Income Tax: The Freeze Continues
- Income tax thresholds frozen until 2031, meaning more people will pay higher tax rates as wages rise.
- No increase in the actual rates of income tax on salaries.
- However, dividend tax will increase by 2% from April 2026, rising to:
- 10.75% (basic rate)
- 35.75% (higher rate)
- Savings income tax rates will also rise by 2% in April 2027 .
Implication: Even without direct tax hikes, frozen thresholds combined with rising incomes mean many people will see bigger tax bills year-on-year.
Photo by Sarah Agnew on Unsplash
Property Owners Face Higher Bills
- From April 2027, a 2% increase in income tax applies to property rental income.
- A new ‘mansion tax’ (Council Tax Surcharge) will apply to homes worth over £2 million, starting at £2,500 per year from April 2028 .
If you’re a landlord, this means higher costs and potentially higher rents for tenants.
Business Owners: Check Profit Extraction Routes
- Dividend tax increase (noted above) hits company directors who extract profits via dividends.
- NICs will apply to salary sacrifice pension contributions above £2,000 from April 2029 .
- Corporation tax remains unchanged, but writing down allowances are reduced (from 18% → 14%) from April 2026 .
ISAs, Savings and Gifting Limits Tighten
- Cash ISA limit capped at £12,000 for under-65s from April 2027 (within £20,000 overall ISA allowance).
- Savings income tax rises by 2% from April 2027 .
- VCT relief drops from 30% to 20% from April 2026 .
30/10/2024. London, United Kingdom. Chancellor Rachel Reeves delivers the Autumn Budget 2024. Picture by Kirsty O'Connor / Treasury
Inheritance Tax Changes You Can’t Ignore
- Business and Agricultural Property Relief capped at £1 million per couple from April 2026 (used to be unlimited).
- BPR on AIM shares drops from 100% to 50%.
- Unused pension pots will count toward your estate from April 2027, even if written into trust .
These changes drastically limit previous IHT workarounds. Families with large estates, pensions or business/farming assets should act now.
New Electric Vehicle Road Tax
- From April 2026, electric car owners will pay:
- 3p per mile for fully electric vehicles
- 1.5p per mile for hybrids
See more on Electric Vehicles here.
Photo by Vitaly Gariev on Unsplash
Employment Updates
- Minimum wage rises from April 2026:
- £12.71 for workers 21+
- £10.85 for ages 18–20
- Homeworking tax relief scrapped from April 2026 (previously £6/week).
- Mandatory payrolling of benefits coming April 2027: employers must start reporting benefits in real time.
See our Payroll Services for help and guidance.
Digital Tax Compliance & Penalties
- HMRC pushes further into digital:
- Mandatory digital tax records for landlords and sole traders earning over £50k from April 2026
- PAYE and VAT by Direct Debit under review
- Crypto platforms must report user data from 2026
- Late tax return penalties double from April 2026
- New reward scheme for whistleblowers on tax fraud (up to 30% of tax collected)
More on Making Tax Digital here.
Photo by Dan Burton on Unsplash
Final Thoughts
While headline income tax rates may have stayed the same, this year’s Budget quietly tightens the fiscal screws through frozen thresholds, restricted reliefs, and broader tax bases.
Whether you’re a business owner, property investor, or saver, now is the time to:
- Review how you extract profits
- Optimise your use of pensions, trusts, and allowances
- Adjust your IHT and estate planning strategy
📞 Nuvo HR and Accountancy can help you navigate these changes with a personalised review.
Get Expert Advice
Book a free consultation to discuss:
- Income extraction for directors
- Inheritance tax & trust strategies
- Property tax planning
- Preparing for Making Tax Digital
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Budget 2025: Frequently Asked Questions
Did income tax rates go up in the 2025 Budget?
No. The actual rates of income tax (basic, higher, and additional) remain unchanged. However, thresholds have been frozen until 2031, which means more people will move into higher tax brackets over time, a phenomenon known as “fiscal drag.”
What’s happening with dividend tax?
Dividend tax rates are rising by 2% from April 2026, affecting company directors and investors. The new rates will be:
- 10.75% (basic rate)
- 35.75% (higher rate)
Is there really a new mansion tax?
Yes. A Council Tax surcharge of £2,500 per year will apply to residential properties valued over £2 million starting April 2028.
Are pensions still inheritance tax-free?
Not entirely. From April 2027, unused pension pots will count toward your estate, even if they are written into trust, potentially triggering inheritance tax.
What changes are there for landlords and property income?
A 2% income tax increase will apply to rental income from April 2027. Property owners may also be affected by reduced capital gains tax allowances and increased compliance obligations under Making Tax Digital.
Has Business Property Relief been scrapped?
Not scrapped, but capped. From April 2026, Business and Agricultural Property Relief will be limited to £1 million per couple (previously unlimited). BPR on AIM shares drops to 50%.
What happens to ISAs and savings tax?
The Cash ISA limit will be capped at £12,000 for under-65s from April 2027, and savings income tax will rise by 2% the same year. VCT tax relief will drop from 30% to 20% from April 2026.
Photo by Dan Lynn on Unsplash
