After a long and unconventional pre-Budget lead up, featuring an unusual press conference, u-turns, and an unprecedented leak by the OBR before the Chancellor had a chance to deliver her speech, Budget 2025 has finally landed. Our experts outline the key tax measures affecting our clients and their businesses.
Introduction
This much anticipated Budget was not exactly ‘light’ on tax announcements but will be remembered as much for the anticipated tax changes that were not addressed as for those that were. The climb down from increasing the rates of income tax to keep manifesto promises triggered a need to search for many smaller revenue raising measures in an effort to balance the books. It remains to be seen whether the combination of fiscal drag and frozen income tax thresholds and ‘tinkering around the edges’ of other tax rules will generate the returns the Chancellor requires to meet her fiscal rules and spending promises. There is a sense that ‘this wasn’t quite as bad as we were expecting’ (there are a sprinkling of good tax news stories below). Perhaps that was the game plan all along?
Corporate tax
The Government confirmed the headline rate of corporation tax will remain at 25%, sticking to the commitment in its 2024 Corporate Tax Roadmap. Raising revenue ('fairly’) was obviously on the agenda though, achieved in part via the combined changes to the capital allowances regimes. While a new 40% first year allowance (FYA) for certain main rate assets from 1 January 2026 was introduced, so was a reduction in the main rate of writing down allowances from 18% to 14% from 1 April 2026. The Government estimates the combined effect will be an increased tax take of around £35m in the 2025/26 tax year alone, jumping to £1,035m the following tax year, suggesting the benefit of the new FYA may not be material in practice.
Research & Development
Widening the use of advance clearances for R&D reliefs has been a priority of this Government, featuring in the 2024 Corporation Tax Roadmap and the subject of a consultation earlier this year. The Budget confirmed that, in the name of ‘tax administration and simplification’, the Government will pilot an advance assurance service from Spring 2026, enabling small and medium-sized enterprises to gain clarity on their R&D tax relief claims before submitting to HMRC. The Government will also legislate for the corporation tax treatment of intra-group payments made in return for surrendered RDEC amounts (as well as for Audio-Visual Expenditure Credits and Video Games Expenditure Credits).
Late CT filing penalties
The Government confirmed that corporation tax late filing penalties will (broadly) double from 1 April 2026.
Tax measures for Growth Companies
Enterprise Management Incentive (EMI) regime
Companies looking to incentivise employees with share options will be pleased with the Budget EMI announcements. The EMI regime takes the gain on qualifying share option awards outside of income tax and National Insurance and into the capital gains tax regime. At present, companies with more than 250 full time employees or more than £30m gross assets outgrow these schemes and cease to qualify. With effect from April 2026, these limits will increase to 500 employees and £120m gross assets - significant changes that will bring many more companies within scope. The maximum aggregate value of EMI options that can be granted by a company will also increase from £3m to £6m and the maximum holding period for an EMI option will increase from 10 to 15 years. We expect these changes to be particularly attractive to life sciences companies who typically need significant funding and a longer timeline to exit.
Not all employee share ownership related announcements were positive: capital gains tax relief on qualifying disposals to Employee Ownership Trusts (EOTs) was slashed from 100% to 50%. This was cited as an example of ‘raising revenue fairly’ and justified on the basis of the spiralling costs of this relief as compared to original forecasts.
VCT and EIS changes
The Budget was a mixed bag for investors in growth companies. In positive news for companies seeking funding from Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) investors, the annual and lifetime limits on the amount of funding that can be raised from these sources will materially increase from April 2026. The company annual investment limit will double to £10m (£20m for Knowledge Intensive Companies - KICs) and the lifetime investment limit will increase from £12m to £24m (from £20m to £40m for KICs).
Alongside this, the maximum amount of gross assets that a company must have to qualify for EIS and VCT funding will increase from £15m to £30m before share issue, and from £16m to £35m after share issue, significantly increasing the number of companies who can access this form of investment.
