Budget 2025: Key point summary

Chancellor Rachel Reeves has delivered a tax-raising Budget that will push the UK’s tax burden to a record 38.3% of GDP by 2030. With £26bn in total tax increases, nearly a million more people will become higher-rate taxpayers through an extended threshold freeze, while businesses face reduced allowances and sector-specific increases.

Economic growth is forecast at just 1.5% annually, while national debt climbs to 96% of GDP—double the average for developed nations. The Chancellor has chosen tax rises over spending cuts to address the fiscal challenge.

Income Tax and National Insurance

• Threshold Freeze Income Tax and National Insurance thresholds frozen until April 2031, creating 920,000 additional higher-rate taxpayers and raising £8.3bn annually through fiscal drag.
• Property Income Tax From April 2027, property income tax rates increase to 22% (basic), 42% (higher) and 47% (additional rate). Tax relief on interest on residential property finance moves to 22%.
• Dividend Income Basic and higher rates of dividend tax increase by 2% from April 2026. No change to the additional rate.
• Savings Income Tax rates on savings income increase by 2% across all bands from April 2027.
• Pensions NICs applied to salary-sacrificed pension contributions over £2,000 annually (both employer and employee) from April 2029.
• ISA Allowances Annual cash ISA limit set at £12,000 within overall ISA limit of £20,000 from April 2027. Individuals aged over 65 retain the full £20,000 cash limit.

Capital Taxes

• Capital Gains Tax CGT relief on sales to Employee Ownership Trusts reduced from 100% to 50% with immediate effect.
• Inheritance Tax The £1m allowance for 100% rate of Agricultural Property Relief and Business Property Relief becomes transferable between spouses and civil partners from 6 April 2026. Nil Rate Band, Residence Nil Rate Band, and allowance for 100% Agricultural and Business Relief frozen until April 2031.
• Anti-Avoidance Non-resident CGT rules amended to close loopholes for protected cell companies and clarify legislation for investors (immediate effect). CGT anti-avoidance provisions for share exchanges and company reorganisations modernised (immediate effect).

Business Tax

• National Living Wage & Minimum Wage From 1 April 2026, National Living Wage increases by 4.1% to £12.71 per hour. National Minimum Wage for 18-20 year olds increases by 8.5% to £10.85 per hour.
• Capital Allowances Main rate Writing Down Allowance for plant and machinery reduced from 18% to 14% from April 2026. New 40% First Year Allowance for main rate assets not qualifying for AIA or full expensing from April 2026. 100% first-year allowances for zero-emission cars and EV charge points extended to 31 March 2027 (Corporation Tax) and 5 April 2027 (Income Tax).
• VAT & Making Tax Digital All VAT invoices must be issued as e-invoices from April 2029. No late submission penalties for quarterly updates during 2026-27 tax year for Income Tax Self Assessment taxpayers joining MTD.
• Employee Share Schemes Enterprise Management Incentives (EMI) company eligibility limits increased from April 2026. Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) qualifying limits increased from April 2026. Upfront VCT Income Tax relief reduced from 30% to 20% from April 2026.
• Transfer Pricing Annual International Controlled Transaction Schedule (ICTS) required to report cross-border related party transactions from accounting periods beginning on or after 1 January 2027.
• Compliance Corporation Tax late filing penalties doubled from 1 April 2026.
• Business Rates Two new lower multipliers for eligible retail, hospitality and leisure properties with rateable values under £500,000, funded by new high-value multiplier from 1 April 2026.

Duties

• Electric Vehicle Excise Duty New mileage charge of 3p per mile for electric and plug-in hybrid cars from April 2028, averaging £255 annually.
• Alcohol Duty Uprated with RPI from 1 February 2026.
• Customs Duty Relief for low-value goods (£135) removed by March 2029 at the latest.
• Fuel Duty Frozen until September 2026, then annual RPI increases from April 2027.
• Gambling Remote gaming duty rises from 21% to 40% (April 2026). New 25% remote betting duty from April 2027, raising £1.1bn by 2029-30.

Public Finances & Growth

• Tax Burden – Record 38.3% of GDP by 2029-30, with £26bn in total tax increases.
• Growth – GDP forecast at 1.5% annually through 2030, revised down 0.3 percentage points due to weaker productivity.
• Debt – Reaches 96% of GDP by decade’s end (double the developed nation average), with debt interest costs rising £14bn annually.
• Welfare – Spending increases £16bn by 2029-30, including scrapping the two-child benefit cap (£3bn annually) and extending winter fuel payments (£1.7bn).
• Tax Collection – Enhanced HMRC enforcement and additional debt collectors target £2.3bn in additional revenue by 2029-30.

For detailed advice on how these changes may affect your circumstances, please contact Ballards.

View the HMRC full budget details