Key highlights: Budget 2025

What we were told is that the hole in the country’s finances was significant and many things would be needed to balance the books.

What was not clear (well, until the whole thing got leaked that is!) was whether she would be prepared to break Labour’s manifesto pledged and increase either NIC, VAT or income tax (any one of which might have plugged the gap) or instead introduce a so called “smorgasbord” of more niche taxes to achieve this.

But the day has come at last, and we finally know what the plan is – albeit slightly earlier than Ms Reeves presumably intended.

Ahead of our full analysis of what the Chancellor described as her “choices” which you will be able to read on Gravita’s Budget Hub over the coming days, we have put together our edited highlights of the tax changes that have been announced:

Income Tax and NIC changes

• Personal tax and employer NICs contributions thresholds will be frozen for a further 3 years. With income levels rising, this is a continuation of the stealth tax that we have been witnessing since the last time personal allowance thresholds were increased back in 2021-22.
• NIC relief on salary sacrificed pension contributions will be capped to the first £2,000 from April 2029 to bring the excess inline with the way other personal pension contributions are relieved.
• A 2% increase on non-earned income (dividends, rental and interest income) will apply from April 2026 for dividends and April 2027 for everything else. For dividends, there will be no increase to the additional rate. Arguably, this is simpler than increasing income tax wholesale by 2% with a corresponding 2% reduction of NIC on basic rate income, which is what was expected. This measure actually leaves higher and additional tax rate employees slightly better off than had the original proposal gone ahead because they will not suffer the uplift that would not have been covered by the NIC reduction.
• Cash ISA allowances will be capped at £12,000 for under 65s from April 2027 – it will still be possible to invest up to £20,000 tax free, but £8,000 will be ringfenced for stocks and share ISA investment from April 2027. Older people will not be affected.
• EIS and VCT schemes will be reformed so that companies will still qualify beyond the startup phase. However, this is not quite the positive change that the chancellor presented – first year relief for VCT investment will be reduced from 30% to 20% for those investing.

Pensions

• The 25% tax free lump sum has not changed.
• The State Pension will be increased by 4.8% from April 2026 and those whose only income is from a State Pension will not have to pay small amounts of income tax where the pension now exceeds the personal allowance, although it is not clear how this will be managed yet.

Non-Residents

• The ability for overseas individuals to pay into a UK state pension at Class 2 NIC rates will be abolished and in addition, anyone hoping to receive a UK State Pension will have to have paid into the pension for at least 10 years whilst UK tax resident. More reforms are expected to follow.
• Temporary non-residence rules will be extended from April 2026 so that dividends paid from post departure profits will also be caught if the recipient returns to the UK. Currently, usually only dividends paid from pre-departure accumulated profits are taxed upon return.

Inheritance Tax

• No changes have been made to the rates or thresholds, and the threshold will be frozen until at least 2030 – 20 years since the £325,000 threshold was initially set. Another stealth tax.
• As a reminder, the previously announced APR and BPR changes will be introduced from April 2026, where the 100% relief will apply to only the first £1million, with only 50% relief applying on the excess. Even so, some good news – sense has prevailed and the £1 million allowance will be transferable between spouses when it comes into force in April 2026, which we suspect was always what was intended. However, the £1 million allowance will not be increasing with inflation, having now been fixed until April 2031.
• Receipts from the Infected Blood Compensation Scheme will be IHT free where the original recipient has died before the payment is made, and living recipients will have two years to gift on the payment without there being any IHT exposure.

VAT

• VAT took a more prominent role in this Budget than the steady headline rate suggests. Rather than adjusting thresholds, the Chancellor introduced structural changes that will affect how many organisations account for VAT in practice. From April 2026, businesses will be able to apply zero rating to donations of goods to charity, removing a historic disincentive to donate unsold stock. The government also confirmed a return to the whole establishment approach for VAT grouping, a major policy shift with practical implications for groups operating across borders. In addition, the so called taxi tax will bring private hire fares into scope for 20% VAT from January 2026, which is expected to increase operator costs and reduce demand for taxi cabs.

Corporate Taxes

• Corporation tax rates will not change, nor will any thresholds.
• Full expensing will still apply for most capital expenditure. However, for non-qualifying expenditure, a new 40% first year writing down allowance will be introduced from January 2026, but this will be paid for with a 4% reduction in the rate of writing down allowances on the main pool down to 14% from April 2026.

Capital Gains Tax

• No changes to the rates or thresholds for CGT this year although the previously announced increase in the rate payable on BADR qualifying assets to 18% will go ahead in April 2026 as planned. Carried interest will be taxed as income at 75% of the usual rate.
• With immediate effect, those selling shares to EOTs will no longer benefit from 100% CGT relief. This will now be capped at 50%, which many will be disappointed about.

Other changes in the Autumn 2025 Budget

• Announced in the week leading up to the “Sugar Tax” will be extended to cover bottled/canned milky drinks.
• From April 2026, Remote Gaming Duty will be increased from 21% to 40% and for online betting the rate will increase from 15% to 25%. However, Bingo Duty will be abolished and there will be no changes to the taxes paid on in-person gambling/betting.
• A “Mansion Tax” will be introduced from 2028, to be collected with council tax payments. Properties worth £2million – £5million will pay £2,500 per annum and those worth more than £5million will pay £7,500 per annum.
• A new EV excise duty will be introduced from April 2028 with those driving electric cars paying 3 pence per mile and hybrid drivers paying 1.5p per mile.
• The 5p fuel duty cut that was due to end in April 2026 will now be extended until September 2026.

So, which of the Budget predictions did not happen?

A lot of potential changes were suggested ahead of today, but it seems as though the following are now on the cutting room floor:

• Reform in the taxation of LLPs which would have seen members paying the same NIC rates as employees.
• No Wealth tax (as such), but the “Mansion Tax” has been designed to affect that group of people.

No Exit tax for those leaving the UK, which will be a relief for many who are already planning to leave the UK and were having to consider accelerating their departure!