UK Budget 2025 - An End To Uncertainty? (Video)

In 1947 Hugh Dalton resigned as UK Chancellor when part of his Budget speech was leaked 20 minutes beforehand. How times have changed. As the Deputy Speaker of the House of Commons sternly observed immediately prior to the Chancellor's speech this afternoon, the practice of trailing fiscal policies in the press in the lead up to the Budget has (lamentably) been growing for years, in spite of the Ministerial Code's prescription that the most important policy announcements should first be made to Parliament. Today's shambles, which saw the Office of Budget Responsibility publish key documents before Reeves' speech, was nothing but a final farcical episode following a series of leaks over many months of possible tax and spending measures.

The outcome of these leaks and the surrounding speculation has been a high degree of uncertainty for UK taxpayers and those considering relocating to the UK. For many, that uncertainty proved intolerable, particularly following the historic changes to the UK tax system enacted barely six months ago. It is clear to all those advising wealthy individuals on UK taxation that this period of speculation has led to a yet further outflow of individuals from the UK, taking with them their capital, energy and entrepreneurialism.

Much damage was done before the Chancellor even rose to her feet, but with the Budget now finally delivered, the tax policy changes which the UK is left with (to the relief of many) may seem rather modest when viewed against some of the proposals which had surfaced in the press, providing welcome certainty for those considering UK residency.

A key driver of concern among wealthy UK residents has been the possible introduction of an exit tax. Such a tax could have taken many forms but in principle may have treated those ceasing UK tax residence as making a disposal of all of their assets at that point for capital gains tax (CGT) purposes, with a resulting charge to tax. The good news was that this did not come to pass, but the concern is that it might have driven many individuals to take steps to cease UK tax residence prior to the Budget. The fear of the introduction of a wealth tax (often ultimately abandoned in those countries which do introduce it) caused similar concerns – but, again, the rumours proved to be just that.

Those operating their businesses through limited liability partnerships (such as doctors, accountants and lawyers) will also be relieved that the suggested changes to the application of national insurance contributions to such arrangements, which would have amounted to a material increase in tax for partners, were shelved.

This Budget therefore raises hopes that the tide has turned with a government which now seems to know it needs to hold on to its wealth creators, as well as to attract new ones. If so, the government will need to go further and faster. It must be hoped too that the Deputy Speaker's admonition will have some effect on ministerial behaviour in the lead in to future Budgets – if not, the UK economy will continue to pay the price for the use of the press as a focus group.

We turn to the policy changes which did make it into the Budget below.

Income tax

As is well known, Rachel Reeves is boxed in by the party's manifesto commitment not to 'increase national insurance, the basic, higher, or additional rates of income tax, or VAT'. The Chancellor stated that she had not breached that commitment with her Budget measures.

While the rates of income tax on earned income may not have changed, there will be a 2% rise on the income tax rates applicable to property income, savings (i.e. interest) income and dividend income (except for the dividend additional rate, which will remain at 39.35%). These new rates will apply from April 2026 for dividend income and April 2026 for property and savings income. Observers may be forgiven for wondering how these plain increases to income tax rates can be squared with the assertion that the manifesto commitment has not been breached.

As was widely trailed, fiscal drag provides the biggest boost to the coffers, with income tax thresholds being frozen at current levels until April 2031. This so-called stealth tax is expected to raise nearly £12bn by 2031.

Relief from national insurance contributions (NICs) on pension payments made through salary sacrifice arrangements will now also be capped at £2,000 per year – payments above this amount to pensions will remain subject to NICs in the usual way. As the marginal rate of NICs for higher earners is generally only 2%, this may come as a relief to those who feared that the government could instead cap income tax relief on pension contributions to the basic rate of income tax (20%) or a flat 25% rate.

Finally, a well-publicised tweak to the ISA rules will mean that, from April 2027, contributions to cash ISAs will be limited to £12,000 per year for under-65s. The overall ISA limit of £20,000 per year will remain unchanged.

Mansion tax

It was widely anticipated that the government would introduce a form of 'mansion tax' on high value properties. Whilst such a tax has been introduced, the tax liability is much less significant than anticipated.

The High Value Council Tax Surcharge will be levied on owners (rather than occupiers) of residential property in England worth £2m or more in 2026, with the charge taking effect in April 2028. The charges will increase in line with CPI inflation each year from 2029/30 onwards, but the initial rates will be:

The Valuation Office will conduct a targeted valuation exercise to identify properties above £2m. Revaluations will be conducted every five years.

Whilst this new charge will place an administrative burden on non-occupying owners of high value residential property, the rate of annual tax is currently relatively low and unlikely to be worth the cost of arguing with the Valuation Office – a point the government no doubt had in mind.

