,334 it is still more tax efficient than taking the full amount as salary as they would only end up with £61,370.

Increased tax on dividends does make tax relievable employer pension contribution more attractive so it could lead to more pension contributions.  This is trend we have seen since the increase in corporation tax and previous reductions in the dividend allowance, although a 2% increase is not as significant as the previous changes affecting business owners’ remuneration.

Changes to tax on property income

What was announced?

The government will create separate tax rates for property income as follows:

·       Basic rate 22%

·       Higher rate 42%

·       Additional rate 47%

The separate rates of tax for property income will apply to England, Wales and Northern Ireland. The government will engage with the devolved governments of Scotland and Wales (who have partly devolved powers in this respect) to provide them with the ability to set property income rates in line with their current Income Tax powers in their fiscal frameworks.

This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027.

What does it mean?

Property income is any income from letting land and buildings.

This is a further tax change negatviely impacting property investments over the last few years.

In the budget papers, the government state that over 90% of UK taxpayers do not have taxable property income, but there will be many financial planners who have clients that will be impacted.

There are a number of allowances and reliefs, in addition to your Personal Allowance, to help reduce income tax on this kind of income:

·       Property income of less than £1,000 does not need to be reported to HMRC and is tax free.

·       If a landlord has annual gross property income of more than £1,000 they can benefit from either using the tax-free £1,000 property allowance or deducting relevant expenses.

·       The Rent a Room Scheme lets individuals earn up to a threshold of £7,500 per year tax free from letting out furnished accommodation in their home (£3,750 for joint lettings).

·       Finance cost relief (FCR) provides unincorporated landlords income tax relief at the basic rate on their mortgage interest costs. Finance cost relief will be provided at the separate property basic rate (22%).

·       Carried forward property losses must still be offset against property income

It’s unlikely this change will result in property investors selling up but in addition to the above points, ensuring the income is received as tax efficiently as possible is where a financial adviser can help. For example, consider transferring part or full ownership to a lower tax paying spouse.

It may put some people off using property in general and investing elsewhere.

High Value Council Tax Surcharge

What was announced?

The government will introduce the High Value Council Tax Surcharge (HVCTS) in England only and will be administered alongside existing Council Tax by local authorities.

The HVCTS is a new charge on owners of residential property in England worth £2 million or more in 2026, taking effect on 6 April 2028. A public consultation on details relating to the surcharge will be held in early 2026, which will include looking at a full set of reliefs and exemptions, as well as rules for more complex ownership structures including companies, funds, trusts and partnerships. It will also cover those required to live in a property as a condition of their job (tied property).

Properties above the £2 million threshold will be placed into bands based on their property value:

Charges will increase in line with CPI inflation each year from 2029-30 onwards. Fewer than 1% of properties in England are expected to be above the £2 million threshold.

What does it mean?

In short, it’s simply a Council Tax increase. There’s not much a financial planner can do in this respect, assuming there’s no intention to sell and downsize.

What will be of interest for financial planners is the outcome of the consultation to see the detail of reliefs and exemptions available, particularly for individuals and trustee clients (e.g. a trust that owns a property used for a vulnerable beneficiary), and ensuring clients benefit from any reliefs or exemptions if applicable.

Pension Tax Lock

What was announced?

Despite much speculation, most things in the pension world have been left untouched. Pre budget there was request for a pension tax lock i.e. no tax changes. Whilst this was not described as a lock, other than proposed changes to salary sacrifice and the increased influence of personal representatives where IHT is in play, nothing much changed in the pensions world.

What does it mean?

It means that the pension tax system is static for pensions savers (at least until April 2029).  Tax relief still operates as it has, the annual allowances are unchanged and pension commencement lump sums (tax free cash) is unchanged and will usually be 25% of the pension pot and capped at the lump sum allowance, a welcome trio of remainers. So keep calm and pension on. 

State Pension

What was announced?

The basic and new state pension will increase by 4.8% from April 2026, in England, Wales and Scotland.

The government will fund the Northern Ireland Executive to increase the basic and new State Pension by 4.8%, from April 2026, should it choose to do so, as this policy area is devolved.

What does it mean?

In short clients in receipt of the state pension will be receiving more! The full new State Pension amount is £230.25 per week for 2025/26. How much an individual will receive depends on their personal National Insurance contribution record and the minimum qualifying period.

In 2026/27 this will increase to £241.30 per week. The state pension is paid 4 weekly, but if this were weekly this would increase the annual amount to £12,547, which is very close to the personal allowance of £12,570. Given the personal allowance is frozen and the triple lock is a minimum of 2.5%, the state pension will exceed the personal allowance next year.

Clients with other sources of income (from other pensions or work) will have their tax code adjusted to factor this in. There will be further guidance on hwo HMRC will assist those in future who become taxpayers solely because of their state pension income.

Salary sacrifice for pension contributions

What was announced?

The chancellor announced that salary sacrifice for pension contributions will be limited to £2,000 from April 2029. Any salary sacrificed above this amount will be subject to both employee and employers national insurance.

