UK Budget Summary - October 2025
The Chancellor of the Exchequer, Rachel Reeves, delivered her and the Labour Government’s second Budget speech on Wednesday, 26 November 2025.
I cannot remember a Budget that had been so heavily anticipated and with respect to tax, so many rumours about what may be introduced. It is perhaps notable that some of these rumours did not happen:
There was no restriction on the ability to draw 25% of your pension tax-free.
There was no capital gains tax exit charge introduced for people leaving the UK.
There was no increase in the basic, higher or additional rates of tax, at least not on income.
There was no increase in the 7-year cumulation period for lifetime gifts, potentially exempt transfers, to become exempt from inheritance tax.
There was no introduction of an annual tax on wealth.
There were, however, tax rises; lots of them:
The main revenue-producing tax rise was the stealth tax freezing of the income tax personal allowance and band thresholds for a further three years to 2031. This will mean the personal allowance will have remained the same for a decade.
The inheritance tax nil rate band will also remain frozen.
There was an increase in income tax for unearned income. From April 2026 the dividend tax rates for basic rate and higher rate taxpayers will increase to 10.75% and 35.75% respectively. The 39.35% rate for additional rate taxpayers will remain the same. This may prompt owner managers of small companies to reassess their remuneration strategies.
Income tax rates for property income and on interest will also increase for all taxpayers by 2% to 22% in the basic rates band, 42% in the additional rate band and 47% for additional rate taxpayers.
These increases may make ISAs more attractive but there were changes there as well. Although the annual ISA allowance remains frozen at £20,000 the cash ISA for under 65’s will reduce to £12,000. If you want to put more than £12,000 into your ISA the balance will have to be in stocks and shares.
The Chancellor also tinkered with the Enterprise Investment Scheme (ESI) and Venture Capital Trust (VCT) to make them an option for larger growth companies to raise finance. The income tax relief for investors in VCTs was reduced from 30% to 20%.
Perhaps the biggest thing for individual savers was the capping of National Insurance relief on salary sacrificed contributions to pensions from 2029. This change will mean that National Insurance will be due in full on salary sacrificed contributions in excess of £2,000. It applies to both employee and employer contributions so will be yet another large increase in National Insurance liabilities for business. If contributing to your retirement savings is to be encouraged, this seems to be an odd move.
The much trailed ‘mansion tax’ will be introduced from April 2028 and is to be called the High Value Council Tax Surcharge (HVTCS). This will be a graduated tax collected by local government on behalf of central government alongside Council Tax. It will be an annual levy of £2,500 payable on properties valued more than £2 million, increasing to £3,000 for properties valued between £2.5 million and £3 million, £5,000 for properties valued between £3.55 million and £5 million and £7,500 for properties valued over £5 million.
There was also some good news on the tax front, slightly limiting the impact of the changes to inheritance tax made in the 2024 Budget:
The capping of the inheritance tax agricultural property relief (APR) and business property relief (BPR) 100% relief to £1 million was slightly mitigated by allowing the £1 million allowance to be transferred between spouses.
Inheritance tax 10-year charges and exit charges on trusts that held excluded property on 30 October 2024 (and therefore would have been outside of inheritance tax before the changes made in the 2024 Budget) will have a cap of £5 million inheritance tax liability every 10 years.
Caveat: The above is a summary of some of the key changes made in Budget 2025. It should not be considered detailed advice or relied upon for tax planning purposes.
