One of the most talked about kite-flying Budgets ever, and also one of the latest, has finally been delivered. But even before it had been delivered, the Office for Budget Responsibility (OBR) extraordinarily (and in error) published its growth forecast and some of the main Budget details. After the pundits had digested it, the OBR then pulled the link from its website. Surely one of the most bizarre lead-ups to a Budget ever!
This is a brief summary of the main issues, gleaned from the Red Book, HM Treasury publications and Press Releases. At the time of writing this a number of the detailed policy papers have yet to be issued. We will need to see the details in the Finance Bill (we assume some time next week) to see how the details play out in practice.
Background
Ahead of the Budget the Chancellor said she will take “fair and necessary choices” for the economy, to bring down NHS waiting lists, the national debt and the cost of living. She also said she will push ahead with the “biggest drive for growth in a generation”, which will include sweeping investments across many sectors, to build a “fairer, stronger and more secure Britain”.
According to the OBR, the gap in public finances (the difference between what is received and what is spent) is expected to be close to £20billion.
It’s clear that whilst it is politically unpalatable, the easiest and quickest way to cover this “spending gap” would have been to increase income tax, VAT or national insurance. But the Chancellor, after flying a number of kites, ruled this out before the Budget. But as the details emerged, clearly this is exactly what she has done, but without actually breaking the wording of the manifesto pledge. She concluded her Budget Statement emphasising this!
In summary, the Budget raises taxes by £26billion in 2029/30 and brings the tax-take to an all-time high of 38% of GDP in 2030/31.
This is where it’s coming from:
- Freezing tax thresholds raising £8billion.
- Pensions: taxing salary-sacrifice arrangements raising £4.7billion from April 2029.
- Property, savings and dividends: increasing the tax rate on dividends, property and savings income by 2%, raising £2.1billion.
- Corporation tax: reducing the writing down allowance main rate, raising £1.5billion.
- Electric vehicles: a mileage-based charge on battery electric and plug-in hybrids from 2028, raising £1.4billion.
- Gambling: changes to taxation of gambling, raising £1.1billion.
- Employee Ownership Trusts (EOTs): reduced CGT relief, raising £900million.
- “Mansion tax”: a council tax surcharge on properties worth over £2million, raising £400million.
- Tax admin and debt collection: changes raise £2.3billion.
- Fuel duty rises but partially offset by a freeze to fuel duty for a further five months, followed by stages increases from 2026, costing £2.4billion next year and £900million each year following.
- Other taxies and levies raise £4.4billion.
The details of the measures announced
Minimum wage (already announced)
For over 21s, this will rise by 50p per hour to £12.71 from April 2026.
18s-20s, this will rise by 85p to £10.85 per hour.
16s and 17s and apprentices, this will rise by 45p to £8 per hour.
Two-child benefit cap will be abolished from April 2026.
Income tax
Thresholds and allowances: The income tax and NI thresholds will be frozen until at least the end of 2030/31.
| Band | Taxable income | Rate |
| Personal allowance | Up to £12,570 earned* | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
*Reduced by £1 for every £2 earned between £100,000 and £125,150
As a result many more people will pay income tax and many will move into paying higher rate tax.
Property, savings and dividend income: The basic and higher rate of income tax on property, savings and dividend income will increase by 2% from April 2027 for property and savings income and from April 2026 for dividend income. The new rates in summary will be:
| Source | Effective from | Basic rate | Higher rate | Additional rate |
| Property | 6 April 2027 | 22% | 42% | 47% |
| Savings | 6 April 2027 | 22% | 42% | 47% |
| Dividend | 6 April 2026 | 10.75% | 35.75% | 39.35% |
Non-resident dividend tax credit : The dividend tax credit for non-UK residents with UK income will be abolished, aligning their treatment with UK residents. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2026.
Pension contributions: From April 2029, salary sacrifices into pension schemes above an annual £2,000 threshold will no longer be exempt from income tax and National Insurance. Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.
Individual Savings accounts: The full £20,000 allowance remains but £8,000 of this will have to be invested in stocks and shares. But over 65s will retain the full £20,000 cash allowance.
Business tax
Capital allowances: Writing-Down Allowances: Introduction of a new 40% First Year Allowance for main rate expenditure – including most expenditure on assets for leasing and expenditure by unincorporated businesses – from 1 January 2026. From 1 April 2026 for corporation tax and 6 April for income tax, main rate writing-down allowances will reduce from 18% to 14%.
Property tax
“Mansion tax”: High Value Council Tax Surcharge: From 2028/29, in England, properties worth more than £2million will pay a £2,500 annual charge, rising to £7,500 for properties worth more than £5million.
Capital gains tax
Employee ownership trusts (EOTs): The relief for the qualifying sale of shares into an EOT which is currently at 100% will be reduced to 50% for disposals on or after 26 November 2025.
Capital gains tax anti avoidance share: exchanges and reorganisations: Modernisation of the anti-avoidance provisions that apply to share exchanges and company reorganisations with immediate effect. This will be legislated for in Finance Bill 2025-26.
Capital gains tax: Non-resident capital gains: The government will amend non-resident capital gains tax rules, closing loopholes for protected cell companies and clarifying legislation for investors. Changes apply with immediate effect, with further administrative reforms from 6 April 2026. This will be legislated for in Finance Bill 2025-26.
Vehicle tax
Electric vehicles: There will be a new mileage charge on electric vehicles and plug-in hybrids from 2028. This will be payable each year alongside vehicle excise duty at 3p per mile for electric cars and 1.5p for plug-in hybrids.
Fuel duty: rises but partially offset by a freeze to fuel duty for a further five months, followed by stages increases from 2026, costing £2.4billion next year and £900million each year following.
Business taxes to encourage entrepreneurship, investment and growth
EMI company eligibility expansion – the employee limit will rise from 250 to 500, the gross assets test to £120 million, and the company share option limit to £6 million from April 2026. The maximum holding period will increase to 15 years including in respect of existing EMI contracts. This will be legislated in the Finance Bill 2025-26. The EMI notification requirement will also be removed from April 2027. This will be legislated in Finance Bill 2026-27.
Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) – the VCT and EIS company investment limit will be increased to £10 million, and £20 million for Knowledge Intensive Companies (KICs) and the lifetime company investment limit increased to £24 million, and £40 million for KICs. The gross assets test will increase to £30 million before share issue, and £35 million after, from April 2026. Alongside this, the VCT income tax relief will decrease to 20%. These changes will be legislated in Finance Bill 2025-26.
Call for Evidence into the tax support for entrepreneurs – The government has published a Call for Evidence that seeks views on the effectiveness of existing tax incentives, and the wider tax system for business founders and scaling firms, and how the UK can better support these companies to start, scale and stay in the UK. The Call for Evidence will close on 28 February 2026.
Inheritance tax
The inheritance tax nil-rate bands are already set at current levels until April 2030 and will stay fixed at these levels for a further year until April 2031. The forthcoming combined allowance for the 100% rate of agricultural property relief and business property relief will also be fixed at £1 million for a further year until 5 April 2031. This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2030.
Modernising the tax system and administration issues
There was a huge list of new plans, procedures and rules, which will take some time to get our heads around. However, the following stands out as a welcome initiative.
State Pension and Simple Assessment – the government will ease the administrative burden for pensioners whose sole income is the basic or new State Pension without any increments so that they do not have to pay small amounts of tax via Simple Assessment from 2027-28 if the new or basic State Pension exceeds the personal allowance from that point. The government is exploring the best way to achieve this and will set out more detail next year.
