What does the Budget mean for me?

Freeze on income tax allowances - stealth tax

The biggest takeaway from the Budget is the continued freeze on income tax allowances for a further three years to 2031, which the Chancellor believes will raise a further £23 billion over the three years. While workers have escaped any rises in income tax or National Insurance – and the Chancellor has avoided breaking manifesto pledges – this so-called ‘stealth tax’ means more people will be dragged into higher bands over time as their pay increases. The Office for Budget Responsibility predicts that personal incomes will grow by an average of just 0.25% per year across the rest of the decade, after allowing for inflation and taxes.

Salary sacrifice pension contribution cap

The £2,000 cap on salary sacrifice contributions that are exempt from employer and employee national insurance contributions may exacerbate a trend that we are already seeing among our clients following the October 2024 budget. The Chancellor’s decision then to bring pension pots into account for Inheritance Tax purposes from April 2027 has already prompted many to scale back how much they pay in and impacted how they use their pension funds, often looking to draw the 25% tax free amount to the maximum so they can to gift that away, as well as making full use of gifts out of surplus income rules to drain down the value of their pension funds. While any strategy like this needs expert financial advice as it could create an income tax charge, which for higher or additional rate tax payers could be at 40 or even 45%, the salary sacrifice change may well accelerate these trends.

Changes to savings - cash ISAs

The changes to savings – with the cash ISA element of annual allowances for under 65s reducing from £20,000 to £12,000 from 2027, with the ability to house the remaining £8,000 in a stocks and shares ISA, alongside a 2% increase in tax on savings income – may mean more cautious investors become hesitant about utilising their ISA allowances. While those aged over 65 will still be able to keep their full £20,000 ISA allowance in cash, the finance industry has expressed concern about the effect on the availability of capital for mortgage lending, as many institutions use the cash ISA element to fund their mortgage books.

Changes for landlords - increase in tax on income from property rental income

Landlords who receive rental income face a parallel increase in tax on income from property, taking the rates to 22%, 42% and 47% - 2% higher than the comparable rates for income tax. With many landlords already fleeing the rental market following the introduction of the Renters’ Rights Act, this increased tax rate is likely to lead to even more landlords divesting their portfolios.

The shortage of rental properties is therefore likely to become more exacerbated, which could lead to rents rising even higher. More houses coming onto the market could further depress house price increases; while nationally there was a 3% rise in house prices in the 12 months up to August 2025, this was down from 3.2% in the 12 months up to July 2025. Significantly, the South East had the second lowest rise (1.8%), ahead of only London, which saw average prices fall by 0.3%.

Mansion tax - council tax surcharge

While the Chancellor made no changes to the Stamp Duty Land Tax regime and did not introduce the speculated ‘seller’s tax’, the anticipated ‘mansion tax’ has been realised as a council tax surcharge on properties above £2M; between £2-2.5M there is a £2,500 surcharge rising to £7,500 for properties over £5M from April 2028 which seeks to raise about £400M per tax year.

There will clearly need to be a big revaluation exercise, and it will be interesting to see how they deal with people who are asset rich but cash poor. It could lead to disputes over property values at the margins of each band. This change is seeking to raise about £400 million per tax year, but the cost to implement such a scheme and potentially deal with any valuation disputes should be offset against this.

Agricultural relief now transferrable

From a business owner’s point of view there is good and bad news. On the plus side, the £1M relief for business owners or farmers who benefit from agricultural relief is now transferrable between spouses; this means couples should between them get 2M of relief, which – when added to the normal and residential nil-rate bands – gives them potentially £3M of total allowances.

Changes to business rates, eligibility limits for Enterprise Management Incentive schemes and apprenticeships

750,000 retail and hospitality businesses will benefit from lower business rates. There are also other schemes to provide additional support to small businesses in relation to business rates, which we know will be welcome for many of our clients.

Also welcome is the increase in thresholds for eligibility limits for Enterprise Management Incentive (EMI) schemes, which many of our clients use to incentive their key employees by way of share options.

The assistance provided for fully funding apprentices under 25 years of age will make the apprenticeship scheme more attractive to many businesses, at the same time as helping to increase career pathways for the young.

2% increase in tax on dividends

The not-such-great news for business owners will be the 2% increase in tax on dividends, so the tax rates are now 10.75% or 35.75%. This may dilute one of the incentives to becoming a business owner and further stifle entrepreneurship. The narrowing of the difference between tax rates on dividends and salary income (noting that a company would already have paid corporation tax on profits) might also lead to some number-crunching on whether businesses should be structured as LLPs, rather than companies, bearing in mind the different tax treatment of both types of entity. This might impact the total tax take the Government envisages as a result of this increase in the rate for dividends.

Increase in the minimum wage rates

The increase in the minimum wage rates was always likely, but it will mean an additional cost to many businesses, which will most likely lead to tightening of belts, increased redundancies and/or price increases to absorb the increase in wage bills. As with the increase in National Living Wage introduced earlier this year, the impact is going to be most keenly felt in those industries which rely on unskilled workers and low-wage workers, such as hospitality, retail, agriculture, manufacturing, construction and social care.

Reduction of Capital Gains Tax relief for EOTs

The reduction of Capital Gains Tax relief for sales of business to an employee ownership trust (EOT) from 100% to 50%, effective immediately, will be disappointing for many business owners who are currently considering a sale to an EOT and rows back from the recommendations to encourage employee ownership enshrined in the Nuttall review dating back to July 2012. We have acted on a number of sales to EOTs, so it will be interesting to see whether the reduction of relief has an impact on the number of such transactions.

If you have any further questions about the recent Budget please contact Elliot Lewis, Partner and head of the Private Wealth Team, Adrian Whichcord, Partner and Head of the Sevenoaks Conveyancing Team, or Nick Gabay, Partner and Head of the Corporate & Commercial Sector.