Autumn Budget 2025: What UK Taxpayers Need to Know
What is the Autumn Budget 2025?
The Autumn Budget 2025 is the UK government’s financial plan for tax, spending, and economic priorities for the years ahead. This year’s budget, delivered by Chancellor Rachel Reeves, focuses heavily on:
- Raising revenue through tax reforms
- Reshaping savings incentives
- Reforming pension and property taxation
- Preparing the country for long-term fiscal stability
HMRC will issue further detailed guidance throughout 2026–2029 as measures roll out.
This guide summarises what was announced and how it impacts taxpayers, landlords, investors, SMEs and pension savers.
1. Increase in National Minimum Wage
The government has also confirmed increases to the National Living Wage and National Minimum Wage from April 2026, with all age groups receiving above-inflation uplifts.
| Category | Current Rate (25/26) | New Rate (26/27) | Increase |
| National Living Wage (21+) | £12.21 | £12.71 | +4.1% |
| 18-20 Year Olds | £10.00 | £10.85 | +8.5% |
| 16-17 Year Olds | £7.55 | £8.00 | +6.0% |
| Apprentices | £7.55 | £8.00 | +6.0% |
2. Income Tax on Rental Income Increases by 2%
What changed?
From the tax year 2026/27, the government will increase income tax rates on rental income by 2 percentage points across all bands:
| Tax Band | Previous Rate | New Rate on Rental Income |
| Basic Rate | 20% | 22% |
| Higher Rate | 40% | 42% |
| Additional Rate | 45% | 47% |
Why does this matter?
HMRC expects higher revenues from landlords as part of broader property taxation reform. For many landlords, this will reduce net rental yields—especially when combined with frozen income tax thresholds.
Example
A higher-rate landlord earning £20,000 taxable rental profit would pay:
- Before: £8,000 tax
- Now: £8,400 tax
- £400 more per year
How landlords should prepare
- Consider property incorporation strategies
- Evaluate mortgage interest impacts
- Review rental pricing
- Use software to track property income and expenses accurately on real time
a4c can help landlords model future tax liabilities and plan accordingly.
3. ISA Reform: Allowance Split Between Cash and Investment
What changed?
The Chancellor confirmed the ISA allowance remains £20,000, but from April 2027:
- £8,000 must be placed in stocks & shares ISA
- The remaining £12,000 can go into either cash or investments
- Over-65s can still use the full £20,000 for cash ISAs
Why is this happening?
Chancellor is encouraging more UK households to invest in the stock market, citing low retail investment levels compared with other G7 nations.
What this means for savers
- Cash-heavy savers must allocate part of their ISA into investments
- Investment beginners may need professional advice
- Pensioners retain flexibility
Example
A saver aged 45 placing £20,000 into an ISA in 2027:
- Up to £12,000 → cash
- At least £8,000 → stocks & shares
Savers must ensure their investment choices meet their risk tolerance.
4. Salary Sacrifice for Pensions Capped at £2,000
What changed?
From April 2029, the government will introduce a £2,000 cap on the amount of salary that can be exchanged for pension contributions while still benefiting from National Insurance savings.
Why does this matter?
Salary sacrifice is widely used by employees to maximise tax-efficient pension saving. This cap significantly reduces the benefit for higher earners and those making large contributions.
Example
Previously:
An employee could sacrifice £10,000, saving up to £1,380 in NICs.
From 2029:
NIC-efficient sacrifice is limited to £2,000, reducing savings sharply.
Who is affected?
- Higher-rate employees
- Employers offering pension-boost schemes such as this
Limited company Directors paying pensions directly at source as “Employer Contributions”, we are yet to get more details on this from the Treasury.
a4c can help SMEs redesign remuneration policies ahead of the change.
5. Income Tax Threshold Freeze Extended to 2031
What changed?
Income tax thresholds, already frozen until 2028, will now remain frozen for three additional years, until April 2031.
This means:
- Personal Allowance stays at £12,570
- Higher rate threshold stays at £50,270
What does this mean for taxpayers?
This freeze leads to fiscal drag—as wages rise, more people move into higher tax brackets.
The OBR estimates the freeze will be created by 2029/30:
- 780,000 new basic-rate taxpayers
- 920,000 new higher-rate taxpayers
- 4,000 new additional-rate taxpayers
Impact
- Effective tax bills rise even without rate changes
- Employees should review salary expectations
- LLP members and directors should revisit tax planning strategies
6. “Mansion Tax” – High-Value Council Tax Surcharge
What is it?
