It’s been reported as one of the most chaotic budgets in living history. But political pandemonium aside, what are the biggest changes, and what does this mean to you?
In this straight-talking blog, we cut through the noise and tell you the all-important ‘so what’.
- Income tax & National Insurance thresholds freeze
“We are asking everyone to make a contribution”, said Rachel Reeves, as she confirmed thresholds will be frozen for a further three years from 2028-29, raising additional revenue (£8bn in 2029-30).
Impact: This means that employees whose salaries are just below the annual exemption or higher rate tax thresholds may end up paying more tax if they receive a pay rise.
With increases to the national minimum wage for 18-year-olds, as well as the national living wage, this may bring more people into employment in the UK into the tax-paying sphere. It may be that employers, in consultation with their employees, opt for different remuneration strategies rather than simply providing an annual pay rise.
- Increases in taxation on non-taxed at source earnings
Recognising that a landlord earning £25,000 on a property rental income will pay £1,200 less tax than their tenant would on a salaried income of the same level, the Chancellor announced a 2% rise in tax arising from property rental income and savings. These rises will take effect from April 2027.
Impact: For dividend income, the rises will take effect from April 2026. It will therefore be sensible to undertake a full review of remuneration strategies, particularly for business owners who pay themselves via a mixture of salary and dividends. It may be the case that taking a full salary would be more efficient, particularly given that the full salary results in an expense within the profit and loss for the company, resulting in less corporation tax being paid. There are four months to prepare for this, so ensure you book a remuneration review with us in the New Year.
- Pension salary sacrifice cap
From April 2029, a new £2,000 per year cap will apply to pension contributions being made via salary sacrifice. Contributions above this will be subject to National Insurance, in the same way as ordinary employee pension contributions.
Impact: This will naturally result in employers, in consultation with the employees, altering how pension contributions are made.
- Business property tax changes
Lower business rates have been ‘permanently’ introduced for more than 750,000 retail, hospitality, and leisure properties. This is fuelled by the government’s desire to increase the benefits for the hospitality sector, which has been struggling since COVID times.
Impact: This move will be funded by higher rates on properties worth £500,000+, with the Chancellor making specific reference to “global online retail giants” with large warehouses in the UK.
- Mansion tax confirmed
From April 2028, a new council tax surcharge, often referred to as a “mansion tax” will apply to homes valued at over £2 million. There’ll be an annual fee of £2,500 for properties worth more than £2m, and £7,500 for properties worth more than £5m.
Impact: The government expects this to raise around £400 million a year by the end of the decade. This is a more obvious ‘political’ move which will only affect a small percentage of people in the UK, and particularly those living within and around the M25.
- Corporation tax changes
The main rate of corporation tax will not rise. However, there will be a reduction in the main rate of writing down allowance from 18% to 14% from January 2026.
Impact: For those businesses that have large balances in their capital allowances pools, this will result in them paying more in corporation tax annually. However, the Chancellor also confirmed full expensing for capital allowances purposes will remain, as well as the now ‘permanent’ £1m lifetime annual investment for qualifying assets. She also announced a new 40% first-year allowance for expenditure on certain types of business assets acquired post January 2026. It’s unlikely that this cut in allowance will affect the majority of small businesses.
- Employee ownership trusts
Capital gains tax relief on disposals to employee ownership trusts will be reduced from 100 per cent to 50 per cent. Previously, a business owner could sell their shares to an employee ownership trust and not be subject to capital gains tax.
Impact: Now, assuming the market value of the shares being sold is £1m, the shareholder will pay capital gains tax on £500,000, the rest being exempt. This is still a very powerful relief.
- Investment into the UK
The Chancellor made several key statements in relation to increasing investment into UK businesses. She plans to “overhaul” the eligibility criteria for organisations looking to qualify under the Enterprise Investment Scheme, or as a Venture Capital Trust. Reeves said: “We are widening eligibility for our enterprise incentives so scale-ups can attract the talent and capital that they need.”
Impact: Both EIS qualifying companies and VCTs attract tax relief for investors into those schemes; this, therefore, could widen the opportunities for interested parties looking to take advantage of these schemes.
Two other key announcements were made. Whilst the annual allowance for contribution into an ISA remains at £20,000, at least £8,000 of that must be invested, and we would assume into UK businesses. Over 65s will still be eligible for the full £20,000 cash ISA.
Impact: Business owners drawing on savings for investment or succession planning may need to reconsider ISA allocations and investment strategies.
Also, the Chancellor announced that those companies that float in the UK will receive an exemption from stamp duty reserve tax for investors purchasing shares in these companies within three years of the flotation.
- Apprenticeship funding
Free training has been announced for under-25 apprenticeships for small and medium-sized businesses, which presents a good opportunity to upskill young people.
Impact: Businesses can invest in workforce development at a lower cost, helping with upskilling, retention, and long-term succession planning.
- Electric vehicle mileage tax
It’s bad news for EV drivers with the introduction of a new pay-per-mile road tax system. From April 2028, battery electric cars will be charged 3p per mile and plug-in hybrids 1.5p per mile, with rates rising annually with CPI; expected revenue £1.4bn.
Impact: Fleet owners should review transport costs and consider the total cost of ownership when replacing vehicles.
As more clarity emerges, we will continue to work with our clients and share additional updates in due course. However, if you would like to discuss any of the budget announcements in more detail, please don’t hesitate to contact us – we’d be happy to help.
