This year’s Budget set out a series of tax and policy changes that affect individuals and businesses across the UK. Below is a summary of the key updates and what they mean in practice.
Income Tax Thresholds Frozen Until 2031
The freeze on personal tax thresholds will be extended for a further year, now lasting until April 2031.
However, from April 2026, tax on dividends and savings income will increase by 2% for basic-rate and higher-rate taxpayers. According to the new rates:
- Tax on dividends will rise from 8.75% to 10.75% (basic rate) and 33.75% to 35.75% (higher rate)
- Dividend rates for additional-rate taxpayers remain unchanged at 39.35%
Additionally, from April 2027, property income (such as rental income) will be taxed at separate rates for landlords: 22% at the property basic rate, 42% at the property higher rate and 47% at the property additional rate for the 2027–2028 tax year.
What it means in practice:
Because the thresholds are not rising with earnings, more employees will move into higher tax bands as salaries increase (commonly referred to as “fiscal drag”). This reduces take-home pay over time and may lead to pressure for higher salaries or revised reward packages. Combined with higher dividend and savings rates from 2026, this may also prompt individuals and employers to explore more tax-efficient reward strategies, including the use of employee share schemes or alternative remuneration structures. Lastly, unincorporated landlords (individuals) will face higher effective taxes on rental income, reducing net income from properties. Together, these changes contribute to the broader context of fiscal drag and higher rates on dividends, savings and investment returns, meaning that individuals with multiple sources of income may experience a higher overall tax burden.
Salary Sacrifice Pension Contributions Above £2,000 to Attract National Insurance (from 2029)
Pension contributions made through salary sacrifice above £2,000 will attract National Insurance in the same way as ordinary employee contributions.
What it means in practice:
This reduces the National Insurance savings available to higher earners who use salary sacrifice and may encourage employers and employees to review their pension and remuneration arrangements.
New Tax on Residential Properties Worth Over £2 Million (“Mansion Tax”) (from 2028)
A high-value council tax surcharge will apply to residential properties in England valued above £2 million. Charges will be:
- Properties valued between £2 million and £2.5 million – £2,500
- Properties valued between £2.5 million and £3.5 million – £3,500
- Properties valued between £3.5 million and £5 million – £5,000
- Properties valued over £5 million – £7,500
The value of your property will be assessed by the Valuation Office Agency in 2026.
What it means in practice:
Individual homeowners, property-holding companies, developers and investors in the prime residential market will be most affected, as higher annual charges increase holding costs. This may influence asset valuations, development decisions and overall investment returns.
New Electric Vehicle Mileage Tax (from 2028-2029)
From 2028-2029, a new mileage tax will apply to electric and plug-in hybrid vehicles. The rates will be:
- £0.03 per mile for battery electric vehicles
- £0.015 per mile for plug-in hybrids
- Rates will rise annually in line with the Consumer Prices Index (CPI)
What it means in practice:
Electric-car drivers will now face a new ongoing cost based on how much they drive. Mileage-based tax payments will be made in advance, using estimated annual mileage, with any difference settled at the end of the year. Annual MOT checks will be used to verify mileage and for vehicles in their first and second year, an alternative mileage verification method will be used before the first MOT is required. EV owners will therefore need to factor this new charge into their running costs.
Capital Allowances (from 2026)
- Main rate Writing Down Allowance will reduce from 18% to 14% from April 2026.
- Introduction of a new 40% first-year allowance for main rate assets.
- Exclusions: cars, second-hand assets and assets for leasing abroad will not qualify.
- The 100% Annual Investment Allowance will remain in place.
What this means in practice
The reduction in the Writing Down Allowance means businesses will receive tax relief more slowly on most plant and machinery. However, the new 40% first-year allowance shifts more of the deduction upfront, which may help businesses planning significant investment to manage cash flow in the year of purchase. Most small and medium-sized enterprises (SMEs) will continue to rely on the Annual Investment Allowance for immediate full relief, while larger or more capital-intensive businesses may feel the impact of slower relief on expenditure above that threshold.
