Budget 2025 analysis: steady, cautious, but limited ambition

The Budget landed amid harsh economic expectations. Chancellor Rachel Reeves may have hoped to talk up investment and stability in the public finances, but the early leak of the OBR’s revised estimates on underlying productivity growth, from 1.3% to 1%, set the tone.

What followed was an Autumn Statement that reflects a steady, serious, and cautious approach to fiscal policy, but with limited ambition for transformational change.

For households, frozen thresholds and rate changes mean more people moving into higher tax bands. For businesses, most measures build on existing systems through targeted updates to reliefs, incentives, and compliance rules. For us, the overall picture is continuity rather than reform. And for Northern Ireland, the additional £370 million provides short-term support but does not shift the wider fiscal position facing the Executive. 

Impact on individuals 

The personal allowance and higher-rate thresholds remain at £12,570 and £50,270 until April 2031. The additional rate threshold remains at £125,140. The policy is forecast to raise significant additional revenue as wage growth and inflation push more taxpayers into higher tax bands, to the tune of £24 billion by 2030–31. Inheritance tax thresholds are also frozen until April 2031.   
Dividend income tax rates will increase by 2% at the basic rate, with higher rates remaining unchanged, effective from April 2026. Income tax rates on property and savings income will increase by 2% across all tax bands from April 2027. The personal allowance and other reliefs will now be set against non-investment income first, with any remaining allowances thereafter applied to property, savings, and dividend income.  

Other measures include:

• Business Property Relief and Agricultural Property Relief: From April 2026, the £1 million BPR/APR allowance will be transferable between spouses, in line with the residence nil rate band and the standard nil-rate band. If one spouse dies without using their full £1 million BPR/APR allowance, the unused portion can transfer allowing the couple’s estate to claim up to £2 million in BPR/APR.
• Changes to ISAs: From 6 April 2027, the annual cash ISA limit will be set at £12,000 for savers under the age of 65, with the overall annual ISA (cash and investment) limit remaining at £20,000. Savers aged 65 and over will continue to be able to save up to £20,000 in a cash ISA each year.
• Electric vehicles: From April 2028, EVs will be subject to a mileage-based charge: 3p per mile for battery electric cars and 1.5p for plug-in hybrids, with rates rising with inflation. An EV driven 8,500 miles would incur about £255, about half the fuel duty cost for petrol or diesel drivers. However, the Government has also announced that it is enhancing support measures for electric vehicles, including a higher car supplement threshold (from £40,000 to 50,000 from April 2026) and an extended EV grant scheme through 2029/30.

Impact on businesses  

The headline change to impact employment concerns restrictions on the use of salary sacrificed pension contributions. Currently, employees can sacrifice salary by making pension contributions, thereby saving NIC due on the income sacrificed. The stated aim behind this restriction is that salary sacrifice was intended to be a small part of the wider employer pension landscape, but that the cost of missed NIC contributions is increasing, with a projected loss of £8 billion by 2030.  

To bridge this gap, the Chancellor has imposed a £2,000 threshold above which salary sacrificed pension contributions will no longer attract a NIC exemption.  The result is that employee net pay will reduce, and employer costs will increase with the associated NIC charges becoming due. This change will come into effect from 6 April 2029.  

Employer costs will also rise through minimum wage increases. By way of illustration, from 1 April 2026, the National Living Wage for over 21s will increase by 4.1% to £12.71 per hour. The National Minimum Wage for 18–20-year-olds will also increase by 8.5% to £10.85 per hour. The increased hourly rates will need to be viewed in line with the freeze on thresholds for income tax and NIC charges from 6 April 2026 onwards. Although NIC contribution rates have not increased, staffing costs will be further amplified by the freeze on contribution thresholds.

The NIC Primary Threshold and Lower Profits Limit will be maintained at £12,570 from April 2028 until April 2031. The NICs Upper Earnings Limit (“UEL”) and Upper Profits Limit will be maintained at £50,270 from April 2028 to April 2031, as well as other employer NICs relief thresholds aligned with the UEL.  

The Government is maintaining the threshold at which employers become liable to pay National Insurance (the Secondary Threshold) at £5,000 per employee from April 2028 until April 2031. This means that more people will be pulled into the NIC net as their income increases above the contribution thresholds.  