In less welcome news, the amount of income tax relief available to VCT investors will reduce from 30% to 20%. The last time a cut to relief was made, the level of VCT investment dropped markedly: time will tell how investors will respond.
Call for evidence
The Budget recognised the importance of ensuring that the UK is the most attractive place for founders to start and grow their businesses. To inform future policy decisions and in an effort to develop a so-called ‘incubator economy’, a call for evidence has been launched until February 2026 to better understand the effectiveness, targeting and impact of tax incentives for encouraging investment in growth companies.
Enhancing the UK Listed Securities Markets
In line with pre-Budget rumours, Rachel Reeves announced a new “UK Listing Relief” from Stamp Duty Reserve Tax (SDRT). Effective from 27 November 2025, the relief is intended to incentivise greater investment in companies listing in the UK by offering a three-year year exemption from SDRT for transfers of a newly listed company's securities.
Although the annual cash ISA limit will drop from £20,000 to £12,000 for those under 65 from 6 April 2027, the general ISA limit remains unchanged. The remaining £8,000 will be ringfenced for stocks and shares in a bid to encourage more investment in listed securities.
Personal & employment tax
Income tax thresholds
The Chancellor extended the freeze on both income tax and national insurance contributions (NICs) thresholds (which had previously been extended to April 2028), further until the 2030-2031 tax year. This will result in a real-terms reduction in tax thresholds, as more individual taxpayers fall into the higher and additional rate bands. It is, however, questionable how far measures extending beyond the current Parliament can be viewed as guaranteed revenue raisers.
Taxation of dividends, savings and real estate income
The rates at which each of dividends, savings interest and property income are taxed is to be increased by 2%.
For dividends, the ordinary rate will increase to 10.75% and the upper rate to 35.75% from April 2026 (the additional rate will remain unchanged at 39.35%).
The basic rate of tax on savings income will rise to 22%, the higher rate to 42% and the additional rate to 47%, with effect from April 2027. New tax rates will be created for property income in line with the savings income rates and will take effect from April 2027.
Pension NICs
From April 2029, employee pension contributions via salary sacrifice in excess of £2,000 each year will be subject to both employee and employer NICs.
Real estate tax
From April 2028, owners of properties worth over £2m will pay the “High Value Council Tax Surcharge” in addition to existing Council Tax. The new charge starts at £2,500 per year and rises to £7,500 per year for properties valued over £5m.
The Budget confirmed that business rates will rise in England from 1 April 2026. The Chancellor promised the introduction of permanently lower rates for retail, hospitality and leisure properties.
The Budget also referenced:
an intention to bolster HMRC’s powers to tackle fraud within the Construction Industry Scheme and outlined future plans to simplify and improve the scheme’s administration; and
the UK’s intention to participate in a new international agreement tackling tax evasion involving real estate. This will provide for the automatic exchange of information between participating jurisdictions.
Other notable announcements
Delivering on a requirement when the Digital Services Tax (DST) (a 2% tax on certain digital revenue streams) was introduced in 2020, the Government reported on its performance and administration. It remains the UK’s position to remove the DST once an appropriate global solution is in place to address the tax challenges posed by the digitalisation of the economy. Despite the report’s optimism, a full global solution feels distant given the current status of the OECD’s ‘Pillar 1’ reform.
The Government launched its consultation on a proposed excise duty on electric vehicles which comes into effect from 1 April 2028. It is estimated that the average electric vehicle driver will pay ~£240 per year or £20 per month once the excise duty is implemented.
The Government announced an expansion of the Soft Drinks Industry Levy to cover pre-packaged milk-based and milk-alternative drinks with added sugar, such as flavoured milks and ready-to-drink coffees. The new rules lower the sugar threshold meaning more drinks will fall within the levy.
The Government overhauled the gambling duties regime, increasing the Remote Gaming Duty rate from 21% to 40%, effective from 1 April 2026. Additionally, a new 25% rate for remote betting will be introduced from April 2027, up from the current 15%.
If you would like further information in relation to any of these measures, please contact a member of our tax team.
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