2025 UK Budget

In recognition that the existing limits in some of these schemes restrict their availability to companies in their critical scale-up phase, the Government announced a package of tax changes to support scaling companies to attract investment and talent. There is also an objective to take further steps to ensure tax support is ‘founder friendly’. A call for evidence has therefore been published seeking input from across the scale-up and investor community on the impact of existing schemes and options to provide further support to ensure the UK entrepreneurial ecosystem thrives. The VCT and EIS company investment limits will increase to £10 million (£20 million for Knowledge Intensive Companies (KICs)) and the lifetime company investment limit will increase to £24 million (£40 million for KICs). From April 2026, the gross assets test will increase to £30 million before share issue, and £35 million after. However, the rate of VCT income tax relief will decrease from 30 percent to 20 percent. No changes were announced to the Seed Enterprise Investment Scheme.

A soft landing for Making Tax Digital (MTD) for income tax, no changes to corporation tax rates, e-invoicing from 2029, more timely payments of VAT and PAYE, and frozen employer NICs thresholds were the main features with some minor changes to capital allowances and a new consultation on entrepreneurship. More details on these and other relevant changes is set out below. Making Tax Digital (MTD) for income tax As lobbied for by the Institute, the Government announced a soft landing for MTD for income tax. Late submission penalties for quarterly updates will not apply during the 2026/27 tax year. However, from 6 April 2027 the new penalty regime will apply for late submission and late payments for all taxpayers. The penalties due for late payment of income tax self-assessment and VAT will also increase from April 2027. More details on these announcements were provided in a subsequent email received from HMRC. It was also confirmed that HMRC will update its guidance to clarify that childminders within qualifying sole trade income above the mandation threshold must follow the MTD rules. For other childminders, HMRC will clarify how existing arrangements apply to those working from non-domestic premises. In addition, taxpayers who have a power of attorney and those under a deputyship (as appointed by the Court of Protection) are now permanently exempt from MTD. The MTD start date has also been deferred to 6 April 2027 for some others (recipients of trust and estates income, individuals who use averaging adjustments, those eligible for qualifying care relief and non-UK resident foreign entertainers or sportspeople). E-invoicing from 2029 From April 2029, all VAT invoices will need to be issued in a specified electronic format. The Government will work with stakeholders to develop an implementation roadmap to be published at Budget 2026. The decision to mandate from April 2029 follows the announcement on e-invoicing in Ireland’s most recent Budget subsequent to which the Revenue Commissioners published “Implementation of eInvoicing in Ireland”. Employers The £5,000 per-employee secondary NICs threshold for employers is frozen until 5 April 2031 after dropping from £9,100 from 6 April 2025. As the NICs upper earnings limit and upper profits limits will both remain at £50,270 until April 2031, the other employer NICs reliefs thresholds are also frozen to that date. The employer NICs relief for employers hiring veterans in their first civilian role is being extended to April 2028, from which point support for veterans into employment will be covered through spending review settlements rather than through this tax relief. And finally, the income tax and NICs exemption for employer-provided benefits is to be extended to cover reimbursements for eye tests, home working equipment, and flu vaccinations. This will take effect from 6 April 2026. VAT and PAYE liabilities A consultation will be published in early 2026 to consider ways that VAT and PAYE liabilities can be paid promptly without the taxpayer falling behind on payments, including requiring more tax payments by direct debit. Capital allowances From April 2026 (1 April for companies and 6 April for unincorporated businesses), the rate of writing down allowances in the main pool will be reduced from 18 percent to 14 percent. However, from 1 January 2026 a new first-year allowance (FYA) of 40 percent will be available for main‑rate assets. Cars, second-hand assets and assets for leasing overseas will not be eligible. The benefit this new FYA remains to be seen given that 100 relief is already available for all main pool expenditure via the £1 million annual investment allowance limit with companies also having unlimited 100 percent relief for new main pool expenditure under full expensing. Capital Gains Tax (CGT) anti-avoidance: share exchanges and reorganisations The anti-avoidance provisions that apply to share exchanges and company reorganisations were amended from 26 November 2025 to ensure ‘that they apply to those persons who have entered into arrangements where