After months of speculation and an unfortunate “technical error” on the day, Chancellor Rachel Reeves has now made her 2025 Autumn Budget statement. A number of technical details are still to be published but in the meantime, we have prepared a summary of the key points to be aware of:
Property
- The main headline is the much-leaked “mansion tax”. Properties in England worth more than £2m will incur a new “High Value Council Tax Surcharge” from April 2028. The charges will start at £2,500 per year, rising to £7,500 per year for properties worth more than £5m and will be payable on the property owners, rather than by the occupiers. The new tax will be collected by local authorities on behalf of the Government. A consultation on implementation will occur in 2026 and will also consider who may need support to pay the charge – an important point for property owners who might be relatively asset rich but cash poor. It remains to be seen how this new tax might be implemented in Scotland given this is a devolved matter, including what thresholds and rates will be set.
Inheritance Tax
- In welcome news, the £1m Agricultural Property Relief (APR) and Business Property Relief (BPR) allowance scheduled to take effect from April 2026 will be transferrable between spouses and civil partners, similar to the Nil Rate Band. This will be highly relevant to clients considering reallocating their assets to make full use of the allowance and will also impact the structuring of Wills. This change will apply even where the first death occurred before April 2026 and where the first to die did not hold any agricultural or business assets. Legislation will also be introduced in Finance Bill 2025-26 to increase the £1 million allowance for the 100% rate of APR and BPR in line with CPI from 6 April 2031.
- The current freeze to the Nil Rate Band (£325,000) and Residence Nil Rate Band (£175,000) has been extended to April 2031. This is essentially fiscal drag in action, with the Nil Rate Band having been frozen since April 2009.
- It was announced in the 2024 Autumn Budget that most unused pension funds and certain death benefits will be subject to IHT from April 2027. Draft legislation was published which indicated that the executors of a deceased person’s estate would have primary responsibility for reporting and paying the IHT due on the pension assets – even though they might have no control over or access to the pension assets. It has now been confirmed that executors of a deceased person’s estate will be able to direct pension scheme administrators to withhold 50% of taxable pension benefits for a period of up to 15 months and pay IHT due in certain circumstances. Executors will also be discharged from a future liability for payment of IHT on pensions which were not known about if they have obtained a Clearance Certificate from HMRC. This is a positive outcome for many estates (particularly those where the beneficiaries of the personal estate and the pension fund are different), although we await further details.
- Payments made under the Infected Blood Compensation Scheme and the Infected Blood Interim Compensation Payment Scheme will be relieved from IHT where the original affected person died before receiving payment. In addition, the living recipient of the payment can redirect some or all of their payment without an IHT charge via a Deed of Variation, executed within two years from the date of the payment (rather than two years from the individual’s death, which is the usual timeframe).
Income Tax
- From April 2026, the ordinary and upper rates of income tax on dividends will increase by 2% (to 10.75% and 35.75% respectively). The dividend additional rate (39.35%) will not be changed.
- From April 2027 income tax on savings income will be 22% at the savings basic rate, 42% at the savings higher rate and 47% at the savings additional rate.
- From April 2027, new tax rates for property income will be introduced in England, Wales & NI. The property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%. It remains to be seen how this will be dealt with in Scotland, given this is devolved.
Capital Gains Tax
- Effective immediately, 50% of the gain on disposal to the trustees of an Employee Ownership Trust will be treated as the disposer’s chargeable gain for CGT purposes (previously it was CGT-free). 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 Employee Ownership Trust. These changes are in response to costings which indicate that the scheme is on course to costs £2 billion, more than 20 times the original costings in 2013 when the scheme was introduced.
Pensions / Investments
- Salary sacrifice will be capped at £2,000 from 2029, with any balance being subject to employee and employer NICs being charged in the usual way. Concerns have already been expressed that this could lead to individuals saving less towards their retirement.
- From April 2026, the annual cash ISA limit will be reduced to £12,000, within an overall annual ISA limit of £20,000, with a view to incentivising investment. Individuals over 65 will continue to be able to save up to £20,000 in a cash ISA each year.
- Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) limits will be increased but the upfront VCT income tax relief will be reduced from 30% to 20%.
Other notable points
- As part of a general drive to combat tax avoidance, legislation will be introduced to target certain forms of non-UK entities holding agricultural property and promoters of marketed tax avoidance schemes.
The Government appears to have focussed its targets on the taxation of wealth rather than earnings (discounting the substantial impact of fiscal drag). However, the lack of any significant changes to the IHT gifting rules and availability of CGT holdover reliefs and date of death uplift, rumoured previously, will be welcome to many. The Scottish Budget is likely to take place on 13 January and it remains to be seen what approach the Scottish Government will take to the mansion tax and changes to the taxation of property income.
We will bring further news to you in the New Year as announcements unfold.
If you would like further information on any points raised in the update, please get in touch with a member of our team to discuss your individual requirements.
