The Chancellor’s much anticipated Budget delivered a wide-ranging set of tax and policy changes affecting savers, investors, homeowners, employers and business owners. Our summary of the key announcements are set out below.
Mansion Tax – New Annual Charge from April 2028
The Chancellor has confirmed the introduction of a so-called “Mansion Tax” on residential properties valued over £2 million, due to commence in April 2028. Approximately 100,000 properties are expected to fall within its scope.
Annual charges will be:
Media commentary has pointed to potential behavioural shifts, particularly among older homeowners who may consider downsizing.
The tax will be administered via the council tax system, although it remains unclear whether this will trigger a broader council tax revaluation exercise or a separate valuation process. Further detail is expected in due course.
2% Tax Rise on Property and Investment Income
The Chancellor confirmed a 2% increase to income tax rates applied to:
The stated rationale is that these income streams are not subject to National Insurance, the top rate of which is 2%.
This is yet another hit to landlords, who have faced significant tax and regulatory changes over the last decade. Concerns remain that additional pressures may lead some landlords to leave the market, reducing rental availability.
For investors, higher tax rates will reduce net returns. Some companies may consider accelerating dividend payments before 5 April to benefit from current, lower rates. The increase in the dividend rates will mean that the s.455 charge on companies for loans to participators will increase to 35.75%.
Income Tax Threshold Freezes Extended to 2031
As anticipated, income tax bands and allowances will remain frozen for an additional two years, taking the freeze to 2031. This is expected to raise around £8 billion.
Due to wage inflation, more individuals will drift into higher tax bands or become taxpayers for the first time. While headline income tax rates remain unchanged, the effect of the freeze will be felt widely—particularly around the £100,000 threshold, where breaching this limit has a number of knock on impacts, such as the loss of the personal allowance and certain childcare support payments.
This measure will increase HMRC’s workload substantially, with more pensioners and first-time taxpayers expected to need to complete self-assessment returns.
National Insurance & Salary Sacrifice – Relief to Be Capped on Pension Contributions
From April 2029, the Government will cap the amount of pension contributions that can benefit from a National Insurance exemption under salary sacrifice arrangements.
Currently, pension contributions made via salary sacrifice avoid both employee and employer NICs. The Chancellor highlighted the significant expected increase in cost to the Government from this exemption.
Under the new rules:
Although the measure is expected to raise £4.7 billion, it will reduce the appeal of higher pension contributions via salary sacrifice and could reduce long-term retirement savings for many workers. Employers who pass on their NIC savings to employees’ pensions will need to review their arrangements.
Cash ISAs – Allowance Cut for Under-65s
From April 2027, the annual subscription limit for cash ISAs will reduce from £20,000 to £12,000 for individuals under the age of 65.
The full £20,000 allowance will remain available for Stocks & Shares ISAs.
The Government has framed this as a long-term commitment to encouraging retail investment into UK markets by nudging savers towards equity-based products rather than cash. While ISA returns remain entirely free of Income Tax and Capital Gains Tax, the Chancellor noted that stock market investments have historically offered better long-term growth—however, the importance of financial literacy and understanding investment risk needs to be emphasised.
For savers aged 65 and above, the full cash ISA allowance will remain unchanged, signalling an acknowledgement that many retirees prefer lower-risk options.
This marks a similar return to the pre-2014 structure, when the cash element of an ISA was capped at 50% of the overall allowance.
Capital Allowances
A new First Year Allowance of 40% will be available for most general pool qualifying assets from 1 January 2026, which is available to both companies and unincorporated business. However, the writing down allowance from general pool assets will reduce to 14% from 18% which reduces the annual tax relief on longer term capital expenditure.
Venture Capital Trust / Enterprise Investment Schemes
The Government has announced that it will increase the annual amount that a company can raise under the Venture Capital Trust (VCT) scheme and the Enterprise Investment Scheme (EIS) company investments to £10m (from the current £5m). For Knowledge Intensive Companies (KICs) it is increased to £20m (from the current £10m). The lifetime company investment limits are also being raised to £24m, and £40m for KICs.
However, the announcement also included a reduction in the rate of VCT income tax relief for investors to 20% (currently 30%). There does not appear to be a similar reduction in the rate for EIS investment which remains at 30%.
Transferable BPR/APR allowance
The restrictions to Business Property Relief and Agricultural Property Relief were a key part of the October 2024 Budget. The restrictions are set to apply from April 2026. Under these new rules, each individual gets a £1m allowance whereby full relief can still apply. That allowance will now be made transferrable between spouses on death.
Removal of flat rate claim for homeworking expenses
Currently, employees can claim a fixed deduction of £6 per week without providing receipts. This flat rate claim is to be abolished from April 2026.
Temporary non residents – removal of post departure trade profits relief
There was a significant change to the Temporary non-residence rules (TNR), specifically rules relating to dividends paid to non-UK tax residents from close companies.
Currently individuals who returned to the UK after a temporary period of non-residence (broadly five years or less) would, along with certain other sources of income and gains, be taxed on dividend income in the year of return. An important exception to this was dividends paid out of ‘post departure trade profits’; such dividends would not be taxed in the year of return, even if the individual had resumed tax residency with five years.
The new proposals will, from 6 April 2026, remove the exclusion for the post departure trade profits, resulting in all dividends being taxed in the UK in the year of return at the prevailing rate of tax. This has been described as closing a ‘loophole’, although it was never a loophole as such, but an intended consequence of the legislation when it was first introduced in 2013. This change could have important consequences for anyone who has left the UK who is caught by the TNR – such individuals will need to carefully review their circumstances to avoid a surprise tax liability.
Non-resident trusts – IHT
The Budget included some proposals to limit IHT charges on Trusts that previously qualified as “excluded property trusts” to £5m. Further details are awaited.
It also included a proposal to extend the charge on offshore assets that are linked with UK residential property to UK agricultural land and buildings from April 2026.
Incorporation relief
Incorporation relief will need to claimed from April 2026. Claimants will be asked to provide brief details of the transaction, the tax computations and type of business transferred.
Other changes include:
This article provides a summary of the announcements; we are working through the documents to consider the finer details. Our colleagues at Sumer have issued a full detailed report here. If you would like to discuss any of these changes with us, please get in touch.
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