Chancellor Rachel Reeves delivered the Autumn Budget 2025 with several measures that will directly impact individuals, freelancers, landlords, and small business owners. Although many details had been leaked beforehand, the final announcement contained several significant changes, particularly regarding the taxation of investment income, pensions, and business operations.
1. Income Tax and National Insurance: Threshold Freeze and Adjustments
Income Tax and NI thresholds frozen until 2031
While tax rates remain unchanged, the government extended the freeze on Income Tax and National Insurance thresholds from 2028 to 2031.
A long-term freeze means “fiscal drag”: as wages rise with inflation, more individuals will be pushed into higher tax bands.
Class 2 National Insurance changes (for sole traders)
From 6 April 2026:
- Small Profits Threshold increases to £7,105
- Class 2 rate becomes £3.65 per week.
Those earning below the threshold can continue to pay voluntarily to maintain their state pension entitlement.
2. Higher Taxes on Income from Assets
The Budget introduces increased taxation on dividends, savings interest, and property rental income.
Dividends (from April 2026)
- Basic rate: 10.75%
- Higher rate: 35.75%
- Additional rate: 35% (unchanged)
Savings (from April 2027)
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
Property income (from April 2027)
New dedicated property income tax bands:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
This represents a substantial tax increase for landlords and investors.
3. Major Pension Reform: Salary Sacrifice Cap
From April 2029, the amount of salary that can be sacrificed for pension contributions without National Insurance will be limited to £2,000 per year.
Above this limit:
- Both the employer and the employee will pay NI
- Payroll systems will require updates
- The cost of pension contributions will effectively rise
This measure is expected to affect higher earners and those who rely heavily on salary sacrifice structures.
4. Business Costs
National Living Wage increases (from April 2026)
- Age 21+: £12.71 per hour
- Age 18–20: £10.85 per hour
This is a sizeable cost increase for labour-intensive sectors.
5. Corporate Tax, Capital Allowances, and Penalties
Corporation Tax
- Remains at 25% (19% if profits are below £50,000)
Capital Allowances changes
From 2026:
- A new 40% first-year allowance applies to most main-rate expenditure.
- Main rate writing-down allowance reduces from 18% to 14%.
Late filing penalties doubled
From April 2026, penalties for late Corporation Tax submissions will be doubled.
6. Trade, Imports, and Compliance
Low-value import relief abolished
From 2029, all parcels entering the UK from overseas will face customs duty — regardless of value.
This affects:
- Online shoppers
- Import-based e-commerce businesses
- Companies sourcing low-value stock from abroad
E-invoicing mandatory from 2029
All VAT-registered businesses will be required to use electronic invoicing for B2B and B2G transactions.
This marks a major shift toward full digitisation of tax records.
7. Other Notable Measures
- Electric Vehicle Tax: A new 3p per mile road tax for EVs and 1.5p per mile for plug-in hybrids from 2028.
Conclusion
The 2025 Autumn Budget represents a notable tightening of the tax environment, especially for:
- Landlords
- Investors
- Small businesses with rising wage costs
- Employers offering pension salary sacrifice
- E-commerce businesses importing low-value goods
Combined with digitisation requirements such as mandatory e-invoicing, the next five years will require careful planning to manage tax burdens, cashflow, and compliance obligations.
Photo source: Financial Times