Employer pension contributions not derived from a sacrifice of salary will continue to be eligible for corporation tax relief (subject to the wholly and exclusively rules).

Contributions above £2,000 will now effectively be brought into line with net pay and relief at source schemes, as you pay national insurance on earnings under both of those contribution methods. 

What does it mean?

In short, for clients that are sacrificing more than this amount the cost of funding their pensions will increase. 

For average earners, this is unlikely to affect them, assuming a 5% employee contribution to a pension it will be those earning above £40,000 that will breach the £2,000 limit (£33,333 if you are paying 6% etc.).

This hopefully will not disincentivise pension savings, as they can still benefit from employer matching, still making these good value for money. There will also be a marginal tax saving on this £2,000 of £160 for those with earnings in the basic rate and £40 for higher rate taxpayers.

If we look at the figures for someone earning £50,000, paying 5% into a pension scheme with their employer paying 3%, with no employer NI passed on. The salary sacrifice arrangement was set up to keep their take home pay the same but increase their pension contributions. 

By using sacrifice in the above manner instead of £4,000 going into a pension, they will have £4,277.78. To maintain that level going into a pension will cost them an extra £62.22 over a year from their take home pay. They still have that extra £277.78 in the pension at a cost of just over £5 a month, and assuming 25% of that is tax free when they retire and they pay basic rate on the rest that would be £236.11 in their bank account of the future, a 379% return on their money.

For someone earning £70,000 with all of the same assumptions to maintain the £5,720.69 where the standard 8% in total would be £5,600.

If they just wanted to stay with £5,600 in a pension, they would have a greater take home pay of £40 (2% of the £2,000 that qualifies for the NI position). If they wanted to maintain the additional £120.69 that costs them an additional £32.41 a year (just over £2.70 a month). If that extra amount is taken in the basic rate with 25% tax free that’s £102.58, a 41.67% increase.

Pensions and IHT

What was announced?

As expected this is proceeding and will be legislated for in the Finance Bill 2025-26.

From 6 April 2027 unused pension funds and pension death benefits will be within the member’s estate on their death, regardless of whether the pension scheme administrators or scheme trustees have discretion over the payment of any death benefits, with some exceptions.  

Death in service benefits payable from both discretionary and non-discretionary registered pensions schemes will be excluded from Inheritance Tax. The existing Inheritance Tax principles providing exemption for death benefits passing to a surviving spouse or civil partner, and registered charities will be maintained.

The key announcement was that personal representatives will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay Inheritance Tax due in certain circumstances. Personal representatives will be discharged from a liability for payment of Inheritance Tax on pensions discovered after they have received clearance from HMRC.

What does it mean?

This was first announced on 30 October 2024, so not much has changed from a planning point of view. The stated aim of the proposal was that pensions need to return to what they were meant to do, provide an income for the member in retirement. Pension Freedoms changed the dynamic of pensions and for some they became intergenerational wealth transfer vehicles.

Planners will have to segment the clients pension to ensure that their retirement needs are met and for genuine excess money that was intended to pass to loved ones, an alternative plan will need to be formulated.  Personal representatives and their approach will now be key in the whole process where the pension remaining on death create IHT problems.

IHT thresholds

What was announced?

Back in Autumn Statement 2022 it was announced that the existing IHT thresholds were to be maintained until 5 April 2028. This kept the NRB at £325,000, the RNRB at £175,000 and the RNRB taper starting at £2m. Subsequently the Chancellor announced in Autumn Budget 2024 that the IHT thresholds were to be further maintained at those levels for tax years 2028/29 and 2029/30. In Budget 2025, it was announced that the Nil Rate Band will remain frozen until April 2031.

What does it mean?

The £325,000 NRB is available to all individuals and can be set against all asset types on their death. The NRB can also be used both:

·       To allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an IHT liability

·       In calculating the periodic and exit charges on relevant property (discretionary) trusts

The measure is not expected to have any significant macroeconomic impact but it does provide some certainty for IHT planners. It’s interesting to remember that the NRB has been fixed at £325,000 since the tax year 2009/10.

Agricultural Property Relief (APR) and Business Property Relief (BPR) reforms

What was announced?

In Autumn Budget 2024, changes were announced from 6 April 2026 reforming APR and BPR. Relief of up to 100% is currently available on qualifying business and agricultural assets. The 100% rate of relief is to continue for the first £1m of combined agricultural and business property to help protect family farms and businesses, and it will be 50% thereafter. For example, the allowance will cover £1m of property qualifying for BPR, or a combined £400,000 of APR and £600,000 BPR qualifying for 100% relief.

If the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately across the qualifying property. For example, if there was agricultural property of £3m and business property of £2m, the allowance for the agricultural property and the business property will be £600,000 and £400,000 respectively. Assets automatically receiving 50% relief will not use up the allowance and any unused allowance was not to be transferable between spouses and civil partners.

In Budget 2025 regarding APR and BPR, the government announced it will however allow any unused allowance for the 100% rate of relief to be transferable between spouses and civil partners from 6 April 2026. This includes situations where the first death was before 6 April 2026. For example farmer Bob is married to Carol. If he dies Carol can inherit his agricultural assets meaning that when she dies she can bequeath  up to £2m of assets to their children. 

