Autumn Budget 2025

After months of rumour, leaks, and speculation, the Chancellor delivered her second budget yesterday. Unfortunately, this came an hour after the Office for Budget Responsibility (OBR) had already published many of the details in their Economic and fiscal outlook on their website, resulting in a somewhat confusing rollout.

According to the OBR the total tax increases by 2029/30 will be nearly £30 billion, with 920,000 more higher rate taxpayers and a record burden of 38.3% of GDP by the end of the decade.

Updates covered in this article:

• Income tax, NIC, and capital gains tax

• Inheritance tax

• Property taxes

• Employee Ownership Trusts

• Venture Capital Trusts, Enterprise Investment Scheme investment limit increase, and restructure

• Enterprise Management Incentive Scheme (EMI)

• Motor vehicles

• Corporation tax

• Tax administration, compliance, and debt collection measures

• VAT and indirect taxes

• Loan charge

• Other taxes

Income tax, NIC, and capital gains tax

Personal tax thresholds are to be frozen for a further three years from 2028-29 to 2030-31. As a result, the income tax personal allowance, the higher-rate threshold and additional-rate threshold are frozen at £12,570, £50,270 and £125,140, respectively, until 2030-31. The National Insurance contributions (NICs) secondary threshold is also frozen at £5,000 until 2030-31. The freezes to personal tax thresholds are expected to raise £8.3 billion in 2029-30 making this the biggest revenue raising item in the budget.

The Chancellor also announced several changes to income tax on savings income the combined effect of which is expected to raise £2.1 billion:

• A 2% increase to the basic and higher rates of tax on dividends to 10.75% and 35.75% respectively from April 2026, and

• A 2% increase to the basic higher and additional rates of saving income tax increasing them to 22%, 42% and 47% respectively from April 2027, and

• A 2% increase to the basic higher and additional rates of property income tax increasing them to 22%, 42% and 47% respectively from April 2027. Residential property landlords, of course, already pay a significantly higher rate of income tax due to the restrictions on tax relief for interest introduced by previous governments. 

The maximum amount that can be contributed to a cash ISA will also be reduced from £20,000 to £12,000 from April 2027, except for those aged over 65.

Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NICs from April 2029. This means that salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions in the tax system and therefore be subject to both employer and employee NICs, this measure is expected to raise a further £4.7 billion. Ordinary employer pension contributions will remain exempt from NICs.

No changes to capital gains rates were announced, nor was an exit tax introduced despite previous speculation in the media. However, the temporary non-residence rules were extended to remove the concept of post departure trade profits, ensuring that going forwards all distributions or dividends received from a close company whilst temporarily non-UK resident are taxable.

Inheritance tax

Significant changes to inheritance tax (IHT) are already due to come into effect from April 2026 with 100% Business Property Relief and Agricultural Property Relief being restricted to a new £1 million allowance. Importantly, under the draft legislation previously released, the £1 million allowance could not be transferred between spouses and civil partners. This will now be changed to so that it can, like the £325k nil rate band.

Other announcements include:

• Fixing the nil rate bands for tax years up to 2031

• Anti-avoidance measures to prevent trustees of offshore trusts and individuals that are not long-term UK residents from avoiding UK inheritance tax on agricultural land and buildings by holding them through overseas companies or similar entities

• Targeted measures to prevent trustees of offshore trusts from avoiding exit charges by manipulating the situs of assets within the trust.

Property taxes

The Government has announced the introduction of a new high value council tax surcharge. From April 2028, owners of properties identified as being valued at over £2 million by the Valuation Office (in 2026 prices) will be liable for a recurring annual charge which will be additional to existing council tax liability. There will be four price bands with the surcharge rising from £2,500 for a property valued in the lowest £2 million to £2.5 million band, to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year.

The revenues will flow to central government rather than remain with local government, and whilst the surcharges are set at a relatively low level, if experience with the Annual Tax on Enveloped Dwellings (“ATED”) is anything to go by, we can expect ever more properties to brought into charge over time.

There were also some changes to business rates on commercial properties, including changes to the multipliers which are used to uprate business rates each year. The intention of the changes is to reduce rates for retail, hospitality and leisure properties and increase rates for high value properties.

Employee Ownership Trusts

Capital gains tax relief on disposals to employee ownership trusts (“EOTs”) will be reduced from 100% to 50% from November 2025.

Venture Capital Trusts, Enterprise Investment Scheme investment limit increase, and restructure

From 6 April 2026, various changes will be made to increase the limits on the amount companies can raise, as well as to allow larger companies to access these schemes.

Enterprise Management Incentive Scheme (EMI)

There was also some good news for employees, with the limits on how many qualifying options can be issued by companies being increased from £3 million to £6 million, as well as allowing larger companies to take advantage of granting EMI options.

