27 Nov 2025

Autumn Budget 2025

The Government entered this Autumn Budget facing a challenging landscape. The Chancellor knew that she had to juggle a rising national deficit, prolonged pressures on household finances and a host of political hurdles.

From the start, Rachel Reeves signalled that this would be a Budget built on the principle of fairness, with a shared responsibility for addressing national debt and directing support towards those most in need.

Naturally, this has resulted in tax rises in several areas, alongside the significant choice to prolong the freeze on personal tax thresholds.

With inflation remaining above the Bank of England’s 2 per cent target and interest payments weighing more heavily on public spending, Reeves also made it clear that individuals with higher incomes or substantial assets would shoulder more of the tax burden.

Central to this was the introduction of higher tax rates on dividend income, income on savings and property income and what has quickly become known as a ‘mansion tax’, as well as a new restriction applied pension salary sacrifice relief.

While personal tax dominated the Chancellor’s speech, businesses were not left untouched.

The Chancellor set out reductions to the writing down allowance available on qualifying capital expenditure and confirmed a halving of Capital Gains Tax relief on Employee Ownership Trusts.

Perhaps the most notable pressure for employers, however, comes from yet another rise in the National Living Wage and National Minimum Wage.

Reeves closed her speech by emphasising support for households, measures to control inflation and plans to stimulate economic growth.

The economy

Labour’s manifesto committed to restoring stability and reducing national debt over the current parliamentary term.

Despite a turbulent start to office and uncovering a larger-than-expected gap in public finances, Reeves highlighted that her fiscal strategy is taking effect, although it has required what she described as “necessary choices” on taxation.

The Office for Budget Responsibility forecasts GDP growth of 1.5 per cent in 2025, 0.5 per cent higher than previously predicted.

However, projections for the years beyond are more subdued. Growth in 2026 is expected to reach 1.4 per cent, below the earlier estimate of 1.9 per cent, while the forecast for 2027 has been revised down to 1.6 per cent, 0.2 per cent behind the previous estimate. This muted pattern continues through 2028 and 2029.

Even so, the Government expects the annual deficit to fall over the next two years and to move into surplus in the 2027/28 tax year, rising to £24.6 billion by 2030/31.

However, the overall proportion of government debt to GDP will still rise between now and 2031 from 95 per cent to 96 per cent – and with GDP growth predicted across the same period the net effect is that the UK national debt will still rise despite the significant tax rises announced yesterday.

Reeves also confirmed that higher tax receipts have more than doubled the Chancellor’s fiscal headroom from £9.9 billion to around £22 billion.

Before these improvements can be realised, however, a series of further tax measures will need to be introduced.

Personal tax

The most wide-reaching policy announcement was the extension of the freeze on personal tax thresholds until April 2031, prolonging the current freeze by another three years.

Although Labour can maintain that it has kept its manifesto promise not to raise tax rates, the effect for millions will be a substantial rise in their overall tax bill.

The freeze applies to Income Tax bands and National Insurance thresholds for both employees and the self-employed.

The Chancellor also confirmed that the freeze on Inheritance Tax thresholds will now run until April 2031.

Freezing Income Tax thresholds is expected to generate £8 billion for the Treasury, but it will also draw nearly 800,000 more individuals into paying tax and push nearly one million taxpayers into the higher rate income tax band through fiscal drag.

There was some comfort for those concerned about changes due in April 2026 to Agricultural Property Relief and Business Property Relief.

Any unused £1 million allowance for the 100 per cent rate will be transferable between spouses or civil partners, even where the first death occurred before 6 April 2026.

Recognising the cost pressures facing households, Reeves also confirmed the abolition of the ECO scheme, which is expected to reduce average energy bills by £150 a year.

Business tax

With most major reforms introduced in the previous Budget, this latest update contained fewer changes for businesses.

Reeves confirmed that the main writing down allowance will fall from 18 per cent to 14 per cent from April 2026.

To counterbalance this, a new 40 per cent first-year allowance for main rate assets will be introduced. Although these two measures will still raise a further £1.5 billion in corporation tax, so the new 40 per cent allowance does not fully offset the reduction in writing down allowances.

Those planning a business sale will note that the Capital Gains Tax relief on Employee Ownership Trusts will now be reduced from 100 per cent to 50 per cent.

