Related Articles
The Autumn Budget 2025: key changes affecting individuals and trusts
Since the Autumn 2025 Budget date was announced scarcely a day has gone by without a government ‘source’ announcing what measures might be included followed by feverish speculation on what would or would not be contained in the Chancellor’s second Budget on 26 November 2025.
Although only three months ago it has felt like a long wait, and now we know what changes to expect over the coming years.
In this briefing note we look at the key changes affecting individuals and trusts.
INCOME TAX
The main rates of income tax are unchanged, and allowance thresholds will be frozen for a further three years until April 2031.
However, new rates of tax are being introduced for certain types of investment income. The way in which income tax reliefs and allowances are applied in the tax calculation will be changed so that they will be applied first to other sources of income (eg employment income) before any balance is applied to property, savings and dividend income. This effectively means that such income will be taxed as the top slice with higher rates payable as a result. This will take effect from 6 April 2027.
New tax rates for unearned income
Income tax rates on dividend, savings and property income are set to rise. This is to address perceived unfairness whereby those in receipt of such income pay less tax than those whose income comes from employment or self-employment as National Insurance Contributions (NICs) are not paid on those income sources.
Tax on dividend income will increase as follows:
+ the ordinary rate from 8.75% to 10.75%
+ the upper rate from 33.75% to 35.75%
These changes will take effect from April 2026. The additional rate will remain unchanged at 39.35%.
Tax on savings income will increase as follows:
+ the basic rate from 20% to 22%
+ the higher rate from 40% to 42%
+ the additional rate from 45% to 47%
These changes will take effect from April 2027.
Income tax is already charged on property income however, separate tax rates will also now be created for property income as follows:
+ the property basic rate will be 22%
+ the property higher rate will be 42%
+ the property additional rate will be 47%.
+ finance cost relief will be provided at the separate property basic rate (22%)
These changes will also take effect from April 2027.
ISA Reform
Individual Savings Accounts (ISAs) allow individuals to save up to £20,000 annually in a cash or stocks and shares ISA (or a mixture of both). The income and gains are exempt from income and capital gains tax.
From 6 April 2027 the annual ISA cash limit will be set at £12,000, within the overall annual ISA limit of £20,000. Annual subscription limits will remain at £20,000 but the remaining £8,000 must be invested in stocks and shares.
However, 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
Legislation will be introduced to clarify the tax treatment of image rights to ensure that all image rights payments related to an employment are treated as taxable employment income and subject to income tax, and employer and employee NICs. This will take effect from 6 April 2027.
CAPITAL GAINS TAX
The rates of capital gains tax (CGT) are unchanged, and the annual personal allowance remains frozen at £3,000.
Non-resident CGT and Protected Cell Companies
Non-UK residents do not pay CGT on the disposal of UK situs property. However, since 6 April 2019, all disposals of UK land (residential, commercial or agricultural property) by non-UK residents are subject to CGT and the scope of the charge is further widened to include indirect disposals of substantial property-rich interests in UK land.
Protected Cell Companies (PCCs) are a type of company made up of a number of separate cells where the assets and liabilities of one cell are segregated and protected from those of the other cells. The property richness test will be changed so that in the case of PCCs it is each individual PCC cell that is to be looked at for property richness purposes, rather than the PCC as a whole.
This change will apply to disposals made by PCCs on or after 26 November 2025.
Employee Ownership Trusts
Relief at 100% is available on qualifying disposals to Employee Ownership Trusts (EOTs) which allows business owners to sell their shares without paying any CGT.
The cost of this relief has increased significantly in recent years. Whilst wanting to retain a strong incentive for employee ownership the government wants to address the increasing cost to the Exchequer of this relief and ensure that business owners pay their “fair share” of tax. The relief available on these disposals will therefore reduce from 100% of the gain to 50% for disposals taking place on or after 26 November 2025.
INHERITANCE TAX
The inheritance tax (IHT) rate is unchanged, and the £325,000 nil rate band will be frozen for a further year to April 2031.
Excluded Property Trusts
IHT is charged on the ten-year anniversary of a relevant property trust at a maximum rate of 6% and at a proportion of that rate for exits from the trust in between the ten-year anniversaries.
One piece of good news is that the government will introduce a cap of £5 million on relevant property trust charges for pre-30 October 2024 excluded property trusts. The cap will refresh at the next ten-year charge. For the first period from April 2025 until the next ten-year charge the cap will be set at £125,000 per complete quarter. This will be legislated for in the next Finance Bill but will apply to trust charges from 6 April 2025.
So, if a pre-30 October 2024 excluded property trust which meets the relevant criteria for the grandfathering provisions to apply is worth just over £83.3 million at the time of a ten-year charge and the maximum 6% rate applied tax of £5 million would be due. Trusts with a value in excess of that could benefit from the cap.
