Budget 2025

The government has announced its eagerly awaited budget. In this special briefing our private client and tax experts consider what the announcements will mean for you, your family, and your business.
 

PERSONAL TAX

Agricultural Relief (“AR”) & Business Relief (“BR”)

In the previous budget, the Chancellor announced that, with effect from 6 April 2026 relief on BR and AR would be capped (the draft legislation refers to ‘allowance’) at a combined total of GBP1m per individual for qualifying property and 50% thereafter and that that cap would not be transferable between spouses and / or civil partners.  The Chancellor appears to have listened to concerns re this non-transferability and has today confirmed that the GBP1m will be transferable between spouses and / or civil partners, including where a spouse or civil partners dies prior to 6 April 2025.

Taxation of dividends, savings interest, income from property

The Chancellor today announced an income tax increase of 2 percentage points on dividends, savings interest and income arising from property.

Unused pensions and death benefit payments

Following the previous budget, concerns were raised re the obligations placed on executors re liabilities that might arise re unused pension assets.  We now have confirmation that pension administrators will be able, where necessary, to withhold up to 50% of the assets of an individual’s pension to address any tax liabilities that might arise.

 

MANSION TAX

Following months of speculation surrounding a potential mansion tax, the recent budget announcement introduces a more moderate approach than anticipated. From April 2028, properties valued above £2 million will incur an additional council tax charge starting at £2,500 and rising to £7,500 for homes worth over £5 million. These amounts will be indexed annually in line with CPI inflation.

For most homeowners in this bracket, the additional cost is expected to be manageable and unlikely to deter buyers of high-value property from proceeding. With clarity now provided, buyers and sellers can move forward with greater confidence after prolonged uncertainty.

 

HMRC ENQUIRIES & POWERS

Measures targeted at cracking down on fraud in small businesses

The Chancellor has committed to undertaking “more targeted criminal interventions to tackle the most serious fraud and evasion by small businesses”, including deploying 350 newly recruited criminal investigators in HMRC’s Fraud Investigation Service.  HMRC will therefore likely take more forceful actions against small and mid-sized businesses with a view to criminally prosecute the directors involved.

The Chancellor promised to pursue more rogue directors who abuse the insolvency process to evade tax. This sounds familiar budget fare and the reality will depend upon the funding available to the Insolvency Service to deliver the promise.

In the year to December 2024 there were 23,872 corporate insolvencies in England and Wales and in the overlapping period for which the Insolvency Service reports its results, 1 April 2024 to 31 March 2025, a total of 1037 directors were disqualified. Three quarters of these disqualifications related to misconduct in relation to COVID support schemes.

HMRC compliance and tax avoidance initiatives

The Chancellor also announced plans to publish a consultation in early 2026 on the introduction of a new ‘recklessness’ criminal offence for fraudulently evading direct taxes.

Other measures announced aimed at reducing the tax gap and strengthening compliance with tax obligations, with a view to raising £2.3 billion by 2029–30 are said to include:

• Strengthening the framework for how HMRC publishes the details of deliberate tax defaulters;
• In respect of transfer pricing - legislating to require in-scope multinationals to submit an International Controlled Transaction Schedule (ICTS) which will report information annually on cross-border related party transactions;
• Introducing a strengthened reward scheme for informants who provide valuable information which allows HMRC to tackle high-value avoidance or evasion (i.e. financial rewards for whistle blowing) to mirror the position used by the IRS in the USA;
• Strengthening HMRC powers to tackle fraud within the Construction Industry Scheme; and
• Introducing new powers to close in on promoters of marketed tax avoidance and sanctions to tackle tax advisers who facilitate non-compliance.
• HMRC will also enhance its use of third-party data and expand debt collection agency involvement for older debts, alongside increasing HMRC debt management staff which is likely to see an increase in aggressive initiatives to recover outstanding liabilities.

 

CORPORATE TAX

Venture Capital Trust scheme and Enterprise Management Incentive

The government is doubling the eligibility for the Enterprise Investment Scheme (EIS), Venture Capital Trust scheme (VCT) and the Enterprise Management Incentive (EMI) scheme so that scale-ups can attract capital and talent as they grow:

• For EIS & VCT, the investment threshold limits and gross assets test are being doubled from 6 April 2026.
• For EMI schemes, from 6 April 2026:
  • Employee limit and company share option limit will both double to 500 employees and £6 million respectively;
  • Gross asset test will quadruple to £120 million;
  • Maximum holding period increased to 15 years, and this can be applied to existing as well as new EMI contract;.
• For VCTs, up front income tax relief is being reduced from 30% to 20% from 6 April 2026, to better balance the amount of upfront tax relief offered compared to EIS, according to the government;
• EIS relief is maintained at 30%.

Dividend tax increase

Tax on dividend income will increase by 2 percentage points from April 2026. The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75% from April 2026. The additional rate will remain unchanged at 39.35%.

CGT relief to employee-owned trusts

CGT relief on sale of businesses to employee ownership trusts will be reduced from 100% to 50%. This will take effect immediately.

Gambling taxes increased

Remote Gaming Duty is being increased from 21% to 40% as of 1 April 2026. A new Remote Betting Rate at 25% within General Betting Duty will be introduced from 1 April 2027, maintaining a clear differential in the tax rates for these two activities. There is no increase for in-person gambling or horse-racing. Bingo Duty is being entirely abolished from 1 April 2026.

The Chancellor says her reforms to gambling tax will raise over £1bn per year by 2031.

 

IMMIGRATION & VISA SYSTEM

While the budget itself contained no proposed changes to the immigration system (and disappointingly no mention of a new revenue raising investor visa), the Chancellor did take the opportunity to promote the cost savings they expect from their proposed ‘earned settlement’ policy which they launched a consultation on last week.

The consultation envisions a much longer journey to indefinite leave to remain (ILR) with the baseline for ILR increasing from five to ten years. While delays to ILR will delay the ability of individuals to access public funds, it may also deter top talent from choosing the UK as a destination and it may inhibit the ability of businesses to grow and generate revenue if they cannot access the talent they need.

It is true that the proposals on earned settlement will make settlement faster for those who are highly paid (with a base line of five years for higher rate taxpayers and three years for additional rate taxpayers) but it will also impact families with dependants being subjected to strict financial criteria for the first time.

 

EMPLOYMENT

National Living Wage (NLW) and National Minimum Wage (NMW)

The NLW and NMW figures that will apply from April 2026 have also been announced.  The NLW, which applies to workers aged 21 and over, will rise from £12.21 to £12.71 per hour.  The NMW for those aged 18–20 will rise from £10.00 to £10.85 per hour and, for those aged 16–17 and apprentices it will rise from £7.55 to £8.00 per hour.  These changes are expected to have a significant impact on sectors with large frontline workers on the minimum wage (retail and hospitality, for example).

Salary sacrifice pensions

From 6 April 2029, the government will charge employer and employee NICs on pension contributions above £2,000 per annum made via salary sacrifice.

 

NOTABLE OMISSIONS

There had been murmurings of a change to the gifting exemptions (with the possibility of an increase from 7 years to 10 years); the possibility of a departure tax; that partners in LLPs might become liable to NICs; and an increase in income tax rates to be paid by employees none of which came to pass.

It is understood that the Chancellor had also considered scrapping in its entirety the availability of ‘salary sacrifice’ re pension contributions.

 

The full text of the Budget can be found here.