The Autumn Budget 2025 outlined significant announcements for personal taxes, most notably the freeze on income tax thresholds, National Insurance (NI), and taxes on savings, property, and dividends. These changes are designed to address growing fiscal pressures and raise additional tax revenue.
Freezing of income tax thresholds
One of the key announcements is the continued freeze on income tax thresholds until 2030/31. This freeze affects both the personal allowance (£12,570) and the higher-rate threshold (£50,270). As wages rise in line with inflation, more individuals will fall into higher tax bands — a phenomenon known as fiscal drag.
By 2029/30, an additional 780,000 people will be paying tax at the basic rate of 20%, 920,000 more will fall into the higher rate of 40%, and 4,000 more will be subject to the additional rate of 45%.
New property income tax rates
From April 2027, the Government will introduce separate tax rates for property income (e.g. rental income), distinct from other income tax bands. The new rates will be:
● 22% for basic-rate taxpayers
● 42% for higher-rate taxpayers
● 47% for additional-rate taxpayers
These changes will impact landlords and property investors, particularly those with larger portfolios or those transitioning into higher tax bands. Landlords with properties generating significant rental income will need to carefully assess the tax implications of these new rates and consider any changes to their portfolio structure in advance.
Reduction in ISA allowance
The annual ISA allowance remains at £20,000, but from April 2027, the way this can be allocated between different types of ISAs will change. For individuals under the age of 65, £12,000 will be the maximum amount that can be invested in a Cash ISA, while the remaining £8,000 must be allocated to a Stocks and Shares ISA. This change aims to encourage more investments in stocks and shares, which are generally seen as more effective for long-term growth compared to cash savings, while still allowing for tax-efficient savings.
This adjustment targets higher earners who have typically used Cash ISAs as a primary savings vehicle. These individuals will need to adjust their investment strategies to comply with the new structure, ensuring they allocate more of their ISA allowance to Stocks and Shares ISAs.
Capital Gains Tax (CGT) relief
Although the Budget does not change the main CGT rates, it does tighten some of the most generous reliefs. From 26 November 2025, the CGT relief on qualifying disposals to Employee Ownership Trusts will be reduced from 100% of the gain to 50%, so half of the gain will become chargeable. In addition, previously announced reforms mean that, from 6 April 2026, gains eligible for Business Asset Disposal Relief and Investors’ Relief will be taxed at 18%, in line with the main lower CGT rate, rather than at the older, lower preferential rates.
Together, these measures mean that business owners planning an exit via an EOT or a relief-qualifying share sale are likely to face higher CGT bills than under the previous rules and should factor the new rates and timings into their succession planning.
National minimum and living wage
The Government has confirmed that, from April 2026, the statutory minimum wage will rise for all working-age groups. The national living wage, which applies to workers aged 21 or over, will increase from £12.21/hr to £12.71/hr. For younger workers, those aged 18–20 will see their hourly rate rise by 8.5%, from £10 to £10.85, and 16-17-year-olds (and apprentices) will receive £8.00/hr.
Salary-sacrifice pension contributions
The Budget introduces a cap on the National Insurance (NI) relief available for pension contributions made via salary sacrifice. From April 2029, only the first £2,000 per person per year of such contributions will remain exempt from NI. Any contributions above this threshold will be treated as standard pension contributions and will attract both employee and employer NI at the usual rates. The change is forecast to raise around £4.7bn in 2029/30. Lower- and many middle-income earners who currently sacrifice modest pension amounts are unlikely to be affected, but higher earners and those making large salary-sacrifice contributions will see reduced NI benefits, which may reduce the tax efficiency of pension saving. Implications:
● High earners or business owners using salary sacrifice to maximise pension contributions should reassess their remuneration and pension strategy. The post-2029 benefit may be significantly lower than before.
● Employers offering pension salary-sacrifice as part of remuneration packages may face increased NI costs and might want to review the structure of those benefits.
● For lower- and middle-income individuals, the impact will be limited if total salary-sacrifice contributions stay below £2,000; nevertheless, this highlights the importance of reviewing pension-saving plans ahead of the 2029 change.
