Budget 2025 Tax Announcements

As expected, the Budget contained a number of tax increases – many achieved by freezing existing tax thresholds.  Several widely-reported rumours did not materialise; there were no substantial changes to inheritance tax or VAT.  Below is our summary of the key tax announcements.

Income Tax, National Insurance and Inheritance Tax Thresholds
All personal tax, national insurance and inheritance tax thresholds will be frozen for a further three years. The freeze extends the current policy so that the thresholds remains in place until the 2030-31 tax year.  This means that existing personal tax thresholds remain in place until 2031, with the main ones being a personal allowance of £12,570; the higher rate threshold at £50,270, the tapered removal of the personal allowance starting at £100,000; and the additional rate threshold at £125,140.

Income Tax Increases for Savings, Property and Dividend Income
The basic and higher rates of income tax applicable to investment income, i.e., income from property, savings and dividends, rises by 2%. The 2% increase will also apply to the additional rate for income from property and savings.  The additional rate of 39.25% currently applicable to dividends remains unchanged.  The increases for savings and property income come into effect in April 2027 and the dividend increase applies from April 2026. These rises have been introduced to reflect the fact that income from these sources is not subject to national insurance.

Salary Sacrifice Changes for Pension Contributions
Pension contributions made through salary sacrifice currently receive relief from income tax, employee national insurance and employer national insurance.  From April 2029, a new cap of £2,000 on salary sacrificed pension contributions will apply.  Contributions above £2,000 will therefore no longer attract either employee or employer national insurance relief from that point.  National insurance relief will still apply to regular employer contributions made outside of a salary sacrifice arrangement.

High Value Council Tax Surcharge (HVCTS)
From April 2028 a new annual ‘High Value Council Tax Surcharge’ surcharge will apply to properties valued at more than £2 million.  The surcharge will be payable in addition to existing Council Tax and will be levied on owners (not occupiers). The charges are as follows:

National Living Wage and Minimum Wage Increases
From April 2026 the National Living Wage for those over the age of 21 will increase by 4.1% to £12.71 per hour, up from the current £12.21.  The new minimum wage rates will be as follows:

ISAs
From April 2027 the annual cash ISA limit for those aged 65 and under will be reduced to £12,000; the overall ISA allowance remains £20,000. The remaining £8,000 can be used for stocks and shares.  The cash ISA limit remains £20,000 for those aged over 65.  The change is intended to encourage investment rather than cash savings.

Mileage Tax for Electric Cars
In order to pay for road maintenance, a new Electric Vehicle Excise Duty (eVED) is being introduced from April 2028 and this will be based on mileage, payable alongside the existing VED fee.  For electric vehicles (EV), the tax paid will be around half the fuel duty rate paid by petrol/diesel cars and for plug-in hybrid cars a reduced rate will apply. The practicalities of reporting mileage are being consulted on but the government has committed to not requiring trackers.  The new eVED will only apply to cars and not vans, buses, motorcycles, cars and HGVs.

The Electric Car Grant launched in July 2025 has been extended to 2029-30 and will provide up to £3,750 off eligible EV models. The threshold at which zero-emission EVs have to pay the VED Expensive Car Supplement increases from £40,000 to £50,000 from 1 April 2026. Benefit-in-kind rules on EVs remain unchanged until April 2030.