Autumn Budget 2025
The Chancellor, Rachel Reeves, delivered her Autumn Budget today. Please find a breakdown of the key measures affecting Individuals, Sole Traders, and Limited Companies below.
SECTION 1: Impact on Individuals & High-Net-Worth Clients
The main burden on individuals comes from the continuation of the allowance freezes, which effectively increases the tax paid on rising wages.
| Tax Measure | New/Extended Threshold or Rate | Effective Date | Strategic Impact |
| Income Tax Thresholds (FREEZE) | Frozen at current levels: Personal Allowance £12,570, Higher Rate Threshold £50,270, and Additional Rate Threshold £125,140. | Extended until April 2031 | This extension is the largest tax-raising measure. It will drag millions more people into paying Income Tax, and is causing what is known as the “fiscal drag” |
| Dividend Income Tax Rates | Increased by 2% across all bands. | To be confirmed (Likely April 2026) | This impacts investors and, crucially, directors who extract profit via dividends. The Basic Rate will rise from 8.75% to 10.75%, and the Higher Rate will rise from 33.75% to 35.75%. |
| Savings Income Tax Rates | Increased by 2% across all tax bands. | To be confirmed (Likely April 2026) | This applies to interest income received outside of ISAs, raising the tax bill for basic and higher-rate taxpayers whose interest exceeds the Personal Savings Allowance. |
| Cash ISA Allowance | Reduced from £20,000 to £12,000 per year. | From April 2027 | This cut applies to savers under the age of 66. This measure aims to push younger savers toward investment (Stocks & Shares ISAs, which retain the £20,000 limit). |
| Pension Tax-Free Lump Sum | No Change | N/A | Rumours of capping the 25% tax-free lump sum have not been confirmed. |
| New Property Levy | Council Tax Surcharge on homes valued over £2 million. Tiered rates apply (e.g. £2,500 to £7,500 annually). | From April 2028 | This is a new wealth-related tax on high-value properties. |
SECTION 2: Impact on Sole Traders & Landlords
Sole traders are primarily affected by the personal tax freezes and the new taxes on property income.
| Tax Measure | Change Announced | Effective Date | Strategic Impact |
| Income Tax/NI Thresholds | Freeze Extended. | Until April 2031 | Self-employed individuals are fully exposed to “fiscal drag.” As trading profits increase with inflation, a larger proportion of their income is taxed at the 40% Higher Rate. |
| Property Income Tax | Rates Increased by 2%. | To be confirmed (Likely April 2026) | Sole trader landlords will pay 2% more tax on their rental profits. This further squeezes profitability in the private rental sector. |
| VAT Registration Threshold | Remains Frozen at £90,000. | No Change | The freeze is maintained. Growing sole traders are still being dragged into the VAT system prematurely, increasing administrative burden and complexity. |
| Fuel Duty | Extended Freeze | Until September 2026 | The 5p cut in Fuel Duty is maintained, offering a small respite on operational vehicle costs. |
SECTION 3: Impact on Limited Companies & Director Planning
The Budget targeted key tax reliefs, increasing the cost of certain popular remuneration and investment strategies.
| Tax Measure | Change Announced | Effective Date | Strategic Impact |
| Director Dividends | Tax Rates Increased by 2%. | To be confirmed (Likely April 2026) | We can review this impact to calculate whether you’ll be best on a salary and dividend split income or just through salary. |
| Salary Sacrifice Pensions | NI Exemption Capped. | From April 2029 | National Insurance relief on contributions will only apply to the first £2,000 per year. Above this cap, contributions will be subject to NICs. This reduces the NI benefit for both the employer and high-earning employees. |
| Writing Down Allowance (WDA) | Main Rate Reduced. | To be confirmed (Likely April 2026) Potentially 15-16% | The WDA rate for plant and machinery will be reduced. This slows down the rate at which businesses can claim tax relief for long-term capital investment. |
| First year allowance and Annual Investment Allowance | No Change | Permanent | The 100% deduction for qualifying plant and machinery investment remains permanent, continuing to encourage high levels of capital expenditure. |
| Electric Vehicles (EV) | New Mileage-Based Charge Introduced. | From April 2028 | EVs and Plug-in Hybrids will face a pence-per-mile tax (e.g., 3p/mile for BEVs). However, the ultra-low Benefit-in-Kind (BiK) rates for company cars remain intact (e.g., 3% for 2025/26), preserving the main tax benefit for corporate fleets. |
Understanding “Fiscal Drag”
Why fiscal drag affects you: In a period where inflation forces wages up (e.g., you receive a 5% pay rise), a fixed tax threshold means:
- More Taxable Income: A larger proportion of your overall income is now subject to tax, because your tax-free allowances are not increasing in line with prices.
- Higher Rate Taxpayers: Many individuals whose income is only increasing in line with inflation are being pushed into the 40% Higher Rate tax band.
- Real Income Loss: If you receive a 5% pay increase to combat 5% inflation, the resulting tax and National Insurance deduction (up to 28% for a basic rate earner) means you only keep around 3.6% of your raise. Your purchasing power has been reduced, making you worse off in real terms.
The extension of these freezes ensures that this mechanism will be the primary method of revenue generation until the next decade. Proactive tax planning is essential to mitigate its cumulative effect.