Business Rates Update for Retail, Hospitality and Leisure Properties (from 2026)
The government is making changes to business rates from 1 April 2026. The temporary relief for retail, hospitality and leisure properties ends and the way business rates are calculated will change depending on the size and type of the property. Transitional relief and other support will be available to help businesses whose bills materially increase.
What it means in practice
Some small shops, cafes, pubs and other consumer-facing businesses may see lower business rates under the new system. However, many properties, especially those recently re-valued or with higher rateable values, are likely to face higher bills. Businesses outside retail, hospitality and leisure, including warehouses, logistics and e-commerce, may also experience increases under the new system.
Gambling Taxes Increased (from 2026)
From April 2026, the following gambling tax changes will take effect:
- Remote Gaming Duty rising from 21% to 40%
- Online Betting Duty rising from 15% to 25%
- Bingo Duty abolished
- No change to in-person gambling or horse-racing duties
What it means in practice
These changes will increase the tax costs for online gaming and betting platforms. Consumers may see higher prices or reduced promotions as operators adjust to the new rates.
Employee Share Scheme (EMI) (from 2026)
More companies will qualify (from April 2026)
- Limit on the value of EMI options a company can grant increasing from £3 million to £6 million.
- Gross assets limit for qualifying companies rising from £30 million to £120 million.
- Maximum number of employees for a qualifying company increasing from 250 to 500.
These changes may apply retrospectively where EMI options have not yet expired or been exercised.
Longer option terms (from April 2026)
- The maximum EMI option term will extend from 10 years to 15 years.
Reduced administrative requirements (from April 2027)
- Companies will no longer need to notify HMRC each time they grant an EMI option, removing the risk of losing EMI tax advantages due to missed notification deadlines.
Individual EMI limit unchanged (ongoing)
- The employee limit remains capped at £250,000.
What the changes mean in practice
These changes will make EMI accessible to a wider range of growing businesses, give employees more time and flexibility to exercise options, and reduce the risk of losing tax advantages by removing the HMRC notification requirement. However, the unchanged individual EMI limit continues to restrict how much equity fast-growing businesses can award to senior hires.
If you would like to learn more about the recent EMI changes, please see our recent article.
Changes to Employee Ownership Trusts (with immediate effect)
With immediate effect, the following changes apply to Employee Ownership Trusts (EOTs):
- Capital gains tax relief on disposals to an EOT has been reduced from 100% to 50%
- Shareholders selling to an EOT will now be taxed on half of their gain
What this means in practice
EOT sales are no longer fully exempt from capital gains tax, shifting from a zero-tax exit to a 50% tax exit. This results in an effective CGT rate of roughly 12% for higher-rate taxpayers and around 9% for basic-rate taxpayers. Although less generous than before, an EOT sale remains more tax-efficient than most alternatives, including trade sales or private equity exits. Shareholders will also need to ensure that any upfront sale proceeds are sufficient to meet the CGT now due.
How We Can Help
“The 2025 Budget introduces some significant changes that could impact both individuals and businesses. While a few measures are seeking to stimulate growth and investment, many require careful planning to mitigate potential risks. At Greene & Greene, we are committed to helping our clients navigate these developments with clarity and confidence, ensuring they make informed decisions in this evolving landscape.”
Mark Daly, Partner at Greene & Greene Solicitors.
Our specialist teams across the firm have attended a number of Budget briefings from accountants and are reviewing the Budget changes to understand their impact on our clients. If you would like to discuss how any of these updates may affect you, your family or your business, please get in touch with us or speak with your accountant.
This is only intended to be a summary, is not tax or accountancy advice and is not specific legal advice.
This article reflects the Budget 2025 measures as announced and may be updated when the Finance Bills and HMRC offer further guidance.
