The Budget 2025: key changes for individuals and businesses

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This week, Chancellor Rachel Reeves unveiled the long-anticipated and speculated 2025 budget. Within it are several key changes; here, our legal experts explain how they will affect you and your business and what you need to do next.

Changes affecting individuals and households

Income Tax and National Insurance (NI) thresholds are frozen until 2031

This means the point at which higher rates apply doesn’t rise, potentially pushing more people into higher marginal tax rates over time.

What to bear in mind:

  • Middle-income earners, especially those getting pay rises in the coming years, will be most affected as they will drift into higher tax bands as wages increase.

Tax on savings and property income will go up

  • Savings income rates rise by 2%
  • New tax bands are being introduced for income related to property

What you need to do:

  • This change will affect investors, landlords, and those with rental/investment income.
  • With this and the Renters’ Rights Bill in mind, some landlords may want to increase rent or sell properties. It is important to be aware of your obligations as a landlord and how you need to communicate any changes to your tenants. If you are unsure, seek advice from a landlord and tenant solicitor.

Tax reliefs on agricultural property

From April 2026, the £1 million threshold of the family farm tax can be transferred between spouses and civil partners.

What you need to know:

  • The first £1m of combined business and agricultural assets will not be subject to Inheritance Tax (IHT), but anything over £1 million will be, with a 50% relief.
  • This means the IHT rate (after relief) on the excess will be 20%, rather than 40%.
  • Heirs to farmland may not be able to inherit the whole farm if they do not have the funds to pay IHT.

What you need to do:

  • If you own a farm, it is wise to speak to an estate planning lawyer about how your land will be passed on after your death. This could be through gifting assets now or using Trusts to minimise the IHT payable by your loved ones.

Mansion tax for properties worth £2 million

From April 2028, homes worth more than £2 million will have to pay a new property tax

What you need to know:

  • There are four bands, starting with £2,500 for properties worth £2 million and £2.5 million, rising to £7,500 for those worth £5 million or more.
  • The tax will be payable as an annual surcharge on top of your council tax.
  • The property valuation will be based on what it was worth in 2026, not necessarily what you bought it for.

What you need to do:

  • If you are considering buying or selling a high-value property in the next two years, it is worth considering whether you can afford to pay this extra tax. It is an annual payment, not a one-off cost.
  • Bear in mind that the ‘rush’ to buy and sell before this mansion tax comes into effect may affect property prices and stock.

Changes for business owners and employers

Minimum wage to rise from April 2026

What you need to do:

  • If you employ anyone, now is a good time to review your payroll and amend any handbooks and policies you have. Contact our employment law solicitors for advice.

Tax on dividends to rise by 2%

This means that payments to shareholders will be subject to increased tax, particularly affecting business owners who extract profits through dividends.

What you need to know:

  • Increased dividends tax may impact how an SME owner best structures their ‘drawings’, so obtaining tax advice on this is key.

Salary-sacrifice pension contributions lose some tax benefit

Contributions beyond £2,000 per year will be subject to NI for many employees. Pensions remain tax-efficient, but not as much under a salary sacrifice scheme.

What you need to do:

  • Employers should communicate how this change will be reflected in their salary sacrifice schemes, especially for higher earners making larger contributions.
  • Seek pension advice if you need to change your policies and procedures.

Capital Gains Tax (CGT) relief for Employee Ownership Trusts (EOT) to be reduced from 100% to 50%

Previously, owners selling their shares to an EOT could get 100% relief from CGT, meaning no CGT was payable on the gain at the point of sale.

What you need to know:

  • Now (from 26th November 2025), only 50% of the gain is immediately exempt, and the other 50% is subject to CGT.

The Government is doubling eligibility for enterprise tax-incentive schemes

The increase in the eligibility for the number of employees/gross assets, effective from April 2026, makes it easier for scale-ups to attract investment and grow.

Increase to Business Asset Disposal Relief (BADR) CGT rate still to come

The CGT rate with Business Asset Disposal Relief increased in April 2025 to 14%, and there is still a further change to come. In April 2026, there will be an 18% increase in the BADR CGT rate for qualifying disposals.

What you need to do:

Further information

If you need specialist legal advice about any of these changes, we can help.

To speak to a member of our team, call 0117 325 2929 or fill out our online enquiry form.

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