Autumn Budget 2025: Personal Taxes

As widely predicted in the pre-Budget speculation, the Chancellor has announced that the income tax thresholds and equivalent NICs thresholds for employees and self-employed individuals will be frozen for a further three years from April 2028 to April 2031.

This means that, until April 2031:

• the Personal Allowance will be maintained at its current level of £12,570;
  
  
• the basic rate limit will be frozen at £37,700;
  
  
• the higher rate threshold will remain at £50,270; and
  
  
• the Primary Threshold for Class 1 National Insurance contributions and Lower Profits Limit for Class 4 National Insurance contributions will remain in line with the Personal Allowance for income tax, whilst the National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain aligned with the higher rate threshold of £50,270.

The current default position is that the Personal Allowance and basic rate limit should increase in line with the Consumer Price Index from 6 April 2028. This means that, whilst the Chancellor was eager to make clear that the headline rates of income tax, National Insurance contributions and VAT were not increasing, this will be seen by many as a "stealth tax", given it allows the Government to collect more tax without raising the tax rates themselves. The threshold freeze is expected to generate £8.0bn in 2029-30, allowing "everyone to make a contribution" as the Chancellor emphasised in her speech. At an individual and business level, this is of course a tax rise in all but name, and its effects will be felt accordingly in future salary discussions

The Government announced an increase to the rates of income tax on property, savings and dividend income, with a view to reducing the gap between tax paid on income from work and tax paid on income from assets.

According to the Government, these increases will raise £2.2bn in 2029‑30. The change appears to be designed to hit those with the "broadest shoulders" – it is projected that around two-thirds of the revenue from these increases will come from the top 20% of households in 2029-30.

Note that it is only the tax rates that will change and the way individuals report and pay tax on their property, savings and dividend income will remain unchanged.

• Property income
  
  
• Currently, property income (i.e. any income from letting land and buildings) is subject to income tax, however, from April 2027, property income will be subject to separate tax rates. The property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%.
• For more information on the changes to the rates of tax on property income, please see our analysis of the Property tax announcements in Autumn Budget 2025.
  
  
• Savings income
  
  
• The tax rate on savings income will increase by 2% across all bands. The basic rate will increase from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from April 2027. Note that the rate of withholding tax on yearly interest will be the savings basic rate (i.e. 22%).
  
  
• Dividend income
  
  
• Whilst there will be no change to the dividend additional rate (of 39.35%), the ordinary and upper rates of tax on dividend income will increase by 2% from 8.75% to 10.75% and from 33.75% to 35.75% respectively. This will apply from April 2026.

In terms of the behavioural impact of these measures, we may see a surge in company owners extracting income from businesses in the form of dividends over the next few months, ahead of the rate changes in April next year. The delayed rate change could therefore be a deliberate move from the Government to accelerate tax receipts through incentivising founders to extract dividends from companies sooner than planned. However, in the longer term, given the lack of change to the additional rate and the fact that dividend income does not attract national insurance contributions in the same way as employment income, it seems unlikely that the increase in tax rates will prompt significant changes in behaviour in this context. More generally, it remains to be seen whether higher tax rates on property, savings and dividend income act as a disincentive for individuals to save and invest.

The increase in the rates of tax on dividend income is not the only measure affecting individuals receiving dividend income from UK companies. The Government has also abolished the notional tax credit in relation to UK dividends currently available to non-UK residents with both UK dividend income and UK rental or partnership income. The current position is that non-UK residents with both UK dividend income and UK rental or partnership income are allocated the better of two alternatives to determine their UK tax position:

• the entirety of their UK income is assessed, they may claim their Personal Allowance, and their UK dividends are granted a tax credit at the ordinary rate, or
  
  
• only their UK rental or partnership income is taxable, but they may not claim their Personal Allowance.

The proposed abolition of this tax credit aims to improve fairness in the UK tax system by bringing the position of non-UK residents in line with that of UK residents, who are not entitled to this tax credit. The change will come into effect from 6 April 2026.

Finally, the annual ISA cash limit will be reduced from £20,000 to £12,000 from 6 April 2027 (except for over 65s who retain their full £20,000 cash ISA allowance). The remaining £8,000 allowance will be designated for investments. This measure is intended to promote greater investment by individuals in funds which acquire and hold shares and securities, helping to fuel economic growth. However, making equity investments carries risk and it will therefore be important that good and affordable sources of investment advice are available to those who may be investing in these products for the first time.

