Autumn Budget 2025: Individuals

Although the Chancellor kept her manifesto promise not to increase the headline rate of income tax, increased rates on dividend, savings and property income are set to be introduced. From April 2026, dividend tax will see two percent increase, with the basic rate rising from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. The additional rate for dividends will remain at 39.35%.

From April 2027, savings income tax will also increase by 2 percentage points across all bands. The basic rate will move from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%.

Additionally, separate tax rates for property income will be established from April 2027. These new rates will mirror the updated savings income rates: a property basic rate of 22%, a property higher rate of 42%, and a property additional rate of 47%. Finance cost relief will be provided at the new property basic rate of 22%. It is important to note that while the tax rates are changing, the methods for reporting and paying tax on property, savings, and dividend income will remain unchanged. This change will not apply to taxpayers in Scotland – taxpayers there will have to wait until the Scottish Budget in January 2026 to find out if these changes are mirrored there.

Combined with the above, the thresholds for personal tax and employer National Insurance contributions (NICs) will be frozen for an additional three years from 2028-29. As a reminder, the tax rates are currently as follows:

Moore Kingston Smith comment

A 2% increase to the taxation of property income across all rate bands was one of the many rumoured changes ahead of the budget.  However, there is some relief that these increases will not apply until April 2027 and that mortgage interest relief will be at the new property basic rate of 22% instead of remaining at the current 20% rate.

It is not surprising to see a similar increase to the tax rate on dividends, although not affecting individuals with taxable income over £125,140 (additional rate taxpayers). As these increases will apply from 6 April 2026, it would be beneficial to review increasing distributions before that date where taxable income is below the additional rate band.  However, with the bandings unchanged, care needs to be taken to prevent an extra dividend being taxed in a higher band or leading to a reduction in the personal allowance.

The HVCTS will be introduced on residential properties in England valued at £2 million or more from April 2028, in response to perceived unfairness in the UK’s current council tax system. Homeowners, not occupiers, will be liable for the HVCTS in addition to their existing council tax, and social housing will be exempt. The proposed rates and thresholds are as follows:

The Valuation Office will conduct a targeted exercise to identify eligible properties, with fewer than 1% of properties expected to meet the £2 million threshold. Revaluations will then take place every five years.

The government will consult in early 2026 to discuss details, including a support scheme for those who may struggle to pay, as well as reliefs, exemptions, and rules for complex ownership structures.

Moore Kingston Smith comment

The HVCTS is a watered-down version of wealth tax that had been in discussion in the months leading up to the budget. This new tax will distort the property market for high value properties with a number of cliff edges being created meaning that properties will stick at a value below each threshold to avoid triggering the higher level of surcharge. The government acknowledge that this new tax will result in less SDLT and CGT being collected as property prices are driven down with £335m being the cost to the government in the years leading up to its introduction. Once this new tax is in place from April 2028, it is also expected that there will be a large number of appeals against valuation assessments making this a very costly tax to implement and police with an upside of around £400m per year of tax collection which, in the overall scheme of a budget, is a modest sum.

Following consultation, the government have announced that, where any of the £1 million allowances for the 100% rate of agricultural property relief and business property relief are not fully used, these will now be transferable between spouses and civil partners.

This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2026.

Moore Kingston Smith comment

Following the furore of the APR and BPR changes, which were originally announced in the 2024 Autumn Statement, there was an HMRC consultation over the summer to which we contributed. One of the key messages we included was where a spouse or civil partner died, their allowance died with them.

While the overall changes are still being introduced and will significantly impact the inheritance tax on the transfer of family businesses to younger generations, it is welcome that any unused relief can be transferred to a surviving spouse or civil partner.

The ISA cash limit will be set at £12,000 from 6 April 2027, although individuals over the age of 65 will still have a cash limit of £20,000. The limits for Lifetime ISAs and Junior ISAs and Child Trust Funds will remain at £4,000 and £9,000 respectively until 5 April 2031.

Moore Kingston Smith comment 

Adding to tax complexity, ISAs are being reformed while at the same time staying the same with the annual limit remaining at £20,000. The rules governing the investments which can be held in the stocks and shares element are not being changed.

The UK government plans to introduce Electric Vehicle Excise Duty (eVED) from April 2028, to reflect the usage of the road network by electric vehicles. eVED will be a mileage-based tax administered by the Driver and Vehicle Licensing Agency (DVLA) and integrated into the existing Vehicle Excise Duty (VED) system.

The rate for fully electric cars will be 3 pence per mile, which is approximately half the 6 pence per mile paid by average petrol or diesel drivers. Plug-in hybrid electric vehicles (PHEVs) will pay a reduced rate of 1.5 pence per mile, acknowledging they still pay fuel duty on petrol usage.

All UK-registered EV and PHEV cars will be in scope of eVED from April 2028, while other vehicle types such as vans, buses, coaches, motorcycles, and HGVs will be out of scope upon its introduction. Motorists will estimate their annual mileage and pay eVED alongside their VED, either upfront or through monthly instalments. At the end of the year, actual mileage will be reconciled, with adjustments for under or overpayments. To protect privacy, the scheme will not require trackers or reporting of where and when miles are driven. Mileage checks will primarily use data from annual MOTs, with additional checks for cars under three years old.