What does it mean?

A welcome change but many will remain disappointed with the APR and BPR reforms. This measure will take effect from 6 April 2026.

Technical amendments to the residence based tax regime and capping IHT trust changes for excluded property in trusts

What was announced?

In Autumn Budget 2024, it was announced that from 6 April 2025, the existing rules for the taxation of non-UK domiciled individuals was to end. The concept of domicile as a relevant connecting factor in the UK tax system was being replaced by a system based on tax residence.

In Budget 2025, The government announced it will publish legislation to make minor corrections to the residence-based tax regime introduced in Finance Act 2025. 

What does it mean?

More detail is needed to assess the impact on financial planning.

Encouragingly, the government state that the Budget 2025 changes are technical and should have minimal impact on individuals, trustees and employers. This will be legislated for in Finance Bill 2025-26 and will have retrospective effect from 6 April 2025. There are some provisions which will take effect from date of announcement, date of Royal Assent and 6 April 2026.

On a related theme, the government announced it will introduce a cap of £5m (over each 10-year cycle) on relevant property trust charges for pre-30 October 2024 excluded property trusts. The cap relates to each trust in scope.

This will be legislated for in Finance Bill 2025-26 and this will apply to trust charges from 6 April 2025.

A horribly complicated area where specialist advice is a must.

Individual Savings Accounts (ISAs) and Junior ISAs

What was announced?

The subscription limits for Adult ISAs and will remain at the current levels from 6 April 2025 to 5 April 2030.

It should also be noted that the government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.

What does it mean?

Since 6 April 2024, the government has allowed subscriptions to multiple ISAs of the same type, with the exception of Lifetime ISA and Junior ISA, within the tax year, removing the previous limit on subscribing to one ISA of each type per year. All subscriptions must remain within the overall ISA limit. This change was not mandatory, and managers can choose to limit subscriptions to only one ISA held with them in any tax year. Note that:

• Investors with a LISA are still restricted to subscribing to one LISA a year
• Investors with a JISA are still restricted to subscribing to one of each type in a year

Under 18s affected by the transitional arrangements are not permitted to subscribe to more than one cash ISA in a tax year.

Since 6 April 2024, the government removed the requirement for an investor to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year. This change is not mandatory and, an ISA manager can choose whether or not to request a new ISA application each subscription year or following a gap in subscriptions.

Subscription limits are as follows:

• Adults ISAs - £20,000
• Junior ISA - £9,000 

Venture Capital Trusts

What was announced?

The government will increase the VCT and Enterprise Investment Scheme (EIS) company investment limit to £10 million, and £20 million for Knowledge Intensive Companies (KICs) and increase the lifetime company investment limit to £24 million, and £40 million for KICs. The gross assets test will increase to £30 million before share issue, and £35 million after, from April 2026.

Alongside this, the VCT income tax relief will decrease to 20%. The reduction in the Income Tax relief rate for the VCT scheme is designed to better balance the amount of upfront tax relief compared to EIS, which does not offer dividend relief, and incentivising funds to seek out higher returns, to ensure they are targeting the highest growth companies.

These changes will be legislated in Finance Bill 2025-26 to come into effect from 6 April 2026.

What does it mean?

Currently, 'Front-end' tax relief is available at 30% of the cost of new ordinary shares subscribed for up to the 'permitted maximum' of £200,000, to be set against the individual's income tax liability for the year of assessment in which the shares are issued. The annual limit applies to all the taxpayer's acquisitions in VCTs in the tax year concerned, and shares acquired earlier in the tax year count towards the permitted maximum first.

The maximum tax reduction in an individual's income tax liability in any one year is therefore £60,000, providing a sufficient income tax liability exists to cover it.

Example:

If Jonny subscribed £20,000 for shares, his maximum income tax relief would be £6,000. If his actual liability in that year before any VCT tax relief was £5,000, then that is the relief he would receive. The difference of £1,000 can’t be set off against the income tax liability of any other year.

Clients may wish to fill their boots so to speak while the opportunity for 30% relief still exists this tax year. However, it will be important, as always, for financial advisers to explain the associated risks with this type of investment and balance the risk with the clients overall objectives. 

Employee Ownership Trusts

What was announced?

The government will reduce the Capital Gains Tax relief available on qualifying disposals to Employee Ownership Trusts (OETs) from 100% of the gain to 50%. The government has said this is because this scheme is on course to cost £2 billion, 20 times beyond the original costings when the scheme was announced in 2013.

This will be legislated for in Finance Bill 2025-26 and take immediately (26 November 2025).

What does it mean?

Perhaps a bit niche for financial planners in respect of their clients, but maybe not themselves!

The current CGT relief available on qualifying disposals to EOTs allows business owners to sell their shares without paying any CGT. Therefore, a 50% reduction, effectively immediately, is going to be a sound reason to pause for those currently looking to use an EOT arrangement and engage with their accountant for further tax guidance.

Key dates at a glance