The Government has increased the existing annual, lifetime and gross assets limits for companies under the EIS or VCT scheme.

The aim of these measures, as the Chancellor said in her Budget speech earlier today, is to ensure that "scale-ups can attract the talent and capital that they need". Whilst the Chancellor may have given with one hand, she has reduced the income tax relief rate for those investing in VCTs with the other. All changes will come into effect from 6 April 2026.

The proposed changes are as follows:

• Gross assets requirement: Currently, in order for the EIS to apply, a company and its qualifying subsidiaries' gross assets must not be worth more than £15m immediately before the issue of the shares or securities and not more than £16m immediately after the issue. These thresholds have been increased to £30m and £35m respectively.
  
  
• Annual investment limit: As it stands, the annual investment limit that companies can raise under the EIS is £5m, with a higher £10m limit applying to knowledge-intensive companies. This limit will be doubled in each case to £20m for knowledge-intensive companies and £10m otherwise.
  
  
• Lifetime investment limit: A company's lifetime investment limit under the scheme will be increased from £12m to £24 m. For knowledge-intensive companies, the limit will increase from £20m to £40m.
  
  
• Income tax relief for individuals investing in VCT: An individual who is entitled to claim VCT relief for a tax year and claims such relief is currently entitled to a tax reduction for the year equal to 30% of the amount in respect of which the claim is made. This income tax relief will be reduced to 20% from April next year.

More than 100 business leaders petitioned the Government for VCT and EIS reform back in September. The increases to the annual, lifetime and gross asset limits should therefore be welcome changes, which should hopefully bolster the UK entrepreneurial space and drive economic growth.

The cuts to the VCT income tax relief, on the other hand, may disincentivise investment in new and early-stage companies. We may also see a flurry of VCT activity ahead of April next year as a result. It is worth noting in this context that a Call for Evidence on tax reliefs for entrepreneurs was also announced today, which is seeking to gather the views of investors and entrepreneurs as to how the design of the tax system in these and other areas can better support investment in start-up and scale-up ventures. Depending on the outcome of this exercise, we may see further change to the EIS and VCT schemes in the coming years.

Broader anti-avoidance provisions for share for share exchange and schemes of reconstruction

The Government has introduced wider anti-avoidance provisions which are set to apply to share for share exchanges and schemes of reconstruction.

These provisions will apply immediately (from 26 November 2025) to all such issue of shares or debentures made pursuant to such rollover relief provisions.

Rollover relief provisions (which apply in corporate reorganisation scenarios or "paper for paper" transactions where an acquiring company issues shares or securities in exchange for shares or securities in its target company) allow for CGT to be deferred until such time as the new shares or debentures are eventually disposed of, at which point any rolled over gain is crystallised. Rollover relief will not, however, be available unless the exchange or scheme of reconstruction was:

• effected for bona fide commercial reasons, and
  
  
• does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to Capital Gains Tax or Corporation Tax.

The proposed legislative changes will apply the anti-avoidance provision to any "arrangements relating to an exchange or scheme of reconstruction" if the main purpose, or one of the main purposes of the arrangement is to reduce or avoid liability to corporation tax or capital gains tax.

This will capture not just the exchange or scheme of reconstruction itself, but any transaction or series of transactions related to it, potentially meaning that within a wider commercially driven transaction, the anti-avoidance provisions can apply to particular arrangements carried out by one or more parties. The proposed legislation sets out that flexible 'adjustments' are to be made "as are just and reasonable" to counteract any such reduction or avoidance of tax resulting from these arrangements, which shall include, "in an appropriate case", disapplying rollover relief. So, while the disapplication of rollover relief is not an automatic sanction of falling within this new provision, the change opens up an area of uncertainty as to what adjustment might, absent an HMRC assessment, be appropriate in these circumstances. The Government has also removed the carve-out to the application of this rule to shareholders holding not more than 5% of any class of share or debenture in the company being disposed of.

These measures are seemingly aimed at codifying HMRC's interpretation of the anti-avoidance provisions following several cases (including Wilkinson and Euromoney) which were decided against it on the basis that the transactions challenged were part of a wider transaction whose main purpose was not the avoidance of tax.