Exit charges on settlor ceasing to be long-term resident
From 6 April 2025, where a settlor ceases to satisfy the new long-term residence test, non-UK relevant property will become excluded property and this will result in an exit charge for the trust.
No relevant changes were made to an existing provision in the IHT legislation which left open the technical possibility of mitigating this exit charge by converting trust property into UK-situs assets immediately prior to the exit, albeit there would be many practical issues to be considered before going down this route. The government is now introducing legislation which removes this opportunity and will take effect for trust exit charges from 26 November 2025.
IHT extended to include indirectly held agricultural property
Under the IHT anti-enveloping legislation, introduced in 2017, excluded property status was removed from certain non-UK assets whose value is related to UK residential property. Shares in close companies owning UK residential property and certain loans to fund the purchase of UK residential property are no longer excluded property.
This is to be extended to include agricultural property. The changes take effect from 6 April 2026.
APR and BPR reforms
In another piece of good news, the new £1 million allowance announced at last year’s Budget for agricultural and business assets being relieved at 100% will now be transferable to a surviving spouse/civil partner in the same way as the IHT nil rate band currently operates.
Representations had been made by interested bodies over the past year, and the government had initially resisted calls to make the allowance transferable between spouses/civil partners.
PENSIONS
Pensions and Salary Sacrifice
Many workplace pension schemes operate by way of salary sacrifice, whereby the employee agrees to reduce their gross salary or sacrifice a bonus and, in return, their employer pays the same amount into the employee’s pension scheme.
This results in NIC savings for both the employee and also for the employer. Some employers pass the employer NIC savings on, in whole or in part, to the employee by way of additional contribution to the pension scheme.
From April 2029 however, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs.
Contributions through salary sacrifice, like all pension contributions, will still be exempt from income tax and the right to tax-free cash at retirement remains in place (both subject to the usual limits). There was concern pre-Budget that these limits might be greatly reduced.
COUNCIL TAX
High Value Council Tax Surcharge
One of the many possible tax changes circulating pre-Budget was the prospect of a ‘Mansion Tax’. It was announced that this will take the form of a slightly more sombre named ‘High Value Council Tax Surcharge’ (HVCTS).
The HVCTS is a new charge on owners of residential property in England worth £2 million or more in 2026 and will take effect in April 2028. A public consultation on details relating to the surcharge will be held in early 2026.
Homeowners will be liable to the surcharge. Where the property is owner-occupied the homeowner will continue to pay their existing Council Tax alongside the surcharge. Where property is tenanted we would expect tenants will continue to pay the Council Tax but homeowners will pay the surcharge.
The surcharge is aimed at implementing a significant reform to improve fairness within England’s property tax system. The policy document cites the example that under the current system, the average band D charge for a typical family home across England is £2,280. That is £250 more per year than would currently be paid for a £10 million property in Mayfair, based on the band H charge in the City of Westminster.
The rates are set out below. The maximum amount payable will be £7,500 on properties worth more than £5 million.
|
Threshold
|
Rate |
|
£2 million to £2.5 million |
£2,500 |
|
£2.5 million to £3.5 million |
£3,500 |
|
£3.5 million to £5 million |
£5,000 |
|
£5 million + |
£7,500 |
The charges will increase in line with CPI inflation each year from 2029/30 onwards.
The government will ensure that there is a support scheme in place for those who may struggle to pay the charge perhaps allowing for deferral. This will be a key area of consultation due to take place in the New Year in which the government will also consult on a full set of reliefs and exemptions, as well as proposed rules for more complex ownership structures including companies, funds, trusts and partnerships.
INTERNATIONAL
Technical amendments to residence-based tax regime
The legislation introducing the new residence-based tax regime from 6 April 2025 is complex and various anomalies and inadvertent drafting issues were noted by the professional bodies. In the Budget publications it was confirmed that legislation would be introduced to make minor corrections to the residence-based tax regime.
The majority of these changes will take effect from 6 April 2025 but some changes will take effect from the date of announcement, date of Royal Assent of the next Finance Act and 6 April 2026 as relevant.
Temporary Non-Residence Rules: Post departure trade profits
Special rules apply to someone who has been UK resident for tax purpose who then becomes non-UK resident for five years or less before returning to the UK. On return, the temporary non-residence rules apply so that certain capital gains and income arising while the individual was non-UK resident will become subject to tax and need to be reported in the tax year in which they become UK tax resident again.
There is currently no charge to tax on distributions made from profits that accrue to a company after the individual has left the UK (post departure trade profits). The extent to which a dividend or distribution is related to post departure trade profits is determined on a just and reasonable basis.
Legislation will be introduced to take effect from 6 April 2026 to remove the post departure trade profits provisions so that all dividends received during a period of temporary non-residence are chargeable to UK tax.
Enhancing tax transparency on real estate
It was announced that the UK intends to participate in a new international agreement which will tackle tax evasion by providing for the automatic exchange of readily available information on real estate from 2029 or 2030.
