How the Autumn Budget 2025 will affect Professional Firms
Finally, after weeks of potential tax changes being raised and then discounted, or even left hanging, we have the Autumn Budget. In a final act of pre-announcement, the Office of Budget Responsibility report was released on its website before the chancellor, Rachel Reeves, delivered her statement to Parliament.
Multiple measures have been announced with the continued freezing of tax bandings, extended by three years to 2030/31 expected to generate the most revenue. There are key changes affecting professional firms, each having a different implementation date.
Employee Ownership Trusts (EOT)
EOTs are on the rise in professional firms as it has become an increasingly popular exit route in recent years, particularly for property professionals and recruitment consultants. The chancellor’s announcement may mean EOTs become a less attractive option going forwards.
The immediate cutting in half of the tax relief, from 100% to 50%, on disposals of businesses to an EOT is expected to have a significant impact on the use of this method as an exit strategy for business owners. Coupled with the reduction in the lifetime allowance for business asset disposal relief to £1 million in 2020 and the increased rates of capital gains tax in October 2024 to 24%. This change reinforces the importance of fully considering the available options when the time comes to sell your firm.
Dividend income
The tax rate on dividends will increase by 2% for all basic rate and higher rate taxpayers from 6 April 2026. There are no changes to the dividend tax rate for additional rate taxpayers, those whose taxable income exceeds £125,140. Individuals whose taxable income is below the additional rate limit should therefore consider accelerating dividend withdrawals.
Property and savings income
The increase to the tax rate on property and savings income will apply from 6 April 2027. Again, these will increase by 2%, but will apply to all income levels, impacting basic rate, higher rate and additional rate taxpayers.
Pensions
The only changes to pension tax relief are to the national insurance (NI) on pension contributions made under salary sacrifice. Currently there is no employer’s or employee’s NI on these contributions.
This will change for contributions made through salary sacrifice from 6 April 2029, when NI relief will be restricted to £2,000 of contributions per year for both employers and employees. As this is still more than three years away and could come into effect shortly before a general election, it might not be implemented as announced.
Inheritance tax (IHT)
Significant changes to Business Property Relief and Agricultural Property Relief were announced in the 2024 Autumn Budget and are due to come into effect for estates and trusts from 6 April 2026. The changes removed 100% IHT relief on all qualifying assets and restricted it to 100% on the first £1 million and 50% relief on the remaining qualifying assets. The £1 million allowance was not transferable between spouses/civil partners, when the changes were announced last year. Thankfully, this inequity has now been removed so any unused allowance will be transferable when the rules come into effect.
Conclusion
To discuss any of the matters announced in the Autumn Budget 2025 and how they affect you or your firm, please get in touch with our Professional Firms specialists.