Whilst one would hope that most rollover transactions will be considered by HMRC to be commercially motivated, the tightening of the legislation in this way may set a worrying precedent in similar areas and is likely to increase nervousness about the risk of challenge. This may lead to an increase in applications for clearance from HMRC in order to obtain comfort.

Capital Gains Tax: non-resident capital gains

For a detailed discussion of the non-resident CGT changes , read our analysis of the Property tax announcements in Autumn Budget 2025.

Incorporation Relief Claims

Incorporation Relief applies where an individual transfers a business to a company as a going concern in exchange for shares issued by the company to the individual transferring the business and has the effect that the individual can rollover some or all of the gain on the disposal of the business into their shares in the company. Incorporation Relief applied automatically, subject the relevant conditions being met.

The Government has announced that, with effect from 6 April 2026, such relief will not be automatic, but will need to be claimed by the individual transferor in their self-assessment for the tax year in which the 'incorporation' took place.

This reform is forecasted to draw in £225m on the basis that this will ensure that the application of the relief will be more closely monitored by HMRC. However, the proposal will cost HMRC around £3.41m to carry out the changes to income tax self-assessment systems and to review such claims.

This measure will result in a further administrative requirement on incorporation, including the requirement to provide tax computations on the transfer of the business. In some ways this may help individuals transferring their business, providing a concrete paper trail of the base cost analysis of their shares, which should be helpful for founders on a future sale of their companies.

Capping IHT charges for former non-UK domicile residents

The Chancellor has introduced a £5m cap on relevant property trust charges for pre-30 October 2024 excluded property trusts.

Though trustees remain liable to pay tax up to the £5m cap, this is likely to be seen as a welcome change for former non-UK domiciled residents – introduced in response to the reaction to the abolition of the non-dom regime following last year's Budget.

This measure will come into effect from 6 April 2026.

Anti-avoidance measures for non-long-term UK residents and trusts

The Government has published a series of anti-avoidance measures relating to inheritance tax aimed at combating long-term UK residents taking assets and property outside of the UK to avoid IHT.

It has been announced, building on the reform to Agricultural Property Relief ("APR") and Business Property Relief ("BPR") announced last year, that the Government will seek, from April 2026, to replicate provisions that apply to UK residential property and that permit non-UK companies and similar bodies to be looked through in order to bring UK agricultural property in scope of IHT.

Effective immediately (from 26 November 2025), there will also be changes to legislation to apply an IHT charge where trust assets are moved from the UK to non-UK where a settlor has ceased to be a long-term UK resident, so that such trusts will not be exempt from exit charges.

Proposed legislation has also been published that restricts the IHT exemption on charity donations, to only gifts made directly to UK charities and to more narrowly define what is meant by a charity or registered club, for the purposes of IHTA 1984.

Unused pension funds and death benefits

As announced in last year's Budget, the Government intends to bring "most unused pension funds and death benefits" into an individual's estate for IHT purposes, from 6 April 2027.  

Following consultation on the proposed reform, the Government has confirmed that the measure will go ahead and that such pension funds and death benefits will be included in an individual's estate, even in circumstances where pension scheme administrators or trustees have the discretion over the payment of such benefits.

The change will be subject to a number of exceptions and omissions including:

• all death in service benefits payable from a registered pension scheme
• funds under £1,000, and
• continuing annuities.

The Government also confirmed that it will be the responsibility of personal representatives to report and pay such inheritance tax, though they will be able to direct pension scheme administrators to withhold benefits and to pay inheritance tax due on unused pension funds or pension death benefits.

For more information on the impact of the Budget on pensions, read our analysis of the Pensions announcements in Autumn Budget 2025.

Freezing of thresholds

The current default position is that the nil-rate band, residence nil-rate band (including the taper), and the £1m allowance for the APR and BPR reliefs will increase in line with the Consumer Prices Index each year from 2030. However, the Government has frozen the IHT thresholds at their current levels from 2030 to 2031, which will fix the:

• nil-rate band at £325,000;
• residence nil-rate band at £175,000;
• threshold for the residence nil-rate band taper at £2 million; and
• combined £1 million allowance for 100% APR and BPR relief.

As the value of assets continue to rise with inflation, the threshold freeze will draw more estates into the UK IHT net.