Budget – 26 November 2025
The Chancellor announced a wide range of changes to the UK tax system, with some measures coming into effect immediately and others phased in over the next several years. In order to meet fiscal rules and address gaps in public finances without breaking manifesto commitments, a significant number of tax changes have been introduced. With the sheer number of updates, it is likely that most individuals and businesses will be affected in some way.
Headline changes
The biggest immediate impact will be on income from property, savings, and dividends. Tax rates in these areas will rise by 2% across all bands, with the exception of the additional dividend rate. Dividend tax increases will take effect from April 2026, while the increases for property and savings income will apply from April 2027.
The cash ISA allowance will be reduced to £12,000 from April 2027, although the overall annual ISA limit will remain at £20,000. The remaining £8,000 allowance will be ringfenced for stocks and shares ISAs, meaning individuals will need to invest in the stock market to use their full ISA allowance.
Pensions have mostly been left unchanged. However, from April 2029, the amount that can benefit from National Insurance relief through salary sacrifice will be capped at £2,000 per year.
Owners of electric and hybrid vehicles will also see new charges introduced. From April 2028, a new per-mile levy will apply, set at 3p per mile for fully electric vehicles and 1.5p per mile for hybrids.
Although a wealth tax was not introduced, a council tax surcharge will apply to homes worth over £2 million in England from April 2028. The annual charge will range from £2,500 to £7,500, payable in addition to normal council tax.
There was some good news for families and farmers. The £1 million allowance for 100% business and agricultural property relief will be transferable between spouses and civil partners from April 2026. This means any unused allowance on the death of the first spouse can be transferred and used by the surviving partner.
Stealth taxes through frozen thresholds
Many tax thresholds will be frozen for an additional three years, extending to April 2031. This includes the personal income tax allowance, National Insurance thresholds, and the employer National Insurance secondary threshold.
Inheritance tax nil-rate bands will also remain frozen until April 2031. The new combined £1 million allowance for agricultural and business property relief will likewise be fixed until that date.
The student loan repayment threshold under Plan 2 will be frozen for three years from April 2027.
Capital allowances
From April 2026 the main rate of writing-down allowance will be reduced from 18% to 14%. A new 40% first-year allowance will be introduced for qualifying expenditure from January 2026.
Dividends
Dividend tax rates will rise by 2% from April 2026 for basic and higher rate taxpayers. The ordinary rate will increase from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%.
Business owners with retained profits may wish to consider taking dividends before April 2026 to benefit from current lower rates.
Property and savings income
Savings and property income will both face higher taxation from April 2027. Savings income tax rates will rise by 2% across all bands, with the basic rate increasing to 22%, higher rate to 42%, and additional rate to 47%.
Property income will also be taxed under a new, separate system. New rates of 22% for basic rate taxpayers, 42% for higher rate taxpayers, and 47% for additional rate taxpayers will apply. Mortgage and finance cost relief will be fixed at the basic property rate of 22%.
Inheritance tax
Unused agricultural and business property relief at the 100% rate will become transferable between spouses and civil partners from April 2026. Importantly, this will apply even if the first partner passed away before that date.
Employees and benefits
From April 2026, the tax deduction for unreimbursed home-working expenses will be removed. Employers will still be able to reimburse eligible costs without attracting Income Tax or National Insurance.
Income tax and National Insurance exemptions for employer-provided benefits will be extended to include eye tests, home-working equipment, and flu vaccinations.
The cap on salary-sacrifice pension contributions that benefit from National Insurance relief will be introduced in April 2029.
Employee car ownership schemes will come within Benefit in Kind rules from April 2030, following a delay from the previously announced date.
Cars
The Expensive Car Supplement threshold for zero-emission vehicles will rise to £50,000 from April 2026.
A mileage-based charge for electric and plug-in hybrid vehicles will be introduced from April 2028.
State pensioners
From April 2027, pensioners whose only income is the state pension will not be required to pay tax through simple assessment even where their income exceeds the personal allowance.
Capital gains tax
From 26 November 2025, capital gains tax relief on qualifying disposals to employee ownership trusts will be reduced from 100% to 50%.
Anti-avoidance rules for share exchanges and company reorganisations are to be updated with immediate effect, although no additional detail has been published yet.
From April 2026, taxpayers will need to actively claim incorporation relief when transferring a business to a company, rather than the relief applying automatically.
Share schemes
The Enterprise Management Incentives (EMI) scheme will be expanded from April 2026. The employee limit will rise to 500, the gross asset limit to £120 million, and the company share option limit to £6 million. The maximum holding period will extend to 15 years.
The requirement to notify HMRC of EMI grants will be removed from April 2027.
Investment incentives
Stamp Duty Reserve Tax on company shares will be suspended for three years following a company’s listing on a UK regulated market from 27 November.
The government will significantly increase investment limits under the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes from April 2026. However, VCT income tax relief will reduce from 30% to 20%.
VAT and duties
A new VAT relief will apply from April 2026 for business donations of goods to charities.
From July 2026, vehicles leased through the Motability Scheme will become subject to VAT on top-up payments, along with Insurance Premium Tax at 12%, unless the vehicle is specially adapted for wheelchair users.
Non-UK residents
The dividend tax credit for non-UK residents will be abolished from April 2026.
Capital gains tax rules for non-residents will be tightened, and from April 2026 individuals living abroad will no longer be able to increase their state pension entitlement through Class 2 National Insurance contributions.
Temporary non-residence rules will also change, meaning all dividends received while living abroad may still be subject to UK tax.
Miscellaneous measures
The temporary 5p cut in fuel duty will be extended for five months and will then be reversed in stages between September 2026 and March 2027. Fuel duty will increase in line with inflation from April 2027.
From April 2027, certain income tax reliefs will only apply to property, savings and dividend income after being set against other income.
Corporation tax late filing penalties will double from April 2026.
Customs duty relief on goods valued under £135 will be removed by March 2029, making these imports subject to duty.
Legal Notice
This guide is for general information only and should not be relied upon as definitive tax advice. Individual circumstances vary, and professional advice should be obtained where necessary.
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