Key Budget Announcements 2025

Income Tax and National Insurance

Dividends, Interest and Property Income

From April 2026, tax rates on dividends will increase by 2% for basic and higher rate payers
From April 2027 property and savings income will increase by 2% for basic, higher rate and additional payers. Finance costs against property income will be given at the rate of 22%.

Thresholds

The tax-free personal allowance will remain frozen for a further three years to April 2031.
For individuals aged 21 and over, the National Living Wage will rise to £12.71 per hour from April 2026.
From 2027/28 pensioners whose only source of income is the new, or basic state pension will not have to pay tax via self-assessment.

Self-Assessment Tax Liabilities

From April 2029, the Government is seeking to collect tax on investment income (e.g. rents and savings) via PAYE, where possible, rather than through self-assessment. Further consultation is expected on this.

Salary Sacrifice for Pensions

From April 2029, employer pension contributions exceeding £2,000 per employee, under a salary sacrifice scheme, will be subject to National Insurance.

Individual Savings Accounts (ISAs)

Whilst the annual ISA allowance will remain at £20,000, from 6 April 2027 (for individuals under 65), only £12,000 of this can be allocated to a cash ISA with the remainder of £8,000 able to be invested into a stocks & shares ISA. For those aged 65 there is no restriction and the full £20,000 can be invested in a cash ISA

Inheritance Tax (IHT)

Transferable Allowance has been introduced for Agricultural Property Relief (APR) And Business Property Relief (BPR). The current £1 million allowance for 100% rate of APR and BPR will be transferable between spouses/civil partners from 6^th April 2026, with the allowance even applying if the first death is before 6^th April 2026.
Charity exemptions for IHT purposes will apply only to direct gifts to UK charities and clubs, with changes effective for lifetime gifts from 26 November 2025 and gifts on death from 6 April 2026.

Trusts

Discretionary Trusts

Income tax rates on property and savings income will increase by 2% from April 2027 and , as a consequence, the rate for discretionary trusts will rise from 45% to 47% on property and savings income, while the rate on dividend income will remain at 39.35%.

Property Tax

From April 2028, a High Value Council Tax Surcharge (HVCTS) for residential properties worth £2 million or more will be introduced, based on updated valuations. New charges start at £2,500 per year, rising to £7,500 for properties valued above £5 million, and will be levied on property owners rather than occupiers.

Venture Capital Trusts (VCT)

EIS and VCT limits are increasing, to attract investors to support companies as they grow beyond the start-up phase. Investment limits for VCT and EIS companies have doubled as they are increased to £10 million (£20 million for knowledge-intensive companies) with a corresponding increase in the lifetime company investment limit to £24 million (£40 million for knowledge-intensive companies). Gross asset thresholds will increase to £30 million before the share issue and £35 million after, from 6 April 2026. This limit increase will allow larger businesses to benefit from both VCT and EIS investment thus improving their access to capital.
From April 2026, Income tax relief for VCT investors is reducing from 30% to 20%.

Corporation Tax

Capital Allowances

100% First-Year Allowance (FYA) for qualifying expenditure on zero emission cars and qualifying plant and machinery for electric vehicles remains in place for a further year and until 31 March 2027.
The writing down allowance on general pool expenditure will reduce to 14% (from 18%) from April 2026. However, a new 40% FYA will be introduced from January 2026 for main rate expenditure. There will be reduced restrictions compared to other FYAs and it will be available for items such as assets bought for leasing. It may also extend to background plant for landlords incurred by unincorporated businesses.

Research & Development (R&D)

A targeted advance assurance service will be piloted from Spring 2026, enabling SMEs to confirm key aspects of their R&D claims before formally submitting them to HMRC. A summary of responses to the advance clearance consultation will also be released.

Late Filing Penalties

Corporation tax late filing penalties will double for returns due for filing on or after 1 April 2026.

VAT/Indirect Tax

E-invoicing

From April 2029, all VAT-registered businesses will be required to issue electronic VAT invoices for every business-to-business supply. This forms part of the Government Digitalisation strategy to streamline VAT compliance, improve accuracy, and reduce fraud.

Goods Donated to Charities

From April 2026, eligible goods donated by businesses to charities will qualify for the zero rate of VAT where the goods are either (i) used by the charity in its activities or (ii) donated onwards by the charity. This measure builds on an existing VAT relief for charities that sell, hire out or export donated goods.

Cross-Border VAT Groups

From 26 November 2025, HMRC’s policy on cross-border VAT groups reverts to its previous position, allowing overseas establishments to be included within a UK VAT group, as set out in R&C Brief 7/2025. VAT groups that amended their VAT accounting procedures to HMRC’s 2015 guidance may now be entitled to reclaim VAT that was incorrectly charged over the past four years.

Customs Duties: Removal of Low-Value Consignment Relief

From March 2029, the £135 de minimis threshold for duty-free imports from non-EU countries will be abolished. Low-value goods will face standard customs duties.

Motoring

From April 2028, drivers of electric and hybrid cars will pay duty on their mileage.
From September 2026 to March 2027 fuel duty will gradually be increased by 5p.