This was a budget intended to restore stability to our economy and to begin a decade of national renewal. Investment will be funded by revised debt rules to facilitate additional borrowing and a hefty £40 billion of tax rises.
Headlines included:
Please note that tax years run to 5 April each year and that, for example, 2025/26 signifies the year to 5 April 2026.
Your tax-free personal allowance will remain at £12,570 in 2025/26. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.
For 2025/26, income tax rates and thresholds remain frozen at their 2024/25 levels.
After your tax-free 'personal allowance' has been deducted, your remaining income will be taxed in bands in 2025/26.
| 2025/26 | Other income | Savings income | Dividend income |
|---|---|---|---|
| Basic rate £1-£37,700 | 20% | 20% | 8.75% |
| Higher rate £37,701-£125,140 | 40% | 40% | 33.75% |
| Additional rate Over £125,140 | 45% | 45% | 39.25% |
'Other income' means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or a partner in a business, rental income, pension income and anything else that is not exempt.
If your main residence is in Scotland or you are otherwise classed as a 'Scottish taxpayer', the application of income tax rates and bands applies differently where 'other income' is concerned. The rates for 2025/26 are expected to be announced at the Scottish Budget, on 4 December 2024.
Similarly you pay Welsh income tax if you live in Wales. The rates set by the Welsh government usually shadow the main UK income tax rates and allowances and this was the case for 2024/25. We expect the 2025/26 rates to be confirmed when the Welsh Budget is published on 10 December 2024.
A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income. This will remain at the 2024/25 level of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Interest income from an Individual Savings Account (ISA) continues to be exempt from tax.
A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income. This will remain at the 2024/25 level of £500.
Dividend income from a 'stocks and shares' ISA continues to be exempt from tax.
The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2025/26 remains at £20,000 overall. This includes up to £4,000 that can be saved into Lifetime ISA. The Junior ISA and the Child Trust Fund limit both remain at £9,000. These ISA limits are now fixed until 2030.
Previous plans to introduce an additional 'British ISA' allowance will not be taken forward by the new government.
You may have to pay the HICBC if you are considered to have 'high income' and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child. If you are living with another person in a marriage, civil partnership or long-term relationship, you will only be liable to HICBC if you have the higher income of the two of you.
Since 2024/25 the child benefit 'high-income' threshold is £60,000. The HICBC is calculated at 1% of the child benefit received for every £200 of income above the threshold. This means that child benefit is only fully clawed back where income exceeds £80,000.
The HICBC does not apply if the child benefit claimant opts out from receiving the payments.
The new government will not proceed with previous plans to explore a household income basis of calculating the HICBC.
As expected, and with immediate effect from the budget date of 30 October 2024, the rates of capital gains tax (CGT) have been increased on some asset types.
Entrepreneurs will be pleased to learn that Business Asset Disposal Relief (BADR) will continue to apply when they dispose of their business. However, the rate of CGT on BADR qualifying disposals is increasing from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. These rates apply to the first £1 million of qualifying disposal.
Employers must pay their employees at least the NLW, for workers aged 21 and over or the NMW otherwise. The minimum hourly rates change on 1 April each year and depend on the worker's age and if they are an apprentice.
The percentage increases for the 18-20 year old rate (16.3%) and the 16-17 year old and apprentice rate (18.0%) are significant. This is a step towards Labour's ambitions for all adults to receive the same minimum wage. While this is good news for workers, employers will need to carefully consider affordability when planning their headcount for the year ahead.
The national insurance contributions (NICs) rates and annual thresholds for employees for 2025/26 are as follows:
Earnings below the lower earning limit (LEL) are not subject to primary Class 1 NICs and do not accrue entitlement to state benefits. Earnings between the LEL and the PT do accrue entitlement to state benefits and are subject to primary Class 1 NICs, albeit at the 0% rate.
The Chancellor announced a package of changes to employers' Class 1 NICs that will apply from 6 April 2025:
*A higher secondary threshold of £50,270 applies for employees who are under 21 and apprentices under 25. Other variations can also apply.
This increase in employers' NIC is undoubtedly a blow to some businesses and, indirectly, employees. Combined with the increases in the NMW and potential costs associated with reforms in employment law, these measures will stretch employer wage budgets and potentially lead to slower growth in some employee wages or higher costs for consumers.
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable 'benefit in kind'. In 2025/26, employers will also pay Class 1A NIC at 15% on the value of benefits (13.8% in 2024/25).
The benefit value of a company car is calculated as a percentage of its list price when it was first registered. The percentage used is determined by the car's carbon dioxide emissions or if it is electric, its electric range. The percentages used are set to increase steadily until 5 April 2028, meaning employees with company cars can expect their percentage to increase by 1% in 2025/26 and consequently will pay more tax on their company car. More substantial increases will affect the percentages used from 2028/29 onwards.
Uncertainty surrounding the tax treatment of double cab pick-up vehicles with a payload of 1 tonne or more has been addressed: such vehicles that are not predominantly suitable for carrying goods are to be treated as cars for benefit in kind purposes. However, vehicles that were acquired or ordered before 6 April 2025 can be treated as vans until the earlier of disposal, lease expiry or 5 April 2029.
Tip: If you are considering buying a double cab pick-up vehicle with a payload of 1 tonne or more, acquiring or ordering it before 6 April 2025 could ensure it attracts the more beneficial tax treatment for vans.
The official rate of interest (currently 2.25%) used to calculate the benefit value of employment-related loans and living accommodation will from April 2025, be allowed to change on a quarterly basis. Previously the rate has been set for a full tax year.
From 6 April 2026, the use of payroll software to report and pay tax on benefits in kind will become mandatory, except in relation to employer-provided loans and living accommodation. These two benefits can be payrolled on a voluntary basis.
As we approach 2025/26, we know a number of our clients and contacts will be assessing the impact of the budget on their affairs. While some of our readers will benefit from the increases in public spending, for others, especially if you are an employer or business owner, it may be necessary to regroup and re-strategise your business plans for 2025 and onwards.
Remember, we are here to work alongside you to ensure your business and personal success. Please do get in touch if there is anything that you would like to discuss.