the main purpose, or one of the main purposes, of the arrangement is to secure a tax advantage that they would not ordinarily have been entitled to’. CGT: non-resident capital gains for UK land and property This legislation was amended from 26 November 2025 to close what the Government refers to as loopholes for protected cell companies. Further administrative reforms are expected from 6 April 2026. Stamp duty reserve tax new UK listing relief A new UK listing relief, a three-year exemption from stamp duty reserve tax (SDRT) for companies listing in the UK has been introduced. The measure provides for an exemption from the 0.5 percent SDRT charge on agreements to transfer securities of a company whose shares are newly listed on a UK regulated market. The exemption applies from the listing of the company’s shares. Once in the post-listing period the exemption will apply to all of the company’s securities (not just shares). The new relief took effect for agreements to transfer made on or after 27 November 2025 and applies if the shares of the relevant company are newly listed on or after that date. Customs system reporting and low value imports Reforms are expected to be made to simplify reporting requirements and improve HMRC services. Further reforms to streamline processes and improve the taxpayer experience are expected to be announced in Spring 2026. The customs duty relief for low value imports (£135 or less) is being removed from March 2029 at the latest. How these goods are declared into the UK is also being changed from the same date meaning new import arrangements will apply. The Government will consult on the technical detail of these new arrangements and is stressing that it is not alone in taking this approach to low value imports, with its international partners, taking similar steps, including the US and the EU. Corporation tax The new service to provide major investment projects with advance tax certainty which was committed to in the Corporate Tax Roadmap published in October 2024 will be launched in July 2026. The penalties for taxpayers submitting a corporation tax return late will be doubled from 1 April 2026 and £59 million is also to be invested in new technology over the next five years to provide taxpayers with real-time digital prompts for VAT filing software from April 2027, and Corporation Tax filing software from April 2028. The Government will also consult in early 2026 on delivery timescales and enforcement for prescribing the content and tagging of the corporation tax computation. A consultation will also be published in early 2026 to explore introducing new requirements to report transactions between close companies and their shareholders to HMRC. The Government will also pilot a targeted R&D tax relief advance assurance service from Spring 2026 to enable small and medium-sized enterprises to gain clarity on key aspects of their R&D tax relief claims before submission to HMRC. A summary of responses to the advance clearance consultation was also published. The following was also announced: The shadow advanced corporation tax rules will be repealed from 1 April 2026, The Government will legislate in Finance Bill 2025/26 to simplify administration in relation to reporting companies under the corporate interest restriction with most of the changes expected to take effect for periods ending on or after 31 March 2026, Finance Bill 2025/26 will contain legislation setting out the treatment for corporation tax purposes of intra-group payments made in return for surrendered various tax credits for research and development, audio-visual expenditure, and video games expenditure. This is effective for payments made on or after 26 November 2025, For Pillar Two, technical amendments to the multinational top-up tax and the domestic top-up tax will feature in Finance Bill 2025/26 to incorporate the latest published international updates and stakeholder feedback, Legislation in the Bill will provide for the payment of interest on amounts collected from taxpayers and now repayable following a successful challenge of a European Commission Decision on controlled foreign companies and the reversal of State aid recovery, and The Government will also work with industry stakeholders over the coming months to explore targeted legislative changes aimed at ensuring that the qualifying asset holding companies regime continues to operate effectively. Any legislative changes will be introduced in a future Finance Bill. Transfer pricing, permanent establishment and the diverted profits tax In-scope multinationals will be required to submit an international controlled transaction schedule which will report information annually on cross-border related party transactions. This measure is expected to take effect for accounting periods beginning on or after 1 January 2027. Technical consultation on its design will take place in Spring 2026. Finance Bill 2025-26 will also include legislation to simplify the taxation of related party transactions, non-resident companies trading in the UK, and profits diverted from the UK, for chargeable periods beginning on or after 1 January 2026.

