For Rachel Reeves, this will be a Budget which will be remembered for all the wrong reasons. In an entirely unprecedented event, most of the main Budget announcements were accidentally published online by the OBR before the Chancellor even stood up to speak in the House of Commons.
With tight public finances and mounting speculation over recent months, this was always expected to be a tax-raising Budget. So, what were the main announcements from a personal tax perspective?
Increase in the dividend tax rates from 6 April 2026
Dividends are taxed at different tax rates to other forms of income, currently being 8.75%. 33.75% and 39.35%.
From the start of the next tax year, 6 April 2026, the basic rate tax applied to dividends will increase 2 percentage points to 10.75% and the higher rate to 35.75%. There will be no increase in the additional rate, or the dividend trust rate, which will both remain at 39.35%.
There is also no change to the dividend allowance which remains at £500.
Increase in the property income and savings tax rates from 6 April 2027
Currently rental profits and savings income are taxed at the same income tax rate as other forms of income, such as salaries, pensions and self employed profits.
From 6 April 2027, property and savings income will be taxed at a different rate with an extra 2% tax added for these income sources – so this will mean that, from 2027/28 onwards, rental profits and savings income will be taxed at 22%, 42% and 47%.
Relief for residential rental finance costs will be calculated at the new property basic rate of 22%.
The savings allowance will remain unchanged at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, nil for additional rate taxpayers.
Freezing of income tax thresholds until 2031
The Personal Allowance and tax rate bands were to be frozen at their current levels until April 2028. These are a Personal Allowance of £12,570, higher rate threshold at £50,270 and additional rate threshold at £125,140.
This freeze has now been extended three years to April 2031.
Inheritance Tax – a small piece of good news
Despite much lobbying over the last year, from farmers in particular, there were no significant changes announced to the restriction of 100% Business Property Relief (BPR) and Agricultural Property Relief (APR), which was first announced in the Budget last year.
From 6 April 2026, the current unlimited 100% relief on all qualifying assets will be restricted to £1m per person. A 50% rate will apply to qualifying assets in excess of this.
There was, however, one welcome announcement in that, contrary to the original proposals but in keeping with other IHT reliefs, the £1m allowance will now transfer between spouses if unused.
Changes to ISA allowances
The annual limit for savings in a cash ISA will be reduced for the under-65s from 6 April 2027.
Whilst the overall ISA limit will remain at £20,000, the maximum that under-65s can save into a cash ISA will reduce to £12,000, the remainder having to be invested in stocks and shares ISAs.
The High Value Council Tax Surcharge, or “Mansion Tax”
From April 2028, owners of properties valued at over £2 million will be liable for an annual recurring charge, paid alongside the existing Council Tax liability.
Properties valued at £2 million to £2.5 million will have a surcharge of £2,500, for those with values between £2.5 to £3.5 million, the surcharge will be £3,500, between £3.5 and £5 million it will be, £5,000; and those worth £5 million and above will have a surcharge of £7,500.
Electric Cars
From April 2028, electric car drivers will pay a road charge of 3p per mile, while plug-in hybrid drivers will pay 1.5p per mile, with the rates going up each year with inflation.
Restrictions to pension salary sacrifice
Pension contributions paid via salary sacrifice benefit from National Insurance savings, for both the employer and the employee.
From April 2029, only the first £2,000 of salary sacrificed for pension contributions will be exempt from National Insurance contributions, meaning that any amount above this will be subject to both employers and employees National Insurance.
National Insurance contributions – restriction of ability to pay whilst overseas
From 6 April 2026, non-resident individuals will no longer be able to pay voluntary class 2 NIC contributions in order to build up a State Pension entitlement and instead will have to pay Class 3 contributions.
In order to pay Class 3 contributions, they will need to have lived in the UK for 10 years.
For those still able to pay voluntarily, this will see their payments increase from £3.50 per week to £17.75 per week at today’s rates.
Reduction in VCT Income Tax Relief
From 6 April 2026, the Income Tax relief that can be claimed by an individual investing in VCTs reduces to 20% from the current rate of 30%.
More companies will, however, be able to apply for VCT status.
Capital Gains Tax on sale to Employee Ownership Trust (EOT)
Up until Budget Day, business owners selling to Employee Ownership Trusts would pay no Capital Gains Tax (CGT).
Effective immediately, CGT relief on disposals to EOTs will be reduced from 100 per cent to 50 per cent. In addition, the sellers won’t be able to claim Business Asset Disposal Relief on any of the remaining chargeable gains. This change gives an effective rate of tax of 12% in most cases.
To finish on a positive note, there were at least no other changes announced for CGT rates, reliefs or allowances.
Join our experts on Thursday, 4 December 2025, for our Budget Seminar and discover what the Budget could mean for you and your business.
