Autumn Budget 2025

Tax cuts for small businesses

Some significant reforms to business rates for small businesses were announced by the Chancellor who announced plans to bring in “permanently lower rates” for a large number of retail, leisure and hospitality businesses.

National Minimum Wage

Increases to National Minimum Wage rates were released, with higher percentages for those aged 18-20. This will result in increased costs for employers and may also impact the ability of certain employee groups to benefit from salary sacrifice in the short term.

Salary sacrifice

NIC relief on pension salary sacrifice will be removed for annual contributions over £2000. The introduction of this has been deferred until 2029, allowing employers time to adapt to the change.

Salary sacrifice

From April 2029, the amount of pension contributions that will be exempt from NICs if paid via salary sacrifice will be capped at £2,000 per annum. Employers and employees can still make pension contributions above this threshold but they will be subject to normal NICs (currently 15% for employers and 8% / 2% for employees). With implementation over three years away, there is time for employers to look closely at existing reward structures, and for payroll and pension schemes to adjust administrative processes.

Increases on pre 1997 accrual for PPF and FAS members

Members of the PPF and FAS currently receive no indexation on compensation they receive for benefits accrued before 6 April 1997. As we’ve highlighted previously, the PPF is running with a significant funding surplus and pressure has been mounting for changes to be made, as members with a significant proportion of pre ’97 accrual see the value of their pension eroded by inflation. In the Budget it has been announced that from January 2027, members of the PPF and FAS will receive CPI-linked increases on their pre-1997 accrual, capped at 2.5%, provided that their original scheme included indexation for pre-1997 benefits.

DB surplus

With effect from April 2027, changes will be made to “reduce” tax charges and allow schemes to make direct payments to members out of surplus assets in DB schemes. Complementing the changes already being made by the Pension Schemes Bill to “unlock” DB surpluses, this move appears to be designed to advance the government’s productive finance agenda, making it “easier for members to benefit, and for trustees and employers to agree surplus extraction”. It appears that such payments will only be able to be made to members who have reached normal minimum pension age (raising some interesting questions about inter-generational fairness), and subject to a scheme’s own rules.

Lump sum

No changes to the lump sum allowance were announced in the Budget, not unexpected given that in recent weeks the government had ruled out a reduction in the amount of tax-free cash members can take. However, whilst there is no reduction there is also no increase in the existing lump sum allowance, currently set at £268,275 (being 25% of the lifetime allowance at the date of abolition).  With no provision in the legislation for this to be uplifted over time, this frozen amount could be considered another form of fiscal creep (similar to the frozen income tax bands that have attracted so much comment).

Personal Representatives

There is a previously announced policy to bring unused pensions within the scope of inheritance tax (IHT) from 6 April 2027. The draft legislation published over the Summer states that it will be personal representatives (PRs) who are primarily responsible for the reporting and payment of any IHT to HMRC once the new law takes effect on 6 April 2027. The PSAs may be given notice from a pension beneficiary to pay IHT relating to their own pension benefits. PRs can try to recover IHT from pension beneficiaries. This remains the policy intention following the Budget, notably along with two further related policy announcements.

New policy announcements

• PRs will have the power to direct PSAs to withhold 50% of the taxable benefits for a period of up to 15 months and to pay the associated IHT liability to HMRC before releasing the rest of the benefits to beneficiaries.
• PRs will be discharged from liability arising from IHT on pensions which are discovered after the information gathering stage of probate following receipt of an HMRC clearance certificate (a certificate which shows that all IHT which the PRs believed was due on the estate has been paid in full).”

“Mansion Tax”

The anticipated high value council tax has been introduced for properties worth more than £2m. There will be four price bands with a range of surcharges from £2,500 to £7,500, with rates being updated in line with inflation annually.

Income tax and National Insurance

The freezing of personal tax thresholds for a further three years is significant, particularly while inflation remains above target and with wages rising. By 2031, personal tax bands will have been frozen for 10 years and drag more people into each of the income tax bands.

Salary sacrifice

NIC relief on pension salary sacrifice will be removed for annual contributions over £2000. The introduction of this has been deferred until 2029, allowing employers time to adapt to the change.

Investment

Higher rates of tax will be introduced on various forms of common investment over coming years, so that from April 2027 the top rate of tax on savings and property income will be 47%. The top rate of tax on dividends (39.35%) will not change but the standard and upper rates will increase from April 2026. Investors and landlords need to undertake reviews of their portfolios in light of these changes.

Personal Representatives

There is a previously announced policy to bring unused pensions within the scope of inheritance tax (IHT) from 6 April 2027. The draft legislation published over the Summer states that it will be personal representatives (PRs) who are primarily responsible for the reporting and payment of any IHT to HMRC once the new law takes effect on 6 April 2027. The PSAs may be given notice from a pension beneficiary to pay IHT relating to their own pension benefits. PRs can try to recover IHT from pension beneficiaries. This remains the policy intention following the Budget, notably along with two further related policy announcements.

New policy announcements

• PRs will have the power to direct PSAs to withhold 50% of the taxable benefits for a period of up to 15 months and to pay the associated IHT liability to HMRC before releasing the rest of the benefits to beneficiaries.
• PRs will be discharged from liability arising from IHT on pensions which are discovered after the information gathering stage of probate following receipt of an HMRC clearance certificate (a certificate which shows that all IHT which the PRs believed was due on the estate has been paid in full).”

Manufacturing

Investment in advanced manufacturing across regions will aim to support regional economic growth and focuses on the aims of The UK’s Modern Industrial Strategy 2025.

Energy

The Energy Company Obligation (ECO) scheme is being scrapped on the basis that it costs more than it saves. The Chancellor said that this will result in average annual household energy bills being cut by £150.

Automotive

The Chancellor announced that a new mileage tax for electric and plug-in hybrid cars will come into effect from April 2028. Electric cars will be subject to a 3p per mile charge whilst Plug-In Hybrids will be charged 1.5p per mile.

Gambling and gaming

Several changes to gambling duties were announced, including an increase in remote gaming duty to 40% and a general betting duty of 25% for remote betting.