Interestingly most of the changes made at this budget will not take effect immediately and span over the next few tax years with forecasts from 2025/26 to 2030/31. The next general election must take place by 15th August 2029, and as such some of these newly announced tax rises will fall after this date, bringing into question, whether or not they will even be implemented. This is a familiar budgeting tactic and one that naturally raises concerns. Reconciling this approach with the government’s recent speech is challenging. The timing suggests a deliberate effort to defer the financial impact until after voters have had their say.
Key Tax Changes and Their Implications
Rachel Reeves has stated that everyone will be asked to contribute, with the wealthiest bearing the greatest share. Please see below a summary of the main changes:
Income Tax Thresholds
These will remain frozen until April 2031, which reverses last year’s plan to increase with inflation from 2028.
Personal Allowances
From April 2027, the personal allowance must first be applied to pension, employment, or trading income, ensuring higher rates apply to other income types where possible.
Dividend Tax
From April 2026, income tax rates on dividend income will rise by 2% to:
- Basic rate: 10.75% (currently 8.75%),
- Higher rate: 35.75% (currently 33.75%),
- Additional rate: remains at 39.35%.
Tax on Savings Income
From April 2027, income tax on interest and other savings income will increase by 2% to:
- Basic rate: 22% (currently 20%),
- Higher rate: 42% (currently 40%),
- Additional rate: 47% (currently 45%).
Existing savings and dividend allowances, along with ISAs, will remain in place. The government estimates that 90% of UK taxpayers will not be affected, but for the remaining 10%, the impact could be significant.
Tax Changes for Landlords
From April 2027, unincorporated landlords will face separate tax rates on property income:
- Basic rate: 22% (currently 20%),
- Higher rate: 42% (currently 40%),
- Additional rate: 47% (currently 45%).
Mortgage interest and other finance costs will be relieved at 22% (currently 20%) as a tax credit. The £1,000 property allowance and rent-a-room relief will remain. Again, the government expects that 90% of taxpayers do not have taxable property income.
Landlords have already faced significant tax changes, including restrictions on mortgage interest relief. These new measures add further pressure.
High-Value Property Surcharge (“Mansion Tax”)
From April 2028, owners of high-value properties will pay a council tax surcharge, based on 2026 property valuations. Expected annual revenue: £430 million.
The surcharge will apply to different value bands as follows:
| Value | Surcharge |
| £2m – £2.5m | £2,500 |
| £2.5m – £3.5m | £3,500 |
| £3.5m – £5m | £5,000 |
| Over £5m | £7,500 |
The extent of reliefs, exemptions, and support for those struggling to pay will be consulted on.
ISAs
Rachel Reeves has confirmed that from April 2027, the annual cash ISA limit will drop from £20,000 to £12,000 for savers under the age of 65. The stocks & shares allowance will remain at £20,000 for all investors.
Lifetime ISA – a consultation is planned for early 2026 to reform the Lifetime ISA. It is likely to be scrapped with a new fresh ISA aimed at first time buyers introduced.
Future Planning and Advice
Clients who rely on rental or investment income will be most affected. It is therefore important that you continue to review your overall financial position to ensure that your investments are working efficiently for you and we plan for the changes that will be implemented in the next few tax years.
Businesses (including unincorporated) and Farmers
Rachel Reeves’ latest announcements may not have delivered a single headline-grabbing change, but they include a series of measures that will significantly impact unincorporated businesses and farmers. Here are the some key points you need to be aware of:
Inheritance Tax (IHT)
From April 2026, the £1m 100% relief limit for business or agricultural property will become transferable between spouses and civil partners. This is good news for family-owned businesses and farms, but it doesn’t remove the need for careful succession planning, especially with major IHT changes coming next year.
Business Taxes and Rising Costs
- Corporation tax: remains unchanged at 19% or 25%.
- Income tax and NIC thresholds remain frozen until 2031, increasing tax burdens over time.
- Dividend tax as mentioned above is increasing from April 2026. If you are a business owner, drawing salary & dividends, it is prudent to review your own circumstances as in some cases drawing a higher salary or paying bonuses will be more tax efficient.
- Apprenticeships: Expanded funding for under-25s in SMEs.
- Minimum Wage increase: From April 2026, rates rise to:
- £12.71 (main rate) per hour,
- £10.85 (18–20) per hour,
- £8.00 (16–17/apprentices) per hour.
Salary Sacrifice Changes
From 2029, NIC-free pension salary sacrifice will be capped at £2,000 per tax year per employee. Businesses using this strategy should review their benefits planning.
Summary
As we write this on Thursday morning, the markets seem to have accepted the Budget. The budget doesn’t feel like the last tax raising at previously by this government so let us hope that the run into next year’s Budget is less damaging to business confidence & market confidence.
Please note for the purpose of being concise we haven’t included every announcement within this summary. We have picked out the points we consider most appropriate, however if you would like a full budget summary, please contact your adviser.
For clarification of any points discussed above and any future independent advice regarding your own financial planning, please do contact us on 01626 833225 or email [email protected]
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