Autumn Budget 2025: Key takeaways for private clients

• Government valuations will determine which properties are affected (and it will be interesting to see what role AI plays in this exercise given recent usage by the Welsh government in a similar context).
• There is no mention of relief for let properties, which, combined with increased property income tax (see below) will mean a double blow for high-value rental properties.
• The government has however said that it will be consulting on implementation and has indicated that there will be options for deferred payment and support for some of those impacted.
• Note that this new charge appears to stack with the Annual Tax on Enveloped Dwellings (ATED) where relevant, albeit that the ATED is set at a much higher level (currently over £31,000 for properties worth more than £2m).

Changes to income tax on property income

• From April 2027, the rate of income tax on property income will increase by 2%, such that the marginal rates will become:
  • Basic rate: 22%
  • Higher rate: 42%
  • Additional rate: 47%
• This will apply in England, Wales, and Northern Ireland; Scotland’s approach is yet to be confirmed.
• The change will impact both personally held rental properties and some investment returns from real estate focused funds.
• It will also further widen the gap between the taxation of rental properties held personally (which will be subject to the new tax rates) and rental properties held via companies (where profits will continue to be subject to the much lower corporate tax rates of 25% and the company can make better use of deductions for mortgage interest).
• The relative tax advantages of running a rental property via a company rather than personally (not to mention the limited liability) are therefore only increasing. Unfortunately, whilst it may be possible to incorporate an existing lettings business whilst limiting transaction costs (with careful planning and advice), it is often difficult, particularly if mortgages are involved.

Tax Rates on Investments

In addition to the increased rate of income tax on property income (see above), the rates applicable to dividend income and savings income are also changing.

Dividend Income

• This change will be effective from April 2026 (so a year before the amendments for property and savings income)
• 2% will be added to the ordinary and upper rates of income tax on dividends, but the top rate will remain unchanged. So the new rates will be:
  • Ordinary rate: 10.75%
  • Upper rate: 33.75%
  • Additional rate – remains at: 39.35%
• Because the additional rate is not changing, and dividend income is the “top slice” of income for tax purposes, in practice these amendments will only impact those who have less than £125,000 of other forms of income (employment, savings etc).
• For business owners, the change may alter the cost/benefit analysis of taking dividends rather than salary (given that the latter can reduce taxable profits) and they should take advice accordingly.

Savings Income

• 2% will be added to all bands of income tax on savings income from April 2027, so those will move to:
  • Basic rate: 22%
  • Higher rate: 42%
  • Additional rate: 47%
• This is going to create a somewhat artificial distinction between the taxation of investment returns which are defined as “savings income” in tax legislation and those which are treated as other forms of income, commonly “miscellaneous income”.
• Savings income goes well beyond just interest and appears to include:
  • gains on offshore bonds
  • some returns from offshore funds
  • profits on deeply discounted securities
• So, rates on all of those are expected to increase.
• Conversely, the offshore income gains realised on the disposals of non-reporting offshore funds are considered “miscellaneous income” and so should remain subject to the existing income tax rates.
• Whilst technically a separate policy, it is also worth flagging that the income tax relief offered by investments into Venture Capital Trusts (VCTs) will reduce from 30% to 20% from April 2026.
• From a practical perspective, investors should review portfolios to assess the impact of these changes and consider adjustments accordingly.

Inheritance Tax (IHT)

• The budget was arguably more notable for what was not announced concerning inheritance tax than what actually came to pass.
• One of the few “headlines” was in relation to Agricultural Property Relief and Business Property Relief. From April 2026 these will only offer 100% IHT relief on up to £1m of qualifying assets, with any value over and above that benefiting from 50% relief (which will in practice often mean an IHT rate of 20%). It was confirmed at the budget that this £1m threshold for 100% relief will be fully transferrable, which will make it much simpler for married couples and civil partners to pass on up to £2m of qualifying assets between them without any tax.
• However, the lack of big ticket changes masked a number of amendments. These include:
  • Rates and thresholds being frozen;
  • Non-UK situated assets being brought within the scope of inheritance tax to the extent that they derive their value from UK agricultural land and buildings (relevant for those individuals and structures which are only usually exposed to IHT on UK situated assets); and
  • A cap of £5m on the amount of inheritance tax that can be paid by certain legacy trust structures over any given 10-year period (potentially relevant to trust structures with more than £83m of assets. Note that the cap applies separately to each trust, and it is common for wealth of this value to be held via multiple trusts, so the £5m cap may be of less use than it might otherwise have been).

Entrepreneurs and Business Owners

• This was a mixed budget for entrepreneurs.
• The expansion of the Enterprise Management Incentives scheme (making this accessible for scale-ups as well as start ups) is a big positive.
• Similarly, broadening the range of businesses which can use the EIS and VCT regimes to attract investment is good news.
• Allowing the £1m threshold for 100% Business Property Relief and Agricultural Property Relief from inheritance tax to be transferred between spouses and civil partners should simplify estate planning slightly for some.
• However, various measures will put pressure on the bottom line. These include:
  • Frozen thresholds for employer NICs;
  • The introduction of employer NICs on salary sacrifice pension contributions;
  • Increases to the minimum wage.
• Options for extracting value may also need to be rethought following changes such as:
  • The increased rates of tax on dividends from April 2026 (which may tip the balance in favour of salary vs dividends in some cases); and
  • The rate of CGT relief on sales to employee ownership trusts has reduced from 100% to 50% with immediate effect.

Pensions

• From April 2029, employee and employer NICs will be payable on salary sacrifice pension contributions of more than £2,000 per annum.
• This will impact both those saving into their pensions and employers, who may see the cost of employee contributions increasing for them as well.
• But pension taxation was otherwise essentially unchanged, which will have come as a relief for those who feared restrictions on the tax-free lump sum for example.
• IHT is still going to be introduced on unused pension pots on death from April 2027, but there are a number of procedural changes as to how this will be reported and paid. Whilst far from perfect, they do appear to suggest that the Government is at least listening to concerns from the private client industry, particularly as to the difficult position that personal representatives could find themselves in.

International Clients

• There were no big headlines for international clients specifically, albeit many of the changes mentioned above will be relevant.
• However, a number of more niche changes could have a material impact on those affected.
• Various technical changes are being made to the new “FIG” regime, most of which appear sensible, but some of which will be a nasty surprise (particularly for some who have extracted funds from trusts using the temporary repatriation facility).
• As alluded to in the IHT section, there will be a new £5m cap (applicable with effect from 6 April 2025) on the amount of inheritance tax which can be paid by pre-30 October 2024 excluded property trusts over a ten year period. This will only be relevant to structures worth more than £83m, but for those which benefit it could be very valuable.
• Individuals who are not Long-Term Resident in the UK (which usually means they have been UK resident for fewer than ten tax years), and trusts they have settled, will need to consider whether they hold assets which derive value from UK agricultural land or buildings, as this could now be within the scope of inheritance tax.
• There are some amendments to the “temporary non-residence” regime which can apply to those who become non-UK resident for five tax years or less. From April 2026, that regime will capture all distributions and dividends received from closely held companies received during a period of temporary non-residence.

Conclusion

While the budget may not have delivered the seismic shifts some expected, its technical details and targeted changes will have a real impact on many, including high value property owners, investors and business owners.

Proactive planning and portfolio reviews are essential to navigate the evolving landscape.