Budget 2025: What It Means for You, Your Business, and Your Trusts

Against the backdrop of concerns about cost of living the Chancellor’s latest Budget delivers a mix of freezes, reforms, and incentives aimed at stabilising the economy and encouraging investment.

Pre-Budget speculation of significant tax changes was rife, mainly driven by leaks from the Government, but the reality is the Chancellor’s Budget was more vanilla than most people feared for individuals, businesses and trusts. Here’s what you need to know.

Changes for Individuals

Income Tax and National Insurance Contributions

• Income Tax and National Insurance Contributions Thresholds Frozen – the personal allowance (£12,570), higher rate threshold (£50,270) and additional rate threshold (£125,140) will remain unchanged until April 2031. The corresponding NIC thresholds will also stay fixed until April 2031. This freeze means more taxpayers will drift into higher bands over time.
• Voluntary Class 2 NICs – abolished for individuals’ living abroad.
• Pensions and Salary Sacrifice – from 6 April 2029, employer and employee NICs will apply to pension contributions above £2,000 per annum made via salary sacrifice arrangements. There are no changes to the income tax relief available on pension contributions.
• Dividend Income – the basic and higher dividend tax rates rise by 2% from 6 April 2026, to 10.75% and 35.75% respectively. The additional rate remains at 39.35%.
• Dividend Tax Credit – the notional tax credit currently available to non-UK residents receiving dividends from UK companies will be abolished from 6 April 2026. This change aligns non-residents with UK residents, who no longer receive such credits. Previously, non-UK residents with both UK dividend income and UK rental or partnership income could claim the better of two tax treatments, one of which included a credit at the ordinary dividend rate.
• Temporary Non-Residence Anti-Avoidance – the UK temporary non-residence (TNR) rules are anti-avoidance provisions that apply if you were UK resident for at least four of the seven tax years before leaving and return after fewer than five complete tax years abroad; in such cases, certain income and gains realised while overseas can still be taxed as if you never left. Their purpose is to prevent individuals from briefly leaving the UK to avoid tax on capital gains, pensions, or company distributions before returning. Currently, individuals who become temporarily non-resident can avoid UK income tax on dividends from UK close companies if those dividends are attributed to profits earned after departure. From April 2026, all dividends and distributions received while temporarily non-resident will be chargeable to UK income tax if caught by TNR provisions, regardless of when the profits arose.
• Property and Savings Income – from 6 April 2027, the basic, higher and additional tax rates will increase by 2% to 22% (basic), 42% (higher), and 47% (additional).
• Venture Capital Trust – the rate of income tax relief for individual investors will be cut from 30% to 20%. Dividends arising to individuals from VCTs will continue to be exempt from tax up to the maximum of £200,000 per tax year. The change will be of little significance to US taxpayers due to the Passive Foreign Investment Company considerations applicable to VCTs.

Capital Gains Tax

• Employee Ownership Trusts – Capital gains tax (CGT) relief on qualifying disposals to Employee Ownership Trusts (EOT) drops from 100% to 50%, effective 26 November 2025. As business asset disposal relief (BADR) will not apply to the remaining gain this means the effective tax rate on a disposal to an EOT is 12%. The remaining 50% of the gain will not be chargeable at the time of disposal but will continue to be held over to come into charge on any future disposal of the shares by the trustees of the EOT.
• Incorporation Relief – previously if the conditions of incorporation relief were met then incorporation relief automatically applied. From 6 April 2026 a claim will need to be made on the transferor’s Self-Assessment return for the tax year in which the transfer took place.
• Anti-Avoidance Changes for Share Exchanges and Reconstructions – from 26 November 2025 where a person has entered into arrangements where the main purpose, or one of the main purposes, of those arrangements was to secure them a tax advantage, the reogranisation provisions will not apply. There are transitional rules for clearance applications received by HMRC before 26 November 2025. The new rules raise the bar for obtaining relief and make it even more important to apply for advanced clearance when undertaking share exchanges and reconstructions as to avoid triggering dry tax charges.