Inheritance tax

Announcements about inheritance tax ('IHT') at the Budget are, like leaks before the Budget, seemingly inevitable. This year, the Chancellor announced the usual threshold freezes and, thankfully, took the opportunity to build on some of the changes announced at the 2024 Budget.

Thresholds

Given that the last increase to the nil rate band (being the amount individuals can leave on their death free of IHT, currently £325,000) was in 2009/10, its continued freezing until April 2031 will not surprise many.

Business property relief and agricultural property relief

At the 2024 Budget, the Chancellor announced significant changes to the once generous business property relief (BPR) and agricultural property relief (APR) rules. Assets that were previously exempt from IHT on death (such as farmland and personal trading companies) under those rules will, from April 2026, be taxed at a rate of 20%, with the first £1m of combined BPR and APR related property to be taxed at a rate of 0%. You can read further information about the changes here.

Today, the Chancellor announced:

• the £1m allowance will be frozen until 5 April 2031; and
• where an individual does not utilise their £1m allowance, their widow/widower can utilise their unused allowance – i.e. the allowance will be transferable. The failure to include provision for this in the original announcement was presumably an oversight.

The government also intends to legislate to ensure that UK agricultural property cannot be taken out of the IHT net through the use of non-UK incorporated holding entities, which is likely to bring a significant amount of UK land held by non-UK residents back within the scope of IHT.

Trusts

From 6 April 2025 onwards, if the settlor of a trust is a long-term UK resident in a particular tax year (i.e. an individual who has been UK resident for at least ten out of the previous 20 tax years), the trust is within the scope of the UK's relevant property regime charges (which are levied on each 10-year anniversary of the trust and when property leaves the trust). These relevant property regime charges apply regardless of when the trust was established.

There will now be a £5m 'cap' on relevant property regime charges for trusts falling within the regime which were settled before 30 October 2024 and used to be treated as 'excluded property' trusts. The cap will be calculated at £125,000 per quarter and will apply cumulatively to exits and 10 year anniversary charges in each 10 year cycle. This is good news for those with existing excluded property trusts and for some could certainly be a reason to stay in the UK.

Entrepreneur reliefs

The UK government has set out an ambitious vision: to transform the country from a launchpad for start-ups into a nurturing home where high-growth companies can scale and thrive. As part of this strategy, it has published both a comprehensive paper on Entrepreneurship in the UK and a Call for Evidence on tax support for entrepreneurs.

As a first step, the government has announced significant enhancements to existing tax reliefs, aiming to boost the flow of talent and capital into scaling companies:

• Enterprise Management Incentives (EMI): The government intends to extend the tax advantages currently available to start-ups to a wider range of scale-ups by broadening the EMI scheme's eligibility. Key changes include: (i) increasing the employee limit from 250 to 500, (ii) raising the gross assets threshold from £30 million to £120 million, and (iii) doubling the limit on the value of unexercised share options from £3 million to £6 million. In addition, the maximum holding period for EMI options will be extended from 10 to 15 years, with this change applying to both new and existing EMI contracts. These changes will take effect from 6 April 2026. Further, from April 2027, the government plans to remove the requirement for companies to notify HMRC of the grant of EMI options, thereby easing the administrative burden.
• Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs): Aiming both to continuing supporting investment in new and early-stage companies as well as encouraging investment into scaling-up companies, the government will increase the maximum amount an individual can invest in a qualifying company and claim EIS or VCT relief to £10 million per year, and £20 million for Knowledge Intensive Companies. The lifetime company investment limit will also rise to £24 million, or £40 million for Knowledge Intensive Companies. In a move to rebalance incentives, the upfront income tax relief for VCTs will be reduced from 30% to 20% (effective April 2026), aligning it more closely with EIS, which does not offer a dividend exemption. EIS income tax relief remains unchanged. Both changes will take place from 6 April 2026.

A central challenge identified is the "scale-up gap" where limits in the tax reliefs lead to a cliff edge in respect of attracting certain investors, and the tendency for promising UK firms to seek capital and opportunities abroad, particularly in the US. The government does appear to now be actively seeking ways to ensure that companies are incentivised to stay and grow in the UK. There is an implicit recognition that while current tax reliefs have been effective, they may be reaching their limits, and new or reformed incentives could be needed.

Arising from the Call for Evidence, there is also clear consideration being given to the development of new incentives aimed at attracting a broader range of investor groups. The government is exploring how the tax system could better secure investment from sources such as corporate capital, pension funds, venture capital funds, and family offices. As such, there may be some interesting new reliefs or incentives introduced in the future to further widen the pool of available capital for scaling businesses.

Notably, the limits on Business Asset Disposal Relief (formerly Entrepreneurs' Relief) have not been amended in this Budget. Given the government's focus on encouraging reinvestment by successful entrepreneurs, the usefulness and targeting of BADR is specifically raised in the consultation. It remains to be seen whether future changes - such as increasing the lifetime limit, which was once £10m but is currently £1m - will be proposed to better support the reinvestment cycle.

