The Ritchie Phillips Budget 2025 Report

The Chancellor of the Exchequer delivered her Budget on Wednesday 26 November 2025 claiming that her Budget was one of fair taxes, strong public services and a stable economy. 

However, it is fair to observe that her blood must have been boiling with the Office for Budget Responsibility (“OBR”) prematurely posting their Budget Report some thirty minutes before she rose to her feet.  The OBR attracted appropriate condemnation from not only the Chancellor but also the Deputy Speaker for the serious breach of parliamentary convention that announcements should always be first made in the House of Commons. 

Leaving that to one side, the Chancellor announced over forty new tax rises, or over eighty depending on your point of view, but there are only really only three that will raise the increased tax the Chancellor needs:  

• Freezing tax thresholds results in ‘fiscal drag’ where rising levels of earnings bring ever greater numbers of earners into the tax system or into higher rates of tax.  The OBR calculate fiscal drag will raise £32billion in 2026/27 and £39billion in 2029/30, in what is likely to be the largest tax raising measure in the post war period. 
• Salary sacrifice is being capped at £2,000 per annum.  This will generally affect the highest of earners who divert salary and bonuses to their pension schemes. 
• Income tax rates on unearned income – property, savings and dividend income – is being increased by 2% other than for the additional rate on dividend income.  

With rumours circulating before the announcement as a result of press leaks, economic forecasts or pure conjecture, some will view with relief that the more radical predictions did not materialise, such as an ‘exit tax’ for those leaving the UK; a cap on Capital Gains Tax main residence relief for properties valued over £1.5m; or a 1% wealth-style tax on “mansions”.  

Despite some of the worst-feared tax changes not coming to pass, the 2025 Budget was none the less one of the highest tax-raising Budgets in the last decade, with a large assortment of tax measures introduced that surpass the mere selection announced in the Chancellor’s live Budget speech. In the following series of articles, we will share some of the main provisions that may affect you, along with our insights and commentary.

Private Clients 

Income Tax 

The personal allowance 

The Income Tax personal allowance is fixed at the current level of £12,570 and will remain frozen until April 2031. 

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140. 

Tax bands and rates 

The basic rate band remains at £37,700, with the higher rate threshold remaining at £50,270. The additional rate threshold remains at £125,140. The freeze of these thresholds will continue until April 2031. 

The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK. 

The government is increasing the tax rates for income from property, savings and dividends by 2% other than for additional rate taxpayers on dividend income. 

Tax on property income 

 Property income is any income from letting land and buildings. 

The government is introducing the following separate tax rates for property income from 2027/28: 

• 22% for basic rate taxpayers
• 42% for higher rate taxpayers
• 47% for additional rate taxpayers. 
   

Individuals have a Property Allowance which exempts property income of £1,000 or less. Property income over £1,000 can be offset either by the £1,000 Property Allowance or by deducting relevant expenses. 

Tax on savings income 

 Savings income is income such as bank and building society interest. 

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of Income Tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers. 

 Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance. 

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. This will remain at £5,000 until 5 April 2031. However, this rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000. 

The current tax rates on savings income will be maintained for 2026/27. From 6 April 2027, there will be a 2% increase in the applicable tax rates. The basic rate will increase to 22%, the higher rate will increase to 42% and the additional rate will increase to 47%. 

Tax on dividends

Currently, the first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2026/27. 

From 6 April 2026, there will be a 2% increase in the basic and higher rates of Income Tax applicable to dividends. The additional rate will remain unchanged at 39.35%. 

Dividends received above the Dividend Allowance will be taxed at the following rates for 2026/27: 

• 10.75% for basic rate taxpayers
• 35.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers. 
   

Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance. 

Income Tax ordering rules 

The Income Tax ordering rules will change from 6 April 2027. The personal allowance will be deducted from employment, trading or pension income first. Currently, individuals can choose which income the allowance is offset against. 

The effect of these changes will be exacerbated by adjustments made to the Income Tax calculation rules, whereby there will be no option but to deduct various reliefs and allowances from other non-savings, income in priority, so that the highest rates of tax apply to the property, savings, and dividend income that remains taxable. 

High Value Council Tax Surcharge (the “Mansion Tax”) 

The current Council Tax system uses property values from 1991. From April 2028, properties valued at £2 million or more will be liable to a new High Value Council Tax Surcharge (HVCTS). 

The HVCTS will be staggered depending on the value of the property. For property over £2 million, the annual charge will be £2,500. For property valued between £2.5 - £3.5 million, the annual charge will be £3,500 and for those properties valued between £3.5 - £5 million, the annual charge will be £5,000. Properties valued in excess of £5 million will have an annual charge of £7,500. 

The surcharge will be collected alongside the existing Council Tax due for the property by the local authority who will then pass the HVCTS onto central government.

Prior to the Budget, there were rumors of a cap on Capital Gains Tax main residence relief for properties valued over £1.5m; or a 1% wealth-style tax on “mansions”.  Whilst this will be of no consolation to those affected, this proposal is restrained in contrast, although inevitably there will be valuation disputes where the valuation is around the bands announced.

Capital Gains Tax (CGT) 

CGT annual exemption 

The annual exempt amount will remain at £3,000 for 2026/27. 

CGT rates 

The main rates of Capital Gains Tax are unchanged for 2026/27. 

Business Asset Disposal Relief   

As previously announced, the rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase to 18% for disposals made on or after 6 April 2026. 

Incorporation Relief 

The government will introduce a requirement for taxpayers to actively claim incorporation relief for transfers of a business to a company on or after 6 April 2026. The relief previously applied automatically. 

Employee Ownership Trusts 

The current relief available for qualifying disposals by business owners selling their shares to Employee Ownership Trusts (EOTs) is a 100% exemption of any gain. From 26 November 2025, the relief will only exempt 50% of the gain.  

Business Asset Disposal Relief and Investors’ Relief will not be available where the 50% exemption has been claimed. The remaining 50% of the gain on disposal will not form part of the disposer’s chargeable gain. Instead, 50% of the gain will be held over and deducted from the trustees’ acquisition cost. This will mean that it will come into charge on any subsequent disposal or deemed disposal of the shares by the trustees of the EOT. 

Carried interest rates and reform 

From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge. 

Share Exchanges and Corporate Reconstructions  

Where share exchanges and corporate reconstructions are undertaken for bona fide commercial reasons, there is no Capital Gains Tax on the disposal of the shares in the old company and the base cost of the shares in the new company is taken to be the base cost of the shares in the old company. 

If, however, the main purpose, or one of the main purposes, of the transaction is tax avoidance, then this tax treatment will not apply. 

This anti-avoidance provision is to be modernised.  The bona fide commercial reasons requirement is being removed and instead the legislation focuses on whether the reduction or avoidance of tax is the main purpose or one of the main purposes of the transaction contemplated. 

It will remain to be seen how HMRC interpret the application of these revised rules in clearance applications. 

As always, these articles provide an overview of the various measures available, and no action should be taken without seeking professional advice.  At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.