On Wednesday 26th November 2025, the Chancellor, Rachel Reeves delivered her second Budget. She announced £26.1 billion in annual tax rises by 2029/30 mainly by freezing income tax thresholds.
Labour’s manifesto pledge not to raise income tax, National Insurance or VAT for “working people” remains technically in place. However, several new measures were introduced. Together, they are likely to have a significant impact on your overall tax position.
In our breakdown of the Autumn Budget 2025, we explore the key changes and analyse what they could mean for you and your business.
Personal Taxes
The main personal tax announcements in the Autumn Budget 2025 are below.
Personal Allowance
The personal allowance threshold is fixed at the current level of £12,570 and will remain frozen until April 2031.
Ideally, the personal allowance would rise with inflation each year to keep pace with the cost of living. However, by freezing this allowance, a larger portion of income becomes taxable—a phenomenon known as “fiscal drag.” In a high-inflation environment, this results in higher tax payments for many.
With the personal allowance unchanged, the tax code 1257L will also remain the most common for taxpayers with a single employment.
NOTE: According to current forecasts, the personal allowance in 2031 would be £17.5k if it had risen in line with inflation.
Losing your Personal Allowance
For earnings above £100,000, the personal allowance is reduced by £1 for every £2 earned. This means that in the 2026/27 tax year, once earnings reach £125,140, no personal allowance will be available.
Income Tax Thresholds
The income tax thresholds for 2026/27 remain unchanged and will remain frozen until April 2031. They are as follows:
- Basic rate band remains at £37,700.
- The higher rate band is charged on income over £50,270.
- The additional rate band is charged on income over £125,140.
NOTE: According to current forecasts, the higher rate threshold in 2031 would be £70.4k if it had risen in line with inflation.
Optimum Directors Salary for 2026/27 tax year
For the 2026/27 tax year, the optimum salary for most directors will remain at £12,570 annually. We recommend that directors take a monthly salary of £1,047.50. Depending on individual tax circumstances, additional payments can be made through payroll as a bonus or as dividends.
From April 2026, the tax on dividends is to increase by 2%, so there will be more situations where bonuses are preferred, however this is unlikely to apply to small companies. Further guidance on this will be provided prior to the start of the 2026/27 tax year.
For more details on this tax year 2025/26, see our comprehensive guide on the optimal director’s salary.
Marriage Allowance Transfer
Under certain conditions, the Marriage Allowance lets one partner transfer £1,260 of their personal allowance to the other, potentially resulting in a tax refund of over £250.
Claims can be backdated up to four tax years. The claim for the 2021/22 tax year must be made before 5th April 2026.
If you think you may qualify read our blog which explains how to apply for the Marriage Allowance.
Taxes on Property Income
There will be no changes in the next tax year 2026/27. From April 2027, the tax rates will increase for property income by 2% as follows:
- Basic Rate Taxpayers – 22%
- Higher Rate Taxpayers – 42%
- Additional Rate Taxpayers – 47%
The property allowance of £1,000 still remains. Property income exceeding £1,000 can be offset by using the allowance or by deducting relevant property expenses.
Taxes on Savings
There are no changes to the savings income allowances or rates for next tax year 2026/27. From April 2027, the tax rates for savings income will increase by 2% as follows:
Basic rate taxpayers (with total income under £50,270) have a £1,000 tax-free allowance on savings interest, meaning no tax is due on interest up to this amount. For savings interest over £1,000 the tax rate from April 2027 will be 22% (Remains at 20% in tax year 2026/27).
For higher-rate taxpayers (income over £50,270 but under £125,140), the tax-free savings allowance decreases to £500. For savings interest over £500 the tax rate from April 2027 will be 42% (Remains at 40% in tax year 2026/27).
Additional rate taxpayers, with earnings exceeding £125,140, do not receive a savings allowance and must pay tax on all their savings interest. The tax rate from April 2027 will be 47% (Remains at 45% in tax year 2026/27).
Taxes on Dividends
From April 2026, the tax rates on dividend income will increase by 2% for basic and higher rate taxpayers. The new rates will be as follows:
- The first £500 of dividend income is tax-free for all taxpayers. (No Change).
- Basic rate taxpayers pay 10.75% on dividend income. (Current Rate is 8.75%).
- Higher rate taxpayers pay 35.75%. (Current Rate is 33.75%).
- Additional rate taxpayers pay 39.35%. (No Change).
For further details see our Dividend Allowance & Tax Rates Blog.
Note: Dividends within ISAs are exempt from dividend taxes, so if you have taxable investments, consider maximising your ISA allowances now ahead of next year’s tax rises.
Individual Savings Accounts (ISAs)
The ISA limit remains at £20,000 and is expected to remain frozen until April 2031.
From April 2027, the annual cash ISA limit will be set at £12,000. The remaining amount of £8,000 will be restricted for Stocks & Shares ISAs. This restriction will not apply for individuals aged over 65, their cash ISA limit will remain at the full £20,000.
Capital Gains Tax
The Capital Gains Tax rates remain unchanged as follows:
- The First £3,000 is covered by the annual exemption
- Basic rate taxpayers pay at a capital gains tax rate of 18%
- Higher and additional rate taxpayers pay at a capital gains tax rate of 24%
Note: The sale of your home is not included as it qualifies for private residence relief.
Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) allows individuals to pay a reduced Capital Gains Tax rate on qualifying gains when selling all or part of their business. It applies up to a lifetime limit of £1 million in gains. This relief is intended to support small business owners when they sell or transfer their business.
