Budget 2025: Savings and investments
ISAs
The annual ISA limit of £20,000 remains unchanged, but the way in which you can save is not. From April 2027, the cash ISA limit will be cut from £20,000 to £12,000 (unless you are over 65 when the £20,000 limit will remain). To be able to save up to the £20,000 limit, a saver will need to invest the remaining £8,000 into a stocks and shares ISA.
Gravita’s view
It was feared by savers and investors alike that the limit was going to be heavily cut and so retaining it at £20,000 comes as a welcome surprise. However, many savers will be frustrated that they will be forced to invest into what they may see as volatile markets in order to maximise their allowance. Time will tell if this measure along with others looking to encourage investment into the UK stock market have a positive effect on growth.
Stamp Duty Reserve Tax – UK Listing Relief
From 27th November 2025, the transfer of securities of a company newly issued on a UK regulated market will be exempt from the 0.5% Stamp Duty Reserve charge. This exemption will apply for the first three years from the company first listing.
Gravita’s view
It is hoped that this will encourage more people to invest in listed companies. In turn, this may encourage more companies to list on the UK stock exchange which is not having the best of times in attracting retaining companies on its index.
Coupled with the change in the ISA rules (which will only allow you to continue to benefit from the £20,000 annual allowance if you invest £8,000 in a stocks and shares ISA), this does have the whiff of a plan behind it.
The government have also announced a new digital service to allow taxpayers to self-assess their liabilities to stamp taxes on off market transfer of securities. This is a good idea and has been welcomed by anyone who is affected.
Ordering of Income Tax reliefs and allowances
At present, there is a lot of flexibility about the order in which some reliefs are applied in calculating Income Tax which can give different results, depending on what the reliefs are applied to. From 6th April 2027, changes will be made so that reliefs and allowance can only be applied to property, dividend and saving incomes (i.e. those taxed at the 2% higher rate) once they have been applied to all other sources of income. This will mean that income which attracts a lower rate of tax will be relieved first, leaving those sources which are taxed at the higher rate still being subject to tax.
Gravita’s view
This is actually a return to the past (the last time investment income attracted a different rate of tax), when there was a strict ordering of how reliefs applied and which required no creativity in application. This must be helpful to the software developers who have to write the tax calculation programs!
Income Tax
Changes to tax rates for property, saving and dividend income
From April 2026 the income tax rate applicable to dividends will increase by 2% for basic (10.75%) and higher rate (35.75%) taxpayers where dividend income exceeds the annual exempt allowance, which remains at £500 per annum.
Tax on both saving income and rental income will be increased by 2% at every level from April 2027 – 22%, 42% and 47%. The £1,000 property allowance remains as it currently is, so those with gross rental income of less than £1,000 will be unaffected. Rent a room reliefs also remain frozen at £7,500 or £3,750 per person for joint lettings.
The tax reducer applicable to finance costs (mortgage interest) will be uplifted to 22% to reflect the change in the basic rate payable on rental income.
Gravita’s view
It feels a little disingenuous for the Chancellor to claim that she has not changed the rate of Income Tax, having made this change… to the rate of Income Tax. Agreed, it does not impact those whose sole income is from employment, but it will affect anyone who invests or who structures their income via a dividend, although curiously not additional rate taxpayers in receipt of dividends, presumably because business owners were not the immediate target – but we are guessing!
However, this is slightly less punitive than the pre-Budget proposals which would have seen 2% added to Income Tax on all sources of income, but with a 2% reduction in National Insurance Contributions (NIC) at the basic rate. Had this gone ahead, the impact would have been born by higher and additional rate tax paying employees and of course those not paying NICs, like pensioners. The final form of this measure therefore impacts those who it was intended to hit – those with passive income.
Combined with the reduction in cash ISA allowances, this may be felt doubly by some investors who rely on interest income.
It may also drive investors to incorporate their investment activity into a Family Investment Company – usually referred to as a FIC. A FIC is simply a company that often has different classes of shares owned by different members of a family. The benefits include the use of a lower tax rate on investment returns – companies pay tax at 25% on income and gains, and usually 0% on the receipt of dividends – and allow for a methodology to pass some of the future growth down to the next generation which helps mitigate against a growing Inheritance Tax (IHT) burden.
Gravita has prepared a number of articles and an infographic that explains more about FICs. This can be found here:
Learn more about FICs here:
- Will the Budget make Family Investment Companies even more fashionable?
- Short video: Family Investment Companies explained
- What is a Family Investment Company (FIC) and is it right for me?
If you are interested, please do contact us.
Abolition of Dividend Tax Credit for non-UK residents
Under current legislation, non-UK tax residents have the choice to either pay UK Income Tax on their UK Dividend Income or treat this as disregarded income and forego their tax-free personal allowance. In the case of the former, a basic rate tax credit is given and so often there is no UK tax to pay, even if the income is not disregarded. For those with other UK source income, most notably UK rental income, the ability to preserve the personal allowance is important.
From 6th April 2026, non-residents will no longer be able to claim the basic rate tax credit when they do not disregard their Dividend Income.
Gravita’s view
A minor change that will affect only a small number of people, but which will bring the taxation of dividends broadly into line with the treatment received by UK taxpayers. The fact that the credit existed at all is a hangover from long since repealed legislation, so this really is just a tidy up – those with high dividend levels are more likely to use the disregarded income route as a rule anyway.
Capital Gains Tax and Non-Resident Capital Gains (NRCG)
With immediate effect, the definition of a “property rich company” has been changed for Capital Gains Tax (CGT) purposes, introducing anti-avoidance legislation to ensure that where Protected Cell Companies (PCC) are used, the individual cells are looked at when assessing whether it is property rich, rather than considering the overall structure, which currently can be used to take a disposal of a property outside of the NRCG rules.
Changes will also be made to formalise an existing Extra-Statutory Concession that applies to non-resident individuals who have invested in Collective Investment Vehicle which exempts them from making a formal double tax treaty claim.
Gravita’s view
PCCs are a vehicle that is popular in the Chanel Islands. They are not possible to set up in the UK, or many other jurisdictions. In essence they act as an inverted group. Each company exists as a cell that is encased in a wrapper. They are used to isolate investment risk and enable different interests in each investment by different investors without the need for complicated limited partnerships (LP) or group structures.
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