Although outside the strict category of taxation, employers will also be affected by the April 2026 increases to statutory wage rates as the rate will be increased as follows:

  • National Living Wage – £12.71 per hour
  • National Minimum Wage (18-20 year olds) – £10.85 per hour
  • National Minimum Wage (16-17 year olds and apprentices) – £8.00 per hour

Wealth tax

Many anticipated more aggressive taxation of wealth, but the final measures were less extensive than some expectations.

One confirmed change was the rise in tax on dividend, saving and property income.

From April 2026, both the ordinary and upper rates of tax on dividends will increase by 2 percentage points, with the additional rate unchanged.

New standalone rates for property income will follow in April 2027:

  • Property basic rate – 22 per cent
  • Property higher rate – 42 per cent
  • Property additional rate – 47 per cent

Savings income will also see a 2 percentage point rise across all bands in the same year.

A new High Value Council Tax Surcharge, commonly referred to as a ‘mansion tax’, will apply to homes worth more than £2 million.

Annual charges will begin at £2,500 for properties over that threshold, rising to £7,500 for homes valued above £5 million.

Electric cars

The Autumn Budget also delivered a clearer long-term strategy for electric vehicle taxation and infrastructure.

From April 2028, Electric Vehicle Excise Duty will levy a per-mile charge for electric and plug-in hybrid vehicles, payable alongside standard Vehicle Excise Duty for petrol and diesel cars.

Electric cars will incur a rate equivalent to half the fuel duty cost (around 3p per mile), while plug-in hybrids will pay half of that amount. A consultation on the detailed design will run until March 2026.

An additional £200 million will be invested into public, residential and workplace charging facilities, alongside a 10-year business rates exemption for qualifying chargepoints and electric-only forecourts.

The Expensive Car Supplement threshold for zero-emission vehicles will also increase to £50,000, applying to new registrations from April 2025 and coming into force from April 2026.

The Electric Car Grant will receive a further £1.3 billion and will continue until 2029/30. Meanwhile, changes to company car taxation will be phased in more gradually, with employee car ownership schemes entering Benefit in Kind rules from April 2030 and transitional rules running until 2031.

First-year capital allowances for zero-emission vehicles and charging equipment will now run until 2027. Plug-in hybrids will benefit from a temporary Benefit in Kind reduction until April 2028.

For other car owners that haven’t gone green yet, the temporary 5p reduction in fuel duty will remain until early September 2026, when it will be removed and fuel duty will then be subject to annual inflation rated increases.

National investment

Tax increases have been accompanied by around £12 billion in new spending commitments.

As part of efforts to tackle child poverty, the Government will remove the two-child child benefit limit within Universal Credit from April 2026.

Wider investment includes the £30 million Kernow Industrial Growth Fund, the £500 million Mayoral Revolving Growth Fund and more than £900 million for a new Local Growth Fund allocated to Mayoral Strategic Authorities over four years.

The Growth Mission Fund will continue to support targeted projects, such as the sports quarter in Peterborough and the STEM centre in Darlington.

Investment zones and freeports remain key to the UK’s industrial strategy, with approvals confirmed for the Flintshire and Wrexham Investment Zone, Anglesey Freeport and the Forth Green Freeport.

Local road maintenance funding will increase to over £2 billion annually by 2029/30.

Additional support includes up to £14.5 million for industrial development in Grangemouth, funding for the Docklands Light Railway extension to Thamesmead, further investment in the Lower Thames Crossing and brownfield remediation in Port Talbot.

Savings and pensions

ISA reform featured prominently in the Chancellor’s speech, as many expected. From 6 April 2027, the annual ISA cash limit will fall to £12,000, while retaining the overall £20,000 allowance.

This means the remaining £8,000 must be placed into stocks and shares ISAs to retain tax advantages.

A further major change was announced for pensions. From 6 April 2029, employer and employee National Insurance contributions will be charged on any pension contributions above £2,000 per year made via salary sacrifice.

Our thoughts

The Autumn Budget confirmed many expected tax rises but avoided some of the most dramatic possibilities. While the focus was primarily on personal taxation, the implications will reach businesses and senior leaders alike.

Labour remains committed to reducing the deficit while directing spending towards measures aimed at easing the cost of living.

Whether this balance has been achieved or can be maintained is yet to be seen, but for many taxpayers, the outcome is clear – a higher tax burden across a broad range of taxes, levies and duties.

Anyone whose long-term plans may be affected should seek professional advice at the earliest opportunity as many of these measures are not scheduled to be brought in until April 2026, with many scheduled to be operative some years later, allowing ample time to view individuals’ and business’ finances holistically and plan accordingly.

You can read the full Autumn Budget documents by clicking here.