Frozen thresholds, increased rates of income tax for property, savings, and dividend income, earlier self-assessment payments, reduced cash ISA thresholds, and national insurance contributions (NICs) for pensions salary sacrifice were the main announcements last week. More details on these and other relevant changes is set out below. Tax thresholds The continued freeze on various personal tax thresholds was confirmed. The income tax thresholds and the equivalent NICs thresholds for employees and self-employed individuals will stay at their current levels for a further three years until 5 April 2031. The inheritance tax (IHT) nil rate bands are also frozen for a further year to the same date. As a result, the £12,570 personal allowance which applies UK wide will remain at this level until April 2031. The additional rate threshold (which is also the threshold at which the higher rate band ends) will remain at £125,140 until the same date. The higher rate threshold for non-savings, dividend, and property income applies to taxpayers in England, Wales and Northern Ireland, and for savings and dividend income it applies UK wide. On the IHT front, the £325,000 nil rate band and £175,000 residence nil rate band are already fixed until April 2030 and will now remain frozen until April 2031. It was also announced that the combined (and now transferable) allowance for the 100 percent rate of agricultural property relief and business property relief will also be fixed at £1 million until April 2031. The NICs primary threshold and lower profits limit will stay at £12,570 from April 2028 until April 2031. The NICs upper earnings limit and upper profits limit will also be maintained at £50,270 from April 2028 to April 2031. The lower earnings limit and the small profits threshold will increase from 2026/27 to £6,708 and £7,105 respectively. For those paying voluntarily, Class 2 and Class 3 NICs will increase to £3.65 per week and £18.40 per week respectively from 2026/27. From 6 April 2026, access to paying voluntary Class 2 NICs will be removed for those who are abroad and ‘the initial residency or the contributions requirement to pay voluntary NICs outside of the UK will increase to 10 years’. A wider review of voluntary NICs via a call for evidence will be launched in early 2026. Ordering of reliefs and allowances The Budget Red Book also confirmed that the income tax rules will be changed so that reliefs and allowances deductible at steps 2 and 3 of the income tax calculation will only be applied to property, savings and dividend income after they have been applied to other sources of income. This will take effect from 6 April 2027 and is linked to the increased rates of income tax applicable to these types of income. NICs on salary sacrifice pension contributions For pension contributions above £2,000 per annum made via salary sacrifice, employer and employee NICs will both be payable from 6 April 2029. More details on this are available in guidance published by HM Treasury. This is another change which will disincentivise saving for retirement and reduce the attractiveness of employer contributions. Property, savings, and dividend income From 6 April 2026, the basic rate of tax for dividend income will increase from 8.75 percent to 10.75 percent, and the higher rate will increase from 33.75 percent to 35.75 percent. There will be no change to the dividend additional rate which will remain at 39.35 percent and the dividend tax credit for non-UK residents will be abolished from 6 April 2026. For both property income and savings income, a 2 percent increase to all rate bands will take effect from 6 April 2027.The property basic rate will be 22 percent, the higher rate will be 42 percent, and the additional rate will be 47 percent. The tax rates on savings income will also increase to these rates from 6 April 2027. The starting rate for savings will remain at its £5,000 threshold in 2026/27 until 5 April 2031. These increases are likely to act as a disincentive to investment, and for property income will most likely be passed on by landlords to their tenants via higher rents. It was also confirmed that the changes to property income rates will apply in England, Wales and Northern Ireland. The Government therefore will engage with the devolved Governments of Scotland and Wales to provide them with the ability to set property income tax rates in line with the current income tax powers in each of their fiscal frameworks. Earlier self-assessment payments From April 2029, self-assessment (SA) taxpayers with PAYE income will be required to pay more of their SA liability in-year via PAYE. The Government will publish a consultation in early 2026 on delivering this change, and also on ‘timelier tax payment’ for those with only SA income. This change comes as a surprise given discussions in the last few years in the context of Making Tax Digital that the Government was not seeking to target earlier payments of SA tax. Individual savings accounts (ISAs) From 6 April 2027 the annual ISA cash limit will be reduced from £20,000 to £12,000. Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2031. Savers over the age of 65 will continue to be able to save up to £20,000 in a cash ISA each year. Image rights payments From 6 April 2027 all image rights payments related to an employment will be treated as taxable employment income and subject to income tax, and employer and employee NICs, a move which is viewed as targeting the UK’s sporting sector. Capital gains tax (CGT): incorporation relief claims process and employee ownership trusts From 6 April 2026 Section 162 TCGA 1992 incorporation relief for capital gains tax (CGT) which is available for transfers of a business to a company will no longer apply automatically where its conditions are met, therefore a new claims process will be introduced for this relief. From 26 November 2025 the CGT relief available on qualifying disposals to Employee Ownership Trusts was reduced from 100 percent of the gain to 50 percent. Miscellaneous increased thresholds The married couples allowance, blind persons allowance and qualifying care relief (the amount of income tax relief available to foster carers and shared lives carers) will all increase by 3.8 percent from 6 April 2026. Loan charge review outcome and new settlement opportunity In response to Ray McCann’s independent review of the loan charge and the Government’s subsequent response to this, both of which were published alongside the Budget, the Government published details in a policy paper of a new settlement opportunity to bring this issue to a close for taxpayers. Employment expenses for homeworking and cancelled shifts Income tax relief for non-reimbursed home working expenses will be removed for employees from 6 April 2026. However, employers will still be able to reimburse employees for these costs, where eligible, without having to deduct PAYE. Legislation will also be introduced to ensure that payments introduced by Section 27BP of the Employment Rights Act 1996 for shifts cancelled, moved, or curtailed at short notice will be treated as earnings from 6 April 2026. IHT: treatment of unused pension funds/death benefits and anti-avoidance As announced at Autumn Budget 2024, the Government will bring most unused pension funds and death benefits into the scope of UK IHT from 6 April 2027. However, personal representatives will be able to direct pension scheme administrators to withhold 50 percent of taxable benefits for up to 15 months and pay the IHT due in certain circumstances. After they have received clearance from HMRC, personal representatives will also be discharged from the liability to pay IHT on pensions discovered. According to the Budget Red book, the Government will legislate to prevent IHT avoidance through certain loopholes, ‘including ensuring UK agricultural property held via non-UK entities is treated as UK-situated addressing changes in status of trust assets before and exit charge, and restricting charity exemptions to direct gifts to UK charities and clubs’. These changes, which are yet to be legislated for, took effect for trust exit charges from 26 November 2025, for gifts to charities in lifetime from 26 November 2025 or on a death from 6 April 2026, and for UK agricultural property from 6 April 2026. A cap of £5 million will also be introduced on relevant property trust charges for pre 30 October 2024 excluded property trusts. This change applies retrospectively to trust charges from 6 April 2025. Residence-based tax regime The Government also says that it will publish legislation to make minor corrections to the residence-based tax regime which took effect from 6 April 2025 for income tax, CGT and IHT. Temporary non-residence anti-avoidance Legislation will apply from 6 April 2026 to remove the post departure trade profits provisions from this legislation which will mean that all dividends received during a period of temporary non-residence will be chargeable to UK tax. Overseas workday relief The proportion of earnings an employer can exclude from PAYE through a PAYE notification will be limited to a maximum 30 percent if the individual is a qualifying new resident and eligible for overseas workday relief. This will take effect from 6 April 2026. Defined benefit (DB) pension scheme surplus payments From April 2027 the government will enable ‘well-funded’ DB pension schemes to pay surplus funds directly to scheme members over the normal minimum pension age, where scheme rules and trustees permit it.