Moving to capital allowances, from April 2026, the main Writing Down Allowance ("WDA") rate will fall from 18% to 14%, reducing the annual tax relief available on certain capital assets.  This is coupled with the introduction of a new 40% First-Year Allowance (“FYA”) from January 2026, which will be particularly valuable where the Annual Investment Allowance or existing FYAs, including full expensing, are not available or suitable.  

While the lower WDA rate reduces ongoing benefits, the first-year allowance offers a significant upfront deduction for qualifying assets. In addition, the current 100% FYA for zero-emission vehicles and EV change points is to be extended for a year, until April 2027. The Special Rate Pool WDA will continue to attract WDAs at 6%.  

Impact on entrepreneurs and business owners

Changes relevant for entrepreneurs include updates to Employee Ownership Trusts (EOTs). The current Capital Gains Tax (“CGT”) relief available on qualifying disposals to EOTs allows business owners to sell their shares without paying any CGT, with around half of the relief going to the largest 10% of disposals. With immediate effect, CGT relief on disposals to EOTs will be reduced from 100% to 50%.  

The Government is significantly increasing the company eligibility limits for the Enterprise Management Incentives (EMI) scheme to allow scale-ups to join start-ups in offering tax-advantaged shares to the talent they need to grow.  From 6 April 2026, the qualifying criteria will extend to companies with 500 employees and gross assets of £120 million.  

The Government is also increasing the Venture Capital Trust (VCT) and EIS investment limits to allow investors to follow-on as companies grow beyond the start-up phase. Again, from April 2026, investment limits will increase to £10 million and £20 million for Knowledge Intensive Companies (KIC). The lifetime company investment limit will increase to £24 million, and £40 million for KICs. The gross assets test will increase to £30 million before a share issue, and £35 million after.  

To better balance the amount of upfront tax relief offered by VCTs compared to the EIS and incentivise funds to support high-growth companies, the Government is reducing the upfront VCT Income Tax relief from 30% to 20%.  

Additional key updates

• VAT: E-invoicing becomes mandatory for all VAT invoices from April 2029. The Government will publish an implementation roadmap in 2026. Ride-hailing services will no longer fall within the UK Tour Operators Margin Scheme, resulting in the full fare becoming subject to standard-rate VAT.
• Fuel duty: Rates will remain frozen until September 2026, but the 5p cut introduced in 2022 will then be phased out. From April 2027, rates will rise annually with inflation.
• Customs: From 2029, all imported parcels will be subject to customs duty. The current low-value exemption (for items £135 or below) is removed. The Treasury expects around £500 million in additional annual revenue.
• Gambling duties: Remote gaming duty increases to 40% in April 2026. Bingo duty is abolished. A 25% general betting duty applies from April 2027. Casino duty bands are frozen for 2026/27.
• Transfer pricing: The Government has proposed new legislation to allow certain domestic transactions between UK companies to become exempt from transfer pricing rules where no tax-loss risk arises (with exemptions). HMRC retains the power to issue notices where needed. Additionally, new legislation will empower HMRC to require large multinational groups to file details of cross-border related-party transactions. A technical consultation is expected in 2026.
• Permanent establishment (PE): The Government intends to update the PE rules to reflect international standards. This includes revised definitions and profit attribution guidance.
• Diverted Profits Tax (DPT): The DPT regime will be incorporated into Corporation Tax through a new mechanism for unassessed transfer pricing profits.
• Corporate Interest Restriction: From periods ending on or after 31 March 2026, businesses will no longer need to appoint a reporting company by formal notice, simplifying compliance.

HMRC Tax Administration & Compliance  

HMRC is also introducing a wide-ranging package of anti-avoidance measures expected to raise £2.3 billion by 2029/30. These include tackling transfer pricing, construction industry fraud, and non-compliant tax advisors, as well as improving data access for compliance.

Debt collection will also expand, with more use of agencies and increased HMRC staffing.  
Northern Ireland  

The Northern Ireland Executive will receive an extra £240 million in resource funding and £130 million in capital funding to ease severe budget pressures and stabilise public services. The resource allocation supports day-to-day spending on health, education, and justice, while the capital funding targets infrastructure projects such as hospitals, schools, and transport.

However, for Northern Ireland, where the Executive is grappling with a sizeable budget shortfall of its own, the extra £370 million does not touch the sides of our own fiscal challenges.