Motor vehicles

Recognising the erosion in fuel duties caused by the adoption of electric vehicles, the Chancellor introduced a widely anticipated new mileage-based charge on electric cars, additional to the current vehicle excise duty (VED) charges paid by all vehicles, which will be introduced in April 2028. In 2028-29, the charge will equal £0.03 per mile for battery electric cars and £0.015 per mile for plug-in hybrid cars, with the rate per mile increasing annually with CPI. The OBR estimate that the average driver of a battery electric car in 2028-29 will drive 8,500 miles and is therefore expected to be charged £255 in this year. This is roughly equivalent to half the rate of fuel duty tax paid per mile by drivers of petrol and diesel vehicles.

The Government has also announced a set of measures designed to increase the incentive to purchase electric vehicles including an increase to the expensive car supplement (ECS) threshold for battery electric cars, from £40,000 to £50,000 in April 2026. The electric car grant has also been expanded.

For drivers of petrol and diesel cars, the Government has announced a temporary freeze to fuel duty rates until September 2026, at which point it states that the 5p cut first introduced in 2022 will be reversed through a staggered approach and then from April 2027 fuel duty rates will be updated annually by the UK Retail Price Index (RPI).

Corporation tax

For companies, in addition to measures noted elsewhere the following changes were announced:

• A reduction in the writing down allowance main rate for capital allowances from 18% to 14%. For companies with large capital allowance pools this will slow down the rate of relief. However full expensing (which gives 100% or 50% for qualifying new assets) remains, which will limit the impact of the writing down allowance reduction. There is also a new 40% first year allowance which will cover many capital additions not covered by full expensing relief.

• Changes to transfer pricing and the diverted profits tax are to be published. These are expected to be in line with consultations undertaken since the autumn 2024 budget.

• There are changes to the corporate interest restriction (CIR) to be published. The CIR rules follow international agreements (as part of the OECD BEPS projects) and accordingly the changes are anticipated to be technical rather than revolutionary in nature.

Tax administration, compliance, and debt collection measures

As is typical for budgets, the Chancellor announced several measures to close the tax gap, estimated to raise £2.3 billion by 5 April 2030. These measures are wide ranging, covering:

• multinational company transfer pricing

• fraud in the construction industry

• non-compliant tax-advisers

• late filers

• the use of image rights to avoid employment income

• a reward scheme for informants

• greater HMRC powers to access data

• measures to support tax debt collection 

The Government also announced that the anti-avoidance provisions that apply to share exchanges and company reorganisations will be modernised with immediate effect, to be legislated for in the 2025/26 Finance Bill.

VAT and indirect taxes

The Government confirmed that, with effect from 1 April 2026, a new VAT relief (zero-rating) will be introduced for donations of eligible goods from businesses to charities. Previously, VAT relief existed for items that were to be donated for resale, but the new relief now extends this to use by a charity for non-business purposes.

Private hire vehicle operators will be excluded from using the Tour Operators Margin Scheme for VAT. This was a result of case law from earlier in 2025, which ruled against HMRC in allowing a ride sharing app-based service to use the Scheme. The Scheme allows for VAT to only be accounted for on the profit margin achieved in effect reducing the amount of VAT accounted for by taxi and ride hailing companies such as Uber and Bolt.

Recognising the concerns of UK retailers, and to align the UK with the US and EU which have similarly ended their tariff and duty-free thresholds, the Government announced that it would reform Customs Duty for low value goods by March 2029. Currently goods imported of a value of £135 can qualify for Customs Duty relief, however, the Government vowed to ensure that Customs Duty applies to all imports of goods of any value. This will be a measure that will be consulted on, so it may be some time until it is implemented.

The Government will shortly consult on reforms to the VAT rules to incentivise the development of land intended for social housing.

In addition, the Government announced its plans on E-invoicing. From April 2029, all business-to-business (B2B) VAT invoices must be issued in a specified electronic format. A detailed implementation roadmap will be published at Budget 2026.

Loan charge

In a welcome development, the government accepted many of the recommendations from the loan charge review that they commissioned at the beginning of the year with individuals who settle obtaining substantial reductions in liabilities.

Other taxes

There will be an increase in remote gaming duty from 21% to 40%, and an abolition of bingo duty from its current 10% rate. From April 2027, a new rate of general betting duty for remote betting will be introduced at 25%, excluding self-service betting terminals, spread betting, pool bets, and horseracing. The Government has also announced a freeze in casino gaming duty bands in 2026-27 with the usual RPI uprating thereafter.

Tobacco, vaping, and alcohol duties will continue to rise with inflation.

The soft drinks levy will be extended to certain other drinks with a high sugar content, including milk-based drinks.

Finally regional mayors will also be given powers to charge a modest tourist levy in local hotels, B&Bs, and other accommodation.

Summary

Following on from last year’s record-breaking budget which added £41.5 billion, yesterday’s budget is expected to raise an additional £26 billion in taxes by 2030/31, comfortably landing it in the top 10 biggest tax raising budgets on record.

The increases are achieved mainly through stealth measures to avoid breaching the manifesto commitment’s not to raise the headline rates of income tax, national insurance, or VAT. However, with the government struggling to control spending in any meaningful way, and growth continuing to be hard to come by, pressure to raise taxes again will undoubtedly build again next year.