Autumn Budget 2025
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Laura Brogden
Table of Contents
The much-anticipated 2025 Budget delivered this week contains a number of notable changes due to affect individuals and businesses alike. It is widely said that the Chancellor has taken a ‘smorgasbord’ approach to this year’s budget so below we shall set out the key points for private clients.
Tax on Income
Contrary to pre-Budget rumour, the rate of Income Tax (IT) and Capital Gains Tax (CGT) will remain unchanged. However, the freeze on IT and employer and employee National Insurance (NI) Contribution thresholds initially announced in 2021 has now been extended to April 2031.
Further, tax on income from dividends has been increased for basic and higher rate tax payers to 10.75% and 35.75% respectively effective from April 2026. Additional rate taxpayers are unaffected by this with their rate remaining at 39.35%. Income from property and savings shall also be taxed at higher rates of 22% for basic rate taxpayers, 42% for higher rate taxpayers, and 47% for additional rate taxpayers. This change is due to take effect from April 2027.
UK tax residents looking to move overseas should also be aware of any period of temporary non-residence (TNR) as so-called ‘post departure trade profits’ will be subject to income tax from April 2026 if the individual is caught by the TNR rules.
Inheritance Tax (IHT)
Another threshold freeze has been extended, this time in relation to Nil-Rate Bands (NRBs). As such, the standard NRB shall remain at £325k and the Residence NRB at £175k.
The 100% Agricultural Property Relief and Business Property Relief shall also be capped at £1m as per the previous budget, with relief of 50% available above that limit. However, despite being refused in initial consultations, this relief will be transferrable between spouses from April 2026. As such, on the death of the surviving spouse the £1m allowance applicable to the predeceased spouse can be claimed by the administrators of the estate of the surviving spouse, effectively making the 100% relief applicable to the first £2m if unused on the first death.
Of note to those with an interest in relevant property trusts from prior to 30 October 2024 with non-UK domiciled settlors, there is now a cap of £5m on total IHT payable over the 10-year trust period. This is applicable to charges from 6 April 2025 and only relevant for non-UK domiciled individuals with pre-existing trusts holding taxable assets over £83m.
Anti-avoidance Measures
There are two changes to IHT regulations that the government is on which the government is now seeking to legislate, and both shall take effect immediately following this year’s budget. These alterations target those seeking to mitigate IHT liabilities.
First, any charity receiving a gift from an estate must fall within the wider definition of a charity under the existing legislation in order for the estate to qualify for the reduced rate of 36% for IHT purposes.
Second, when non-UK trust property is due to be subject to the 6% IHT exit charge as a result of the settlor ceasing to be a long term resident, trustees are now prevented from bringing trust property into the UK prior to the settlor’s change in status only to move it overseas again thereafter. Previously this would have avoided or mitigated some of the tax liability.
Other Taxes
As an alternative to the purported ‘mansion tax’, from April 2028 there shall be a higher rate of council tax for properties valued over £2m. There will be annually-reviewed bands applicable to such properties, summarised briefly as follows:
- Properties valued between £2m and £2.5m subject to annual charge of £2.5k;
- Properties valued between £2.5m and £3.5m subject to annual charge of £3.5k;
- Properties valued between £3.5m to £5m subject to annual charge of £5k; and
- Properties valued over £5m subject to an annual charge of £7.5k.
However, it is suggested that there shall be options for people on lower incomes or with limited capital to defer such payments until sale of the property or death of the proprietor(s).
Another overnight change will be to the CGT relief applicable for Employee Ownership Trusts which is being reduced from 100% to 50%.
Pensions
As of April 2026, State Pensions will increase by 4.8%.
Previously, pensions have fallen outside the deceased’s estate for IHT purposes. However, from April 2027 any unused pensions shall be included within the taxable estate and thus subject to IHT at the usual rates.
There is now also a cap on salary sacrifice pensions such that anything over £2k shall be subject to employer and employer NI contributions. However, this is not to take effect until April 2029.
Individual Savings Accounts (ISAs)
The regulations for ISAs, another tax efficient instrument in estate planning, are also being amended. This change will mean that whilst the total ISA allowance is £20k per year, only £12k of this can be allocated to cash ISAs, the remaining £8k must be assigned to alternative ISA products such as a Stocks & Shares ISA.
It is worth noting that the Lifetime ISA scheme introduced to assist first time buyers of property currently has a limit of £4k per year and this will remain unchanged. However, the government has committed to reviewing this scheme in the new year to create a simpler product to support these individuals.
Contact Us
This has been a brief outline of some of the regulations being introduced over the coming years with further information available on the Gov.uk website. However, if you would like to discuss any of the points raised or have Estate and Tax planning queries as a result of this year’s budget, the Private Client department at Osbornes Law would be happy to assist. Please contact us by:
- Filling in our online enquiry form; or
- Calling us on 020 7485 8811
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