Understanding the UK Budget 2025: Key Changes and Their Impact
The UK Budget 2025 highlights several significant changes that will impact businesses, property investors and individuals in the coming years. Here’s a breakdown of the main points, outlining what you need to know and what this could mean for you.
Property Income Tax is on the rise:
From April 2027, income from letting property will be taxed at new rates: the basic rate moves to 22%, the higher rate to 42% and the additional rate to 47%. For landlords and property investors, this represents a 2% percentage increase across all tax bands – impacting tax liabilities on tax returns.
40% up front write-off on new investments
From 1st January 2026, main-rate assets will qualify for a 40% first-year capital allowance. However, the main-rate writing down allowance rate will be reduced from 18% to 14% from 1st April 2026 for companies and 6th April 2026 for unincorporated businesses. Most businesses will still be able to benefit from the £1 million Annual Investment Allowance (AIA) with companies being able to continue utilising the Full Expensing regime. Unincorporated businesses incurring capital expenditure beyond £1 million should consider the timing of capital expenditure which would be ever more critical. Investing earlier may yield a higher tax relief whereas delaying might reduce the benefit.
Dividend Tax Rise
From April 2026, dividend income will be taxed more heavily under the new rates; the basic rate will increase to 10.75% and the higher rate to 35.75% relative to the existing rates of 8.75% and 33.75% respectively. For business owners relying on extracting profits through dividends, the cost will therefore increase.
“Frozen Tax Bands: Stealth Tax via Fiscal Drag”
Income tax and NI thresholds remain frozen until at least 2030-31. As individuals’ incomes continue to rise, more people will move into higher tax brackets increasing their tax burden and making them worse off in real (i.e. inflation-adjusted) terms over time.
Salary sacrifice pension contributions capped
From April 2029, pension contributions via salary sacrifice above £2,000 per year will no longer be exempt from National Insurance (NI) charges. This means both employees and employers using salary sacrifice potentially face higher NI when seeking to make pension contributions, thereby eliminating the benefit of pension contributions as part of salary sacrifice arrangements. The move could encourage businesses & individuals to front-load pension contributions given that the measure doesn’t take effect till April 2029.
Final Thoughts
The UK Budget 2025 brings notable changes that will impact a range of individuals and businesses. As a company director, you may need to reassess how you extract income in the most tax efficient way before April 2026 to maximise available reliefs. For landlords, the rise in property income tax rates makes it critical to have your tax-deductible expenses in order.
If you’re a business owner, investor, or concerned citizen, consulting with financial experts or tax professionals such as your local accountants can help navigate these shifts and optimise your strategies under the new policies.
Contact Cheylesmore Accountants today for any further advice or help regarding the UK Budget 2025.