What Does It Mean for Your Business?
After weeks of speculation about what Budget 2025 might include, the Chancellor’s plans were unexpectedly revealed early when the Office for Budget Responsibility accidentally published its report online. Although it was quickly removed, the details had already circulated widely among the media and tax specialists.
In practice, how the information emerged matters far less than the measures themselves. What counts is how these changes will affect businesses, landlords, and individuals in the coming years.
Below, we highlight the key points business owners need to be aware of and offer guidance on what the changes could mean for you.
Higher Taxes for Property Owners and Savers
From 6 April 2027, new separate income tax rates will apply to property income, while tax rates on savings income will increase by two percentage points.
Property and Savings Income Tax Rates from 2027/28 – Income bands:
- Basic rate (£1–£37,700) 22%
- Higher rate (£37,701–£125,140) 42%
- Additional rate (over £125,140) 47%
The new property income rates apply to England and Northern Ireland. Scotland and Wales will set their own rates.
New “Mansion Tax”
Properties worth more than £2 million will also be subject to a new high-value council tax surcharge, ranging from £2,500 to £7,500 per year. Properties will be valued before the surcharge takes effect.
What this means for landlords
With the abolition of furnished holiday lettings, higher stamp duty on additional properties, greater compliance duties under the Renters Rights Act, and now increased tax on property income, many landlords may feel the pressure more than ever.
If you are considering whether retaining your property portfolio is still worthwhile, we can help you review your position and plan ahead.
Dividend Tax Rates Set to Rise
From April 2026, dividend tax increases by 2 percentage points:
- Basic rate: 10.75%
- Higher rate: 35.75%
This will be particularly important for owner-managed companies relying on dividends for profit extraction. Those considering incorporation will also need to factor these changes into their planning.
If you draw income through a combination of salary and dividends, a review before April 2026 is essential to ensure you continue to extract funds tax-efficiently.
Payroll Costs Set to Increase
Although announced before the Budget, the new National Minimum Wage rates come into effect on 1 April 2026. The main National Living Wage (age 21+) increases by 4.1%, while younger workers and apprentices receive rises of between 6.0% and 8.5%.
Because statutory increases often create upward pressure on higher-paid roles too, it is important to budget now and build the higher costs into your workforce planning for next year.
Salary Sacrifice NIC Relief to Be Capped
From 6 April 2029, the current full employer NIC exemption for pension contributions via salary sacrifice will be replaced with a £2,000 annual cap.
Any contributions above this will still receive income tax relief, but both employer and employee NICs will apply.
Although several years away, employers offering generous salary sacrifice schemes should begin reviewing their benefits packages and long-term cost projections.
Changes to IHT Reliefs for Business Owners and Farmers
Agricultural Property Relief (APR) and Business Property Relief (BPR) will undergo significant reform from 6 April 2026.
Key changes
- The current 100% relief will be capped at a combined £1 million of qualifying agricultural and business property.
- Any value above this threshold will receive only 50% relief.
- Unused APR/BPR will become transferable to a surviving spouse or civil partner, allowing couples to pass on up to £3 million of qualifying assets free of IHT.
However, transitional rules mean gifting assets before April 2026 may not secure the expected reliefs. Careful planning is essential. Please speak to us before making any decisions.
Capital Allowances: Mixed News
The Annual Investment Allowance (AIA) continues to provide 100% relief on qualifying expenditure up to £1 million for 2026/27.
However, the writing down allowance for main pool assets will fall from:
- 18% to 14% (companies) from 1 April 2026
- 18% to 14% (unincorporated businesses) from 6 April 2026
A new 40% First Year Allowance will be available from 1 January 2026, although its practical use may be limited where the AIA already offers full relief.
Electric vehicle FYAs remain at 100% until April 2027, offering valuable planning opportunities for businesses considering fleet electrification.
Business Rates: New Multipliers for RHL Sectors
Retail, hospitality and leisure properties with a rateable value below £500,000 will benefit from new lower business rates multipliers from 1 April 2026. These replace the current 40% RHL relief.
Properties with an RV above £500,000 will face a higher multiplier to fund the change.
Mandatory Electronic Invoicing from 2029
The government will require structured electronic invoicing for all VAT invoices from 2029.
Real-time reporting is being explored but will not be introduced in 2029. Any future rollout would follow only after e-invoicing is well established.
Businesses will need to ensure their accounting software can support structured e-invoice formats. Early preparation will help avoid disruption later.
National Minimum Wage Increases Confirmed
Effective from 1 April 2026:
- Age 21+ current rate £12.21; new rate £12.71
- Age 18–20 current rate £10.00; new rate £10.85
- Under 18 current rate £7.55; new rate £8.00
- Apprentice rate current rate £7.55; new rate £8.00
The rise for 21-and-over workers is 4.1%, with younger workers and apprentices receiving increases of up to 8.5%. The government has indicated this is part of a longer-term goal of moving towards a single minimum wage rate regardless of age.
What employers should do now
• Review payroll to identify staff affected.
• Update budgets and cash flow forecasts for 2026/27.
• Consider pricing and productivity, especially if margins are tight.
• Assess pay structures for knock-on effects on higher-paid staff.
If you would like help modelling the impact of these increases or planning ahead, please get in touch. We can work through your numbers and help ensure you are well prepared.
Final Thoughts
Budget 2025 delivered a clear message: taxes on investment income, property income and dividends are rising, and thresholds remain frozen. Businesses and individuals alike may face increasing pressures over the next few years.
Reviewing your strategy now can ensure you remain tax-efficient and financially resilient. If you would like professional guidance tailored to your situation, we are here to help.