Moore Kingston Smith comment 

Drivers of electric cars ranging from SUVs like the Tesla Model Y, to superminis like the Renault 5 will be subject to a form of a pay-per-mile road tax system, whilst those driving a plug-in hybrid (PHEV) such as the Toyota Prius will also have to pay, but at a reduced rate of one-and-a-half pence per mile rather than three pence.

These charges come on top of Vehicle Excise Duty, which currently stands at £195 per year. However, the rates are significantly less than those paid by petrol or diesel drivers, so the measure appears to be striking a balance of reflecting the use of the road system, but encouraging the green agenda.

The temporary non-residence (TNR) rules and impose tax on certain income and gains on individuals returning after certain periods of temporary non-residence. At the moment there is currently no charge to tax if the distribution or dividend is made from ‘post departure trade profits’ (ie profits accruing to the company after the individual left the UK, determined on a just and reasonable basis). This rule is now being amended so that all distributions or dividends received from a close company whilst temporarily non-resident will be chargeable to UK income tax if caught by TNR rules.

The measure will have effect for individuals returning to the UK on and after 6 April 2026.

Moore Kingston Smith comment 

This unexpected change broadens existing anti-avoidance measures. It primarily impacts individuals who become temporarily non-UK resident, own shares in personal companies, and receive dividends during their period of non-residence. Under the new rules, dividends paid from profits generated while non-UK resident will now be subject to UK taxation, representing a notable change for affected individuals. With anecdotal reports of an exodus of individuals from the UK in recent months, there will be many who will need to consider the implications for themselves if their plans to stay outside the UK change.

More than ever, those planning to receive UK tax-free dividends will need to ensure they remain non-UK resident for more than five years to avoid these rules from applying to them.

This measure introduces several changes to the capital gains rules for disposals of UK land and property by non-UK resident persons, known as non-resident capital gains (NRCG) rules. Specifically, it amends the definition of a UK property-rich entity for Protected Cell Companies (PCCs), so that individual PCC cells are considered for property richness and substantial indirect interest tests, rather than the PCC as a whole. Additionally, it clarifies when certain individuals must make double taxation treaty claims.

The change to the definition of property-rich entities will apply to disposals made by PCCs on or after 26 November 2025.All other changes will take effect from 1 April 2026 for companies and 6 April 2026 for individuals.

Moore Kingston Smith comment 

This targeted anti-avoidance legislation, expected to have limited application, aims to extend capital gains tax to protected cell company structures that have previously fallen outside existing rules due to their unique structure. Those impacted are likely to hold substantial UK property interests so this change will be very unwelcome news.

From 6 April 2027, all image rights payments related to an employment will be treated as taxable employment income, subject to income tax and National Insurance.

Moore Kingston Smith comment 

This would be a sea change affecting the tax on image rights for professional sportspeople.

The exploitation of image rights is totally different to the skills demonstrated on the track or field under an employment contract.

While the appropriate value to attribute to an individual’s image rights will clearly depend on the individual, it is disappointing to see that a blanket rule will apply to tax all this income as employment income from April 2027 and is a reaction from government to aggressive tax planning using these rules.

The government is changing the current Voluntary National Insurance contributions (VNICs) to stop certain overseas individuals from paying the lowest rate of Class 2 voluntary contributions to gain entitlement to the UK State Pension. They are also increasing the initial residency or contributions requirement for VNICs to 10 years.

This is taking place as part of a wider review of VNICs, with a call for evidence to be published in the new year.

Moore Kingston Smith comment 

The eligibility period for non-UK residents to make voluntary National Insurance contributions will be increased from three to ten years. To maintain entitlement to the UK State Pension, individuals must now pay the higher Class 3 rate (£17.75 per week), rather than the previous Class 2 rate (£3.50 per week). While this change requires additional higher payments, it may be still be worthwhile for some of those seeking to secure a higher or full State Pension, which would otherwise be lost due to gaps in their National Insurance contribution record.

Two new IHT anti-avoidance measures have been announced. The first measure will treat UK agricultural land and buildings as situated in the UK for IHT purposes by looking through non-UK companies. An IHT charge will apply if a settlor ceases to be a long-term UK resident and there is a subsequent change in situs of their trust assets from UK to non-UK.

The second measure will restrict the IHT charity exemption to gifts made directly to UK charities and community amateur sports clubs.

These changes will take effect for trust exit charges and lifetime gifts to charities from 26 November 2025, and for UK agricultural property and gifts on death from 6 April 2026.

Moore Kingston Smith comment 

The anti-avoidance measures seek to ignore holding structures and consider the underlying asset so that IHT applies on any transfers out of a trust immediately and on deaths from 6 April 2026.  These are expected to be similar to anti avoidance rules already in place for entities holding residential property.