Inheritance Tax

• Agricultural Property Relief (APR) and Business Property Relief (BPR) Allowance – in the 2024 Budget the government announced major changes to APR and BPR for inheritance tax. Effective 6 April 2026, full 100% relief will now apply only to the first £1 million of combined qualifying agricultural and business property in an estate. Above this threshold, relief drops to 50%, meaning estates will pay inheritance tax at a reduced effective rate. In the 2025 Budget the Government confirmed any unused portion of the £1 million allowance can be transferred to a surviving spouse or civil partner. This is similar to the existing rules governing the transferability of the unused nil-rate band and residence nil-rate band, but there is currently no draft legislation to confirm if there are any qualifying conditions or restrictions that will apply.
• Additional APR and BPR changes
  • Shares admitted for trading on recognized stock exchanges designated as ‘not listed’, and qualifying shares on foreign exchanges which are not recognized, will only qualify for 50% relief.
  • The option to pay Inheritance Tax (IHT) by equal instalments over 10 years interest-free will be extended to all property which is eligible for APR or BPR.
  • A standardised calculation will apply to all exit charges from relevant property trusts which will be dependent on the asset value before consideration of APR or BPR.
• Cap on Trust Charges – effective retrospectively from 6 April 2025 there will be a £5 million cap on IHT charges for certain trusts linked to former non-UK domiciled individuals. The cap applies to relevant property charges, such as ten-year anniversary and exit charges, on trusts that held excluded property as of 30 October 2024. While non-UK assets in these trusts remain outside the scope of IHT on death, trustees will still pay charges up to the cap. New trusts or those created by individuals who were never non-domiciled remain fully chargeable.
• Anti-Avoidance Changes for Inheritance Tax – from 6 April 2026, offshore entities holding UK agricultural property will be treated as UK assets for IHT purposes, trusts will face restrictions on moving assets offshore to avoid exit charges when the settlor ceases to be long-term UK resident, and the IHT charity exemption will be restricted to gifts made directly to UK-registered charities or clubs.
• Changes for Personal Representatives – the previous budget introduced changes from 6 April 2027, whereby most unused pension funds and pension death benefits will be brought into the scope of IHT. Personal Representatives (PRs) will be responsible for reporting and paying any IHT due. To manage this, the Government have confirmed that PRs can instruct pension scheme administrators to:
  • Withhold 50% of taxable benefits for up to 15 months after death.
  • Pay IHT to HMRC before releasing remaining funds to beneficiaries.

Other Changes

• Council Tax Surcharge – a new High Value Council Tax Surcharge applies to homes worth £2 million or more from 2028–29, collected by local authorities on behalf of central government. The proposed charging structure will see charges from £2,500 to £7,500 per annum depending on the value of the property, with the maximum charge leveraged on properties valued at more than £5m.
• ISA Reform – from April 2027, the annual cash ISA limit will be set at £12,000 within the overall £20,000 cap. Lifetime ISA and Junior ISA limits remain unchanged until 2031. Savers over 65 will continue to benefit from a full £20,000 of cash ISA allowance. Interest and dividends received from assets held within ISAs will continue to be exempt from tax.

Changes for Businesses

• Enterprise Management Incentive (EMI) Limits – from 6 April 2026 EMI schemes will be accessible to larger companies with the following changes being implemented:
  • Company option limit: doubled from £3m to £6m.
  • Gross assets cap: raised from £30m to £120m.
  • Employee headcount: increased from 250 to 500 employees.
  • Exercise period: extended from 10 years to 15 years, with retrospective application to existing contracts.
• PISCES – existing Company Share Option Plan (CSOP) and EMI options will become exercisable when shares are sold on the Private Intermittent Securities and Capital Exchange System (PISCES). This change supports liquidity for private companies without losing tax advantages. Employers and employees can amend option agreements granted before 6 April 2028 to include a PISCES sale as an exercise event, provided the sale occurs promptly after exercise.
• Enterprise Investment Scheme – from 6 April 2026 the limits for companies raising funds under EIS will change as follows:
  • Gross assets cap rises to £30m (pre-investment) and £35m (post-investment) (up from £15m/£16m).
  • Annual investment limit doubles to £10m, and for knowledge-intensive companies to £20m.
  • Lifetime investment limit doubles to £24m, and for knowledge-intensive companies to £40m.
• Stamp Duty Reserve Tax – the Government has announced a new relief from the 0.5% Stamp Duty Reserve Tax (SDRT) on transfers of securities for companies whose shares are newly listed on a UK regulated market. Effective for agreements made on or after 27 November 2025, the relief will apply for three years following the listing and cover all of the company’s securities, including depositary interests. Once in the post-listing period the exemption will apply to all of the company’s securities (not just shares).
• Capital Allowances – A new 40% First Year Allowance applies from January 2026 for main rate expenditure, including leased assets and unincorporated businesses. However, writing-down allowances drop from 18% to 14% from April 2026.
• National Minimum Wage – The National Minimum Wage for 18-20 year olds will increase from £10 to £10.85 per hour from April 2026. The National Living Wage will increase from £12.21 to £12.71. The minimum wage for 16 and 17 year olds and the apprentice rate will increase from £7.55 an hour to £8 per hour.
• Business Rates Overhaul – From April 2026, business rates will reflect updated property values. Multipliers will fall (small business: 43.2p; standard: 48p), and new permanent lower rates for retail, hospitality, and leisure will support high street businesses.
• Diverted Profits Tax – the UK will abolish the Diverted Profits Tax regime and replace it with a new charging provision within Corporation Tax. The new rule will target unassessed transfer pricing profits, which are profits that should have been taxed under transfer pricing rules but were not assessed.
• Compliance & Transparency – New reporting obligations for crypto asset service providers start in 2026, alongside enhanced HMRC powers to tackle fraud in the Construction Industry Scheme and new transfer pricing disclosure requirements for multinationals.

What’s Next?

Most measures will be legislated in Finance Bills over the next two years, with consultations already underway on EV charging, pension NICs, and entrepreneur tax incentives. This budget has not changed the fact there are significant inheritance tax and carried interest changes coming in April 2026, in particular individuals should be actively reviewing their inheritance tax position to ensure there is sufficient time to implement any planning pre-5 April 2026.