The consultation remains open until 28 February, with stakeholders encouraged to share their experiences and ideas. The government's ambition is clear: to create a business environment that rewards risk, enables ambition, and ensures that British innovation translates into jobs and prosperity across the country. The precise shape of future reforms will become clearer as the government digests feedback and considers which options – if any – it then wishes to pursue.

Share exchanges and reorganisations

In line with the government's broader commitment to modernise the UK tax system and support a fair business environment, the Chancellor has announced immediate action to strengthen anti-avoidance rules relating to share exchanges and reorganisations.

Currently, such transactions do not trigger CGT or corporation tax charges when undertaken for genuine commercial reasons. While it is not mandatory, many businesses already seek advance clearance from HMRC to confirm that their transactions comply with existing anti-avoidance provisions.

Looking ahead, the government has signalled its intention to update and modernise these rules. However, as technical papers and draft legislation are yet to be published, the precise scope of the proposed changes remains unclear. Potential reforms could include making HMRC clearance compulsory for certain transactions or increasing the evidential burden on taxpayers to demonstrate that their arrangements are commercially motivated and not designed to avoid tax.

These changes will be relevant to a wide range of businesses - from large multinationals restructuring their groups, to family-owned enterprises seeking more efficient holding structures, as well as high-net-worth individuals consolidating their investments. As with other recent reforms, the government's approach is consultative and evidence-driven, and further details are expected in due course.

Employee Ownership Trusts (EOTs)

A significant change to the CGT relief available on disposals to Employee Ownership Trusts (EOTs) was also announced.

The CGT relief on qualifying disposals of shares to an EOT has been reduced from 100% to 50%, with immediate effect. From today, where there is a qualifying transaction, company shareholders will be required to pay CGT on 50% of the market value of the shares transferred to an EOT (taxed in the year of the sale). The remaining 50% of any gain will continue to benefit from the existing 'no gain/no loss' treatment, meaning there is no immediate tax charge for the selling shareholder on that portion. This deferred gain will only become chargeable if the EOT trustees later dispose of the shares, at which point they will be treated as having acquired the shares at the original base cost of the selling shareholder.

This reduction in CGT relief is the latest step in the government's efforts to ensure that tax incentives remain targeted, effective, and sustainable. While the relief continues to provide a meaningful incentive for employee ownership, business owners considering a sale to an EOT will now need to factor in the new tax treatment for disposals taking place after today.

As with other recent reforms, further technical detail is expected in due course. Businesses considering a sale to an EOT should monitor developments closely as the government continues to refine the EOT regime.

Charity tax

The Budget also confirms that the government will proceed with previously announced reforms to charity tax reliefs, now legislated for enactment from April 2026. These measures are primarily targeted at preventing abuse and ensuring that reliefs are used for genuine charitable purposes. The main changes include:

• Legacies: Legacies received by charities will now be treated as 'attributable income' and must be spent on charitable purposes, or a tax charge will arise.
• Qualifying investments: All types of qualifying investments must now be made for the benefit of the charity and not for tax avoidance, extending a rule that previously applied only to certain investments.
• Tainted donations: The test for tainted charity donations is broadened, making it easier for HMRC to challenge donations where the donor receives a financial benefit.
• Compliance sanctions: HMRC will have greater powers to withdraw tax reliefs from charities that fail to meet compliance obligations, such as timely filing of corporation tax returns.

While these changes are targeted at non-compliant charities, they will have an impact on all organisations. Charities should therefore review their governance and reporting arrangements to ensure continued eligibility for reliefs. The next version of the draft legislation is awaited from HMRC following the closure of their consultation earlier in 2025.

In addition to these confirmed reforms, the government has announced the introduction of a new VAT relief for certain donations of goods to charities and other approved organisations. This relief will take the form of an exclusion from the general VAT rule that typically requires gifts of business assets to be treated as deemed sales and subject to VAT. While no draft legislation has yet been published, the intention is that the final rules will specify the eligible types of goods and set financial limits on the scope of the relief. The new VAT relief is expected to apply from 1 April 2026.

Anti-avoidance

It would not be a Budget without a vow to close the tax gap, and as night follows day, the Chancellor announced a renewed intention to pursue those who break the rules. This year's optimistic forecast is £10 billion over the course of this Parliament. All taxpayers have an interest in the Treasury succeeding in this mission, and we hope they do, but history (and the figures which indicate a material increase in the tax gap among small businesses since Covid) is not on their side.

A final word?

Whilst the media have so far not reacted overly positively to the Budget, a more nuanced view would actually be that it could have been a lot worse for taxpayers and that there are rays of light in amongst the gloom. The stated intention to back business and unlock innovation is definitely a welcome change of tune from the government and the key will be now whether they can back this up over the coming months.

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