Voluntary National Insurance contributions while abroad
From 6 April 2026, individuals who want to top up their UK state pension for periods spent abroad will no longer be able to pay voluntary Class 2 National Insurance contributions for those years. Instead, only voluntary Class 3 contributions will be available for time spent abroad.
To be eligible to pay Class 3 contributions for periods abroad from this date, individuals will need to have either lived in the UK for 10 consecutive years, or have paid UK National Insurance contributions for at least 10 years. Existing arrangements for periods abroad before 6 April 2026 are unchanged, and HMRC will contact those currently paying Class 2 contributions from overseas with more detail on how they are affected. Further guidance on the transitional rules is expected in due course.
Higher taxes on property, dividend and savings income
The Government is increasing the tax rates on income from assets so that income from work and income from investments are taxed more consistently.
Dividend income: From April 2026, the tax rates on dividend income will rise by two percentage points for basic and higher rate taxpayers. The ordinary dividend rate will increase from 8.75% to 10.75% for basic rate taxpayers, and the higher dividend rate will increase from 33.75% to 35.75%. The additional rate will remain at 39.35%.
The £500 dividend allowance is unchanged, so only dividend income above this allowance, and outside tax-efficient wrappers such as ISAs and pensions, will be affected. For owner-managed companies and investors who draw a significant part of their income as dividends, this will increase the tax cost of taking profits as dividends from April 2026 onwards. Reviewing the balance between salary, bonuses and dividends ahead of this date may be worthwhile.
Savings and property income: As set out earlier, separate tax rates will also apply to property income from April 2027, set at 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers. Savings income tax rates will increase by two percentage points from April 2027, to 22%, 42% and 47% for basic, higher and additional rate taxpayers respectively. The way in which these types of income are reported and paid remains unchanged.
Temporary non-residence rules for company owners
The Budget also includes a targeted anti-avoidance measure affecting a small number of individuals who leave the UK and later return. The temporary non-residence rules (TNR) are designed to stop people becoming non-resident for a short period purely to avoid UK tax on certain income and gains.
At present, where an individual is temporarily non-resident and receives dividends or other distributions from a UK close company, there is no UK tax charge under the TNR rules on amounts treated as arising from “post-departure trade profits” – that is, profits that accrue to the company after the individual has left the UK.
From 6 April 2026, the concept of post-departure trade profits will be removed. All dividends and distributions from close companies received during a period of temporary non-residence will be within scope of the TNR rules and may be taxed when the individual returns to the UK, if they come back within five years.
Where tax has already been paid on those dividends in the country of temporary residence, new provisions will allow credit for that foreign tax to prevent double taxation where this is not already covered by a double tax treaty. Individuals who are considering leaving the UK for a short period, and who own shares in a close company (including many family and owner-managed businesses), should seek advice before making significant profit extractions while abroad.
New council tax surcharge for high-value properties
From 2028, a new high-value council tax surcharge will be introduced for properties valued at £2m or more. The surcharge will be phased as follows:
● £2,500 per year for properties valued between £2m and £5m
● £7,500 per year for properties valued over £5m
This surcharge is expected to apply primarily to households in high-value property areas such as London and the South East. The changes will directly affect wealthier individuals with substantial property holdings, adding an additional layer of financial planning for those impacted by the surcharge. The surcharge will be paid alongside council tax.
IHT relief
The long-standing exemption allowing transfers between spouses or civil partners remains in place, meaning assets passed between partners are still free from IHT, and any unused nil-rate allowance remains transferable.
However, the 2025 Budget also introduces key changes:
● The annual IHT allowances (nil-rate band and residence nil-rate band) will remain frozen until 2031, meaning more estates may fall into IHT liability as asset values increase over time.
● Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £1mper person, with any unused allowance transferable between spouses or civil partners.
● Additionally, starting April 2027, unspent pension pots will become part of the IHT estate if not drawn. This change will affect retirement planning strategies for those with significant pension savings.
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