After months of build-up and speculation, Rachel Reeves delivered her second Budget. It was a Budget aimed at ‘rebuilding the economy’ and promoting growth through ‘stability, investment and reform’, and thanks to the early unintentional release of the Office of Budget Responsibility’s report, there weren’t any big surprises.
Unlike last year’s Budget, which saw significant changes announced to Capital Gains Tax rates and Inheritance Tax reliefs, this year’s announcement focused more on rates and reliefs applicable to income and encouraging business investment. These include changes designed to encourage entrepreneurialism by relaxing existing incentive schemes, whilst not making significant changes to the Corporate Tax regime.
Changes affecting individuals include increases in the rates of tax payable on dividends (from April 2026) and on rent and savings (from April 2027), the extension of the freeze on income tax bands until 2031, and a high-value council tax surcharge being imposed from April 2028 on properties worth more than £2 million.
What does the Budget mean for you?
The Chancellor set out a package of measures designed to raise revenue without increasing the headline tax rates for working people. Yet, her commitment to freeze the main rates of Income Tax until 2031 will see everyone paying greater amounts of tax.
For individuals, the message is clear: the government is shifting the tax burden toward wealth, investment and property, while offering targeted reliefs where possible, such as scrapping the two-child benefit cap and the welcome introduction of transferable business and agricultural property relief allowances.
the main implications of the Budget for individuals
Inheritance tax reliefs: Transferable £1 million APR/BPR allowance
The Government’s Autumn Budget made no substantial changes to reforms to Agricultural Property Relief (APR) and Business Property Relief (BPR) that will take effect from April 6th 2026, but there was some good news for families affected by those reforms.
As announced in the Autumn 2024 Budget, 100% IHT relief for qualifying APR and BPR assets will be limited to an individual allowance of £1 million from April 2026. Over and above that, qualifying APR and BPR assets will benefit from just 50% relief.
The Government’s original proposals did not, however, allow any unused part of that £1 million allowance to be transferred between spouses on the first death.
Helpfully, the Chancellor announced a concession that will now allow this transfer between spouses and civil partners, much in the same way as the Nil Rate Band and Residence Nil Rate Band.
This concession does not increase the overall relief to married couples and civil partners, but it ensures that unused allowances on the first death are preserved. It will apply even where the first spouse or civil partner died before April 6th 2026.
Changes to income tax and ISAs
While income tax rates remain unchanged, the Budget introduces targeted increases to rates on other income streams. Dividend tax rates will rise by 2% from April 2026 (but not for additional-rate taxpayers), and savings and property income tax rates will rise by 2% from April 2027 for all individuals.
Additionally, the Chancellor announced major changes to ISA, encouraging savers to invest in stocks and shares ISAs. Whilst the £20,000 limit remains, a £12,000 cap will, from 2027, apply to cash ISAs for the under-65s.
Salary-sacrifice pension contributions
From April 2029, salary sacrifice for pension contributions will be capped, with only the first £2,000 each year being exempt from national insurance contributions. Over and above that, employer NIC at 15% and employee NIC at 8% will be applied. Income tax relief remains unchanged, and the change only affects salary sacrifice arrangements, not standard employer contributions.
International and non-resident tax changes
The Budget contained several measures impacting non-UK residents that reflect a broader strategy of tightening rules that historically benefited non-resident or non-dom individuals. These include:
• Dividend tax credit abolished for non-residents from April 6th 2026, meaning some individuals will face UK tax on dividends previously covered by the credit.
• Further adjustments to non-resident Capital Gains Tax (CGT) to close loopholes, particularly around protected cell companies.
• A new £5 million cap on inheritance tax charges for excluded property trusts, applying from April 6th 2025.
The changes announced in this Budget continue the shift toward tightening reliefs on wealth, investment income and international structures. While many of the measures will feel incremental, their combined impact will be significant for clients with diversified income or cross-border assets.
The ability to transfer the £1 million APR/BPR allowance is a bright spot, offering families more flexibility. But with major reforms taking effect over the next three years, it’s crucial individuals review their asset ownership, estate plans and pension arrangements sooner rather than later. Now is the time to seek advice and ensure your planning is fit for this new tax landscape.
What does the Budget mean for your business?
The Chancellor emphasised the importance of entrepreneurs and the need to match private enterprise with public ambition. The government has launched a policy paper on entrepreneurship signalling priority areas for further action to support entrepreneurs, and a call for evidence on tax policy to support investment in high-growth UK companies. We urge businesses to contribute to this.
Whilst stability remains in the VAT and corporate tax landscape, several announcements that businesses need to understand were made.
Tax changes to support scale-ups
Reforms were announced to support scaling businesses by expanding tax reliefs for both companies and investors. From April 2026, Enterprise Management Incentives (EMI) limits will significantly increase - doubling employee thresholds, quadrupling asset caps, and extending option exercise periods - allowing growing firms to retain talent longer.
Investor schemes also see enhancements: Enterprise Investment Scheme (EIS) limits will double whilst preserving existing tax reliefs, whilst Venture Capital Trust (VCT) relief reduces from 30% to 20%. These changes aim to make follow-on funding more attractive and help scale-ups secure talent and capital without cash strain.
Capital allowances changes
From January 2026, a new 40% first-year allowance will apply to qualifying plant and machinery purchases, extending relief to unincorporated businesses (including partnerships with corporate partners) and assets bought for leasing, which were previously excluded. From April 2026, the writing-down allowance for main-pool assets will drop from 18% to 14%, reducing ongoing tax relief.
Employee Ownership Trust (EOT) tax relief slashed by 50%
The 2025 Budget has halved the Capital Gains Tax (CGT) relief for disposals to Employee Ownership Trusts (EOTs), replacing the previous 100% exemption with a 50% exemption effective immediately, resulting in an effective CGT rate of 12% on disposals to an EOT. This change follows a sharp rise in the cost of the relief, projected to reach £2 billion by 2028–29, and comes amid broader CGT increases that had made EOTs highly attractive.
Capital gains tax: Anti-avoidance on share exchanges and reorganisations
The government has announced immediate changes to modernise the anti-avoidance rules applying to share exchanges and company reorganisations. These updates aim to close loopholes and ensure that tax-neutral treatment is available only where genuine commercial purposes exist, thereby preventing arrangements designed to sidestep CGT. The measures will take effect immediately, so businesses currently involved in restructures or share-for-share transactions should review their plans carefully to ensure compliance.
Incorporation Relief
From April 6th 2026, businesses transferring a trade to a company will need to actively claim incorporation relief. Previously, this relief applied automatically, but under the new rules, a formal claim will be required.
Corporation Tax late filing penalties
From April 1st 2026, the penalty for submitting a Corporation Tax return late will double, reflecting the government’s commitment to improving compliance.
Overseas workday relief
The government will limit the proportion of earnings an employer can exclude from PAYE through a PAYE notification to a maximum of 30%, which is the maximum overseas workday relief one is able to claim through self-assessment. This aligns the PAYE system and the self-assessment system and will take effect from April 6th 2026.
The stability in the main Corporate Tax regime is to be welcomed, as are the improvements to capital allowances and the investment reliefs, which should help investment both by businesses and individuals.
It will be interesting to see the outcome of the government’s review into entrepreneurship in the UK and the tax policies that could be adopted to promote growth and risk-taking.
Businesses with employees being paid the national minimum wage and those operating a salary sacrifice scheme for pension contributions will need to consider the impact of the changes announced in the Budget.
If you would like further insights, visit our Budget 2025 hub at www.krestonreeves.com/autumn_budget_2025
