The UK Budget 2025, delivered by Chancellor Rachel Reeves on 26 November 2025, introduced changes affecting wages, pensions, landlords, savers, motorists and businesses.
Some measures took effect immediately or during 2026, while others will not begin until 2027, 2028 or 2029. Understanding the implementation dates is important because not every announcement affects your finances straight away.
This guide explains the principal confirmed Budget measures and what they may mean in practice for individuals, landlords, sole traders and small businesses. It reflects confirmed announcements and implementation details available as of July 2026.
UK Budget 2025 at a Glance
| Measure | Key Change | Start Date |
|---|---|---|
| National Living Wage | Increased to £12.71 per hour for workers aged 21 and over. | 1 April 2026 |
| Dividend tax | Ordinary and upper dividend tax rates increased by two percentage points. | 6 April 2026 |
| Property income tax | Separate rates of 22%, 42% and 47% introduced. | 6 April 2027 |
| Savings income tax | Basic, higher and additional rates increased by two percentage points. | 6 April 2027 |
| Cash ISA limit | Reduced to £12,000 for savers under 65 within the overall £20,000 ISA allowance. | 6 April 2027 |
| High-value homes | Annual Council Tax surcharge for residential properties in England worth £2 million or more. | April 2028 |
| Electric vehicles | Mileage-based Electric Vehicle Excise Duty introduced for electric and plug-in hybrid cars. | April 2028 |
| Pension salary sacrifice | Only the first £2,000 of employee pension contributions through salary sacrifice remains exempt from National Insurance. | 6 April 2029 |
The Economic Background to the Budget
The Budget was delivered against a backdrop of subdued economic growth, continuing cost-of-living pressure and strained public finances.
The official Budget document reported that UK GDP had grown by 1% during 2025 up to the date of the Budget, although growth had slowed after a stronger first quarter. Inflation remained above the Bank of England’s 2% target, affecting household spending and business operating costs.
The Government’s fiscal rules require day-to-day public spending to be covered by revenues and public sector net financial liabilities to fall as a proportion of the economy. The Budget combined additional spending with tax increases and extended threshold freezes intended to meet those rules.
National Minimum Wage Increases
National Minimum Wage and National Living Wage rates increased on 1 April 2026.
| Worker Category | Rate From April 2026 | Increase |
|---|---|---|
| Age 21 and over | £12.71 per hour | 50p |
| Age 18 to 20 | £10.85 per hour | 85p |
| Age 16 to 17 | £8.00 per hour | 45p |
| Apprentice rate | £8.00 per hour | 45p |
What the Wage Increase Means for Employees
The higher rates increase gross earnings for eligible employees. However, the amount received after deductions depends on Income Tax, National Insurance, pension contributions and any benefits affected by earnings.
What Employers Need to Do
Employers should check that their payroll systems use the correct rates and that age-related rate changes are applied when employees reach the relevant birthday.
Businesses should also consider the wider effect on:
- Employer National Insurance contributions.
- Workplace pension contributions.
- Holiday pay and statutory payments.
- Overtime and pay differentials between roles.
- Pricing, staffing levels and operating margins.
Retail, hospitality, care and other labour-intensive businesses may experience the greatest increase in employment costs.
Income Tax and National Insurance Thresholds
The Budget did not increase the main headline rates of Income Tax, employee National Insurance or employer National Insurance.
However, it extended the freeze on personal Income Tax thresholds and equivalent National Insurance thresholds from April 2028 until April 2031.
The main thresholds affected include:
- The £12,570 Income Tax Personal Allowance.
- The £50,270 higher-rate Income Tax threshold for taxpayers in England, Wales and Northern Ireland.
- The £12,570 National Insurance Primary Threshold and Lower Profits Limit.
- The £50,270 National Insurance Upper Earnings Limit and Upper Profits Limit.
- The £5,000 employer National Insurance Secondary Threshold.
How Fiscal Drag Affects Taxpayers
When tax thresholds remain fixed while wages and prices rise, more income becomes taxable and more people can move into higher tax bands. This is commonly known as fiscal drag.
An employee may therefore pay more tax following a pay rise even though the relevant Income Tax rate has not changed.
Higher Tax Rates on Dividend Income
From 6 April 2026, the ordinary and upper rates of Income Tax on dividends increased by two percentage points.
| Dividend Tax Band | Rate From April 2026 |
|---|---|
| Ordinary rate | 10.75% |
| Upper rate | 35.75% |
| Additional rate | 39.35%, unchanged |
This is particularly relevant to company directors who take part of their income as dividends. The most appropriate balance between salary, dividends and pension contributions depends on the circumstances of the company and individual.