The following tax rises were announced in last years budget. For assets qualifying for BADR, the rates are as follows:
- In the current tax year 2025/26 the capital gains tax rate is 14%
- From 2026/27 the capital gains tax rate will rise again to 18%
Business owners planning to retire in the next few years may choose to accelerate their retirement to take advantage of lower tax rates.
Company, Self Employment & Employment Taxes
The main company, self-employment and employment tax announcements in the Autumn Budget 2025 are below.
Corporation Tax Rates
The government has confirmed that Corporation Tax rates will remain unchanged from April 2026. Companies with profits over £250,000 will continue to be taxed at 25%, while those with profits of £50,000 or less will pay the small profits rate of 19%.
For companies with profits between £50,001 and £250,000, a marginal rate of tax will apply, resulting in a gradual increase in the effective Corporation Tax rate. Calculate your Corporation Tax liability below:
Tax Relief on the Purchase of Assets
The Annual Investment Allowance (AIA) remains available to Limited companies and unincorporated businesses. It allows 100% write off on certain assets up to £1 million per annum. It provides the tax relief in the year of purchase, rather than spreading the relief over multiple years.
Full expensing allows Limited companies to claim 100% corporation tax relief on qualifying capital expenditures, such as plant and machinery. As with AIA, the tax relief is received in the year of purchase, rather than spreading over multiple years. This is typically used by larger companies spending over the £1 million per annum.
From April 2026, the main rate for Writing Down Allowances (WDA) will be reduced from 18% to 14%. This means that the tax relief will take longer to be received. This typically applies to assets not qualifying for either AIA or Full Expensing.
From January 2026, a new first year allowance of 40% is to be introduced on qualifying capital items, with the balance entering the main rate pool for WDAs at the new 14% rate.
Full expensing, Writing Down Allowances and the new First Year Allowance will mostly affect larger companies. Most small businesses don’t exceed £1 million spending on capital assets so they will continue to claim the 100% relief via Annual Investment Allowance (AIA).
Minimum Wage from April 2026
In April 2026, the National Living Wage will rise by 4.1% to £12.71 per hour. National Minimum Wage rates will also increase, with the following hourly rates by age group:
- 21 years and over – £12.71
- 18 to 20 years of age – £10.85
- 16 to 17 years of age – £8.00
- Apprentices – £8.00
Note: There are plans to align the minimum wage for 18 to 20 year-olds with that for those over 21, so a significant increase for this age group (18 to 20) is expected again next year.
Employers National Insurance
After the significant increase in National Insurance last year, businesses will be pleased to hear that Employers National Insurance is to remain unchanged.
Employers will continue to pay National Insurance at a rate of 15% on an employees earnings exceeding £5,000.
The Employment Allowance remains at £10,500. This can be deducted from eligible businesses NI costs and results in most small businesses paying no Employers National Insurance.
N.B The lower earnings limit (LEL) will increase to £6,708 from April 2026. This is the amount that employees need to earn for it to be a qualifying year for their state pension.
National Insurance payable by Self-Employed
There are no changes to the Class 4 National Insurance rates for self-employed workers.
Class 4 National Insurance is charged at a rate of 6% on profits between £12,570 and £50,270, while profits exceeding £50,270 will continue to be taxed at a rate of 2%.
Additionally, from April 2026, those with profits under £6,845 can opt to pay voluntary Class 2 National Insurance at a rate of £3.65 per week.
Making Tax Digital for Self-Employed & Landlords
MTD for income tax is to go ahead as planned.
From April 2026 those with qualifying income over £50,000 will be required to keep digital records and file quarterly with HMRC. The threshold reduces to £30,000 from April 2027 and to £20,000 in April 2028.
The good news is that HMRC have confirmed that there will be a soft landing, such that there will be no MTD penalties issued in 2026/27.
Other Announcements
The main other announcements in the Autumn Budget 2025 are below.
Salary Sacrifice Changes
From April 2029, the National Insurance savings on salary sacrifice pension contributions are to be capped to just £2,000.
To illustrate this change please see the example below:
An employee earns £65,000 a year. They agree to sacrifice £5,000 of their salary in exchange for employer pension contributions.
In 2025/26, neither the employee nor the employer pays NI on the £5,000 sacrificed.
From 2029/30, NI will apply to £3,000 of the amount given up (the £5,000 sacrifice minus the £2,000 allowance). If NI rates stay the same, the employee will pay £60 (2%), and the employer will pay £450 (15%).
Electric Vehicle Excise Duty
A new mileage charge is to be introduced in April 2028 for electric and plug-in hybrid cars.
All electric vehicles will be charged at 3 pence per mile and plug-in hybrids will be charged at 1.5 pence per mile. Motorists will have their mileage checked on an annual basis, which is expected to be part of the MOT.
E-Invoicing to be Mandatory from April 2029
E-invoicing will be mandatory for all business to business VAT invoices.
This is not a simple PDF or an email from the bookkeeping software to the customer. It is much more complex than this.
To simplify, it relates to a specific format (XML), which means that the invoice can be read and input into the buyers system with little to no manual intervention. As everything is automatic it should speed up bookkeeping processes and eliminate the errors created through manual data entry.
Mansion Tax
From April 2028, there will be a High Value Council Tax Surcharge (HVCTS), which is better known as the ‘mansion tax’.
Alongside existing council taxes due there will be the following additional taxes based on the property value:
- Property Value Between £2.0 million and £2.5 million – £2,500 charged
- Property Value Between £2.5 million and £3.5 million – £3,500 charged
- Property Value Between £3.5 million and £5.0 million – £5,000 charged
- Property Value in excess of £5 million – £7,500 charged
The surcharge will be paid alongside existing Council Tax due.
Further Information
For further information on the topics covered see HMRC Budget 2025
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