A new High-Value Council Tax Surcharge begins in 2028 for England.
| Property Value | Annual Surcharge |
| £2m+ | £2,500 |
| £5m+ | £7,500 |
How it works
This charge is collected alongside council tax and applies per property, not per owner.
Who pays it?
- Owners of high-value homes
- Some buy-to-let landlords
- Overseas owners of UK property
Estate planning and property ownership structures may need reviewing.
7. Class 2 National Insurance Abolished for People Living Abroad
What changed?
Individuals living abroad will no longer be eligible to pay Class 2 NI.
Why does this matter?
Class 2 NI has been a low-cost way for expats to build entitlement to the UK State Pension.
Without Class 2:
- Expats may need to use Class 3 contributions instead
- Class 3 is significantly more expensive
This affects long-term retirement planning for UK nationals overseas.
8. New Pay-Per-Mile Road Tax for Electric Vehicles
What changed?
Electric vehicles will be subject to a new road duty from 2026:
- 3p per mile for EVs
- 1.5p per mile for plug-in hybrids
Why?
With falling fuel duty revenue, HMRC is transitioning to mileage-based taxation.
Practical impact
Someone driving 8,000 miles a year in an EV pays:
- 8,000 × 3p = £240 per year
Drivers will need to submit mileage or use connected vehicle data.
9. State Pension Increases by 4.8%
From April 2026, the State Pension increases by 4.8% under the triple lock:
| Pension Type | 2025/26 | 2026/27 | Annual Increase |
| New State Pension | £230.25/week | £241.30/week | +£550 |
| Basic State Pension | £176.45/week | £184.91/week | +£440 |
Payments start from the first payday after 6 April 2026.
10. CGT Relief on Employee Ownership Trust (EOT) Sales Cut to 50%
What changed?
Capital Gains Tax relief for business sales to Employee Ownership Trusts drops from 100% to 50%.
Why does this matter?
The previous 100% relief made EOT sales extremely attractive. The new rate still provides incentives but reduces the tax advantage.
Who is affected?
- Owner Managed Businesses planning succession
- SME owners nearing retirement
- Employees expecting EOT benefits
Example
A business founder selling shares worth £3m to it’s employees previously paid £0 CGT, Under new rules, 50% of the gain may be subject to CGT.
Planning early will be essential.
11. £150 Reduction in Energy Bills
Energy bills will fall by around £150 from April 2026 due to:
- Ending the ECO scheme
- Removing legacy levies
This will apply automatically to most households.
12. Removal of two-child Benefit Cap
Despite the name, the cap had nothing to do with the child benefit. This is related to Universal Credit. Currently, parents can only claim universal credit or tax credits for their first two children, but from April 2026 this cap will be removed.
This removal would cost UK Tax payer £2.3bn in 2026-27 and £3bn in 2029-30,as per OBR.
How a4c Can Help
This budget introduces complex changes spanning multiple tax years.
As a Xero Platinum Partner, a4c can support:
- Landlords preparing for higher rental tax
- Contractors and professionals rearranging salary sacrifice
- High-value homeowners planning for the surcharge
- Business owners considering EOT sales
- Expat pension strategy reviews
If you want personalised guidance for the years ahead, our team is here to help.
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Frequently Asked Questions
What is the biggest change in the Autumn Budget 2025?
The most impactful change is the extended income tax threshold freeze, which will pull millions into higher tax bands by 2031.
When does the rental income tax increase start?
It applies from the 2026/27 tax year, raising rates by 2 percentage points.
How will ISA changes affect savers?
From 2027, £8,000 of your ISA allowance must be invested in stocks & shares unless you’re over 65.
Are electric cars being taxed for the first time?
Yes—EV drivers will pay 3p per mile from 2026 to fund road infrastructure.
Will the State Pension still follow the triple lock?
Yes, and it increases by 4.8% from April 2026.
Should business owners reconsider selling to an EOT?
Possibly—the CGT exemption drops to 50%, making pre-planning essential.
Checklist: Key Takeaways
- Rental income tax rises by 2% across all bands
- ISA allowance remains £20k, but £8k must be invested (except for over-65s)
- Salary sacrifice NI cap of £2,000 starts in 2029
- Tax thresholds frozen until 2031
- New mansion tax surcharge from 2028
- Expats lose eligibility for Class 2 NI
- EVs taxed per mile from 2026
- State Pension up 4.8% in April 2026
- EOT CGT relief cut to 50%
- Energy bills drop by ~£150 in 2026
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