THE BUDGET 2025

After much anticipation and rumour, the Chancellor finally delivered her Budget on 26 November although not before details had already been seen as the OBR had released these earlier in the morning. The main highlights are summarised below.

Thresholds

Income tax and inheritance tax thresholds will now remain at current levels until April 2031 meaning more people will be paying higher amounts of income tax in future while the number of people having a new or increasing IHT liability will increase as the resultant ’drag’ takes effect.

Income tax

After a lot of speculation around potential increases to income tax, it is investment income rates that are to be increased as follows:-

Dividend income:

2% increase for basic and higher rate (but not additional rate) from 6 April 2026
Revised rates – 10.75% basic, 35.75% higher

Savings income:

2% increase for basic, higher rate and additional rate from 6 April 2027
Revised rates – 22% basic, 42% higher, 47% additional

Property income:

2% increase for basic, higher rate and additional rate from 6 April 2027
Revised rates – 22% basic, 42% higher, 47% additional

It has also been confirmed that the internal taxation within onshore investment bonds will change from April 2027 to align the tax credit with the new liability.

In addition, from April 2027, the order that income is set against the personal allowance will be changed with the order being earned income, pension income, dividend income, savings income and property income.

Pensions

As expected, a £2,000 maximum salary sacrifice NI exemption limit is to be introduced for pension contributions from April 2029. Any contributions above this level will be subject to NI on both the employee and the employer. For those earning less than the £50,270 upper earnings limit (UEL), 8% NI will apply to any contribution in excess of £2,000 with 2% applying to the excess for those with earnings above the UEL. Employers will be subject to 15% on any excess.

Additional clarification was also given in respect of the payment of IHT once unspent pension funds are in scope from April 2027. Personal representatives will now be able to request that scheme administrators withhold 50% of taxable death benefits for up to fifteen months so that the IHT due in that scheme can be paid. Personal representatives will also not be liable for IHT due on any pensions whose existence is not known at the point the estate administration is finished, but the beneficiary will continue to be liable.

ISAs

The maximum Cash ISA subscription is to be reduced to £12,000 from April 2027 for those 65 and under but will remain at £20,000 for those over 65.

There is to be a consultation on the future of the lifetime ISA (LISA) in which it will be proposed that the LISA is to be replaced by a new ISA specifically for first time buyers.

Inheritance tax

The £1m Business and Agricultural Relief limit comes into force in April 2026. It was confirmed that this limit, to the extent it is unused on the death of the first spouse or civil partner, will be transferrable to the survivor in the same way as the nil rate band and residence nil rate band.

Mansion tax

A new ‘high value council tax surcharge’ will be payable on luxury properties from April 2028. This annual surcharge will range from £2,500 for properties valued at £2m to £2.5m to £7,500 for properties valued at more than £5m. The surcharge is estimated to raise £400m a year, but house prices may group together below the limits resulting in stagnating property prices. Furthermore, other property taxes may also be reduced making it more difficult to be certain about the amount of revenue that will be raised.

CGT

The only change here is that relief from CGT on the disposal of a controlling interest in a trading company to the trustees of an Employee Ownership Trust (EOT) has been reduced from 100% to 50% with immediate effect. 50% of the gain, rather than 100% that applied previously, will now become chargeable to CGT on the vendor while 50% will be held over. Sellers will be subject to an effective rate of CGT of 12% on a disposal to an EOT (this being 50% of the main rate of 24%). Business Asset Disposal Relief (BADR) and Investors’ Relief will not be available to reduce the rate of CGT any further.

Further information is to be published that will deal with how the above changes are to be implemented and managed.

All information is based on our understanding and interpretation of applicable law and regulation which is subject to change.