28/11/25
The 2025 Autumn Budget was announced on Wednesday 26th November. In it, Chancellor of the Exchequer Rachel Reeves set out tax-raising measures worth up to £26 billion aimed at closing the gap in public financing.
These increases, which the government is opting for over public spending cuts, will be achieved through a range of measures that focus on pushing up public taxes for the wealthiest individuals. The aim is to increase headroom and invest more in public services including schools and the NHS as set out in the spending review.
Reeves also promised to cut debt, borrowing, and the cost of living and to tackle child poverty head-on, which she describes as “the biggest barrier to equal opportunity”.
But what does this mean for you?
Income Tax
These measures mark the single biggest tax-raising initiative in the Budget and could see many people pushed into higher tax brackets.
The tax-free personal allowance is fixed at the current level of £12,570 and will remain frozen until April 2031. Rates of Income Tax are to remain the same with the basic threshold set at £37,700, and the higher rate at £50,270. The additional rate threshold remains at £125,140. The freeze of these thresholds will also continue until April 2031.
For higher earners, there is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.
With thresholds frozen and increases in minimum wage, this means that almost everybody will be contributing towards paying more tax.
Tax on property income
Property income is any income you make from letting out land and buildings. Every individual has a Property Allowance of up to £1,000. Property income over £1,000 can be offset either by the £1,000 Property Allowance or by deducting relevant expenses.
The government is introducing the following separate tax rates for property income from 2027/28:
- 22% for basic rate taxpayers
- 42% for higher rate taxpayers
- 47% for additional rate taxpayers.
If you are a landlord or receive additional income from property it might be worth considering restructuring your portfolio – get in touch to talk incorporation relief.
Council tax
As of April 2028, the so-called ‘Mansion Tax’ will see the introduction of a high-value council tax surcharge. For properties worth more than £2m, a £2,500 surcharge will apply, increasing to £7,500 for those valued over £5m.
Currently, the first £500 of dividend income is tax free; this allowance will continue for the 2026/27 tax year.
From 6 April 2026, there will be a 2% increase in the ordinary and upper rates of Income Tax applicable to dividends. The additional rate will remain unchanged at 39.35%.
Tax on savings income
Savings income is income received from things such as bank accounts and building society interest.
There is an annual Savings Allowance available; how much you receive depends on your tax bracket. Basic-rate taxpayers have an allowance of £1,000. For higher rate taxpayers, the allowance is £500. Additional rate taxpayers have no allowance available.
The current tax rates on savings income will stay the same for 2026/27. From 6 April 2027, there will be a 2% increase in the applicable tax rates. The basic rate will increase to 22%, the higher rate will increase to 42%, and the additional rate will increase to 47%.
Use your ISA allowances first!
Corporation Tax
The government has confirmed rates of Corporation Tax will stay at 25% for companies with profits over £250,000.
For smaller businesses, the 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
It’s also worth noting that the penalty for late Corporation Tax returns will double; if you have any doubts about this area of taxation, make sure you seek advice!
National Insurance Contributions
The Budget announced employee and employer National Insurance contributions (NICs) on salary sacrifice pension contributions above £2,000 a year.
For Employees, the rates of Class 1 employee NICs are 8% and 2%. The employer rate is 15%. For people who are Self-Employed, the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same for 2026/27.
The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £5,000 a year from 6 April 2025. The government announced that this will be maintained at this level until April 2031.
The use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027. This will apply to income tax and Class 1A NICs.
At CTT Accountancy, we provide payroll support and can help set you up with software – just ask!
Pensions
The annual pension allowance is £60,000. From April 2029, a £2,000 cap will be applied on the amount that can be transferred into a pension and shielded from NIC through salary sacrifice.
Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.
Employees who choose to salary sacrifice to receive Tax Free Childcare or Child Benefit can keep doing so.
Individuals who have ‘threshold income’ greater than £200,000 will have their annual pension allowance for that tax year restricted at a rate of £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum allowance of £10,000.
The tax-free lump sum allowance is £268,275 increasing to £1,073,100 in certain circumstances where death benefit is also applicable.
Might be worth reconsidering whether you are better off operating as a sole trader or a Limited company – get in touch to compare the tax outcome.
Pensions and IHT
Any unused pension funds and death benefits payable from a pension will be brought into a person’s estate for Inheritance Tax (IHT) purposes from 6 April 2027.
All death in service benefits payable from registered pension schemes will be excluded from the value of an individual’s estate for IHT purposes.
Spend your pension before you diminish reserves of assets which might be eligible for business relief and not subject to IHT.
ISAs
From 6 April 2027, the annual ISA cash limit will fall from £20,000 to just £12,000. The remaining £8,000 can still be used but must be designated for ISA investment in stocks and shares. This restriction will not apply for those over the age of 65, where the cash ISA limit will remain at £20,000.
VAT, CGT, and Business Reliefs
The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.
The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long-life assets at a rate of 50%.
From 1 April 2026 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.
The government will introduce a requirement for taxpayers to actively claim incorporation relief for transfers of a business to a company on or after 6 April 2026. The relief previously applied automatically.
The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase to 18% for disposals made on or after 6 April 2026.
If you are looking to sell shares in trading business, 4% tax saving applies if completed before 6th April 2026.
Inheritance Tax
The nil rate band (NRB) has been frozen at £325,000 since 2009 and will continue to be frozen until 5 April 2031. The residence nil rate band (RNRB) is also frozen until 5 April 2031 at the current £175,000 level, as is the residence nil rate band taper starting at £2 million.
Agricultural and Business relief
From 6 April 2026, 100% IHT relief on agricultural and business property will be capped at £1 million. The limit is a combined limit for both agricultural and business property. Assets in excess of this amount will be taxed at 50%.
The £1 million limit applies per person and is refreshed every seven years. From 6 April 2026, this allowance will be transferable between married couples or civil partners. This will include where the first death was before 6 April 2026.
Revisit your pension strategy!
Making Tax Digital MTD
The government is attempting to close the tax gap by pursuing those who try to bend or break the rules, collecting more unpaid taxes and modernising the tax system. This is designed to take the total additional revenue raised by closing the tax gap this Parliament to £10 billion in 2029/30.
The Making Tax Digital for Income Tax Self-Assessment, which starts in April 2026 for those with qualifying income over £50,000, is part of this initiative. The rollout of the programme will extend to businesses with incomes over £30,000 in April 2027 and £20,000 in April 2028. However, the government will not proceed with Making Tax Digital for Corporation Tax.
If you’d like to understand how these changes affect your finances or business, or want help planning ahead, get in touch with CTT Accounting today.
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