New Tax Rates for Property Income
The Budget did not introduce National Insurance contributions on rental income. Instead, it announced separate Income Tax rates for property income from 6 April 2027.
| Property Income Band | Rate From April 2027 |
|---|---|
| Basic rate | 22% |
| Higher rate | 42% |
| Additional rate | 47% |
These rates will apply to property income in England, Wales and Northern Ireland under the announced framework.
Landlords should review expected rental profits, finance costs, maintenance expenditure and cash reserves before the new rates begin.
The tax change applies to taxable property income rather than the gross value of rent collected. Allowable property expenses and existing tax rules will therefore remain important when calculating the final liability.
Higher Tax Rates on Savings Income
From 6 April 2027, the Income Tax rates applying to taxable savings income will also increase by two percentage points.
| Savings Income Band | Rate From April 2027 |
|---|---|
| Basic rate | 22% |
| Higher rate | 42% |
| Additional rate | 47% |
The Personal Savings Allowance and tax-free ISA treatment continue to protect some savings income. However, savers with interest above their available allowances may face a higher tax bill.
Cash ISA Allowance Changes
From 6 April 2027, the amount that savers under 65 can place into a Cash ISA will be limited to £12,000 per tax year.
The overall annual ISA allowance will remain £20,000. A saver under 65 could therefore place up to £12,000 into a Cash ISA and use the remaining allowance for investments such as a Stocks and Shares ISA or Innovative Finance ISA.
Savers aged 65 and over will continue to be able to place the full £20,000 annual allowance into a Cash ISA.
The existing annual limits of £4,000 for Lifetime ISAs and £9,000 for Junior ISAs will remain in place until 5 April 2031.
Pension Salary-Sacrifice Changes
From 6 April 2029, the National Insurance advantages available through pension salary sacrifice will be limited.
Only the first £2,000 of employee pension contributions made through salary sacrifice each year will remain exempt from employee and employer National Insurance contributions.
Amounts above £2,000 will be subject to the relevant employee and employer National Insurance charges.
The change does not remove Income Tax relief from qualifying pension contributions. Employer pension contributions that are not funded through employee salary sacrifice will also continue to be exempt from National Insurance under the announced rules.
Employers using salary-sacrifice pension arrangements should review their payroll systems, employee communications and benefits structure well before April 2029.
State Pension Increase
The basic and new State Pension increased by 4.8% from April 2026 under the triple-lock commitment.
Depending on their entitlement, pensioners can receive up to approximately £575 more during the 2026/27 tax year.
Pension Credit’s Standard Minimum Guarantee also increased by 4.8% from April 2026.
High-Value Council Tax Surcharge
From April 2028, owners of residential properties in England valued at £2 million or more will become liable for a new High Value Council Tax Surcharge.
The surcharge will be payable in addition to the property’s existing Council Tax bill.
| Property Value | Initial Annual Surcharge |
|---|---|
| £2 million to £2.5 million | £2,500 |
| £2.5 million to £3.5 million | £3,500 |
| £3.5 million to £5 million | £5,000 |
| More than £5 million | £7,500 |
The charge applies to property owners rather than occupiers and will be particularly relevant to higher-value property owners and landlords in London and the South East.
Properties within scope will be identified through a targeted valuation exercise. The Government has consulted on the valuation, review and appeals process.
Electric Vehicle Grants and Mileage Tax
The Government provided an additional £1.3 billion for the Electric Car Grant and extended support to the 2029/30 financial year.
Eligible electric cars can receive a grant of up to £3,750, depending on the vehicle’s price and sustainability classification.
The Budget also announced a new Electric Vehicle Excise Duty, which will apply from April 2028 alongside existing Vehicle Excise Duty.
| Vehicle Type | Mileage Charge From April 2028 |
|---|---|
| Fully electric car | 3p per mile |
| Plug-in hybrid car | 1.5p per mile |
Vans, buses, coaches and heavy goods vehicles are expected to remain outside the mileage charge when it is first introduced.
Businesses planning to move to electric company cars or fleets should consider purchase grants, Benefit in Kind treatment, charging costs, mileage tax and the availability of charging infrastructure.
Soft Drinks Industry Levy Changes
From 1 January 2028, the Soft Drinks Industry Levy will be extended to pre-packaged milk-based drinks and milk-substitute drinks containing added sugar.
The lower sugar threshold will also reduce from 5g to 4.5g per 100ml.
A lactose allowance will prevent naturally occurring lactose in qualifying milk products from being treated as added sugar when liability is calculated.
The extension does not generally cover open-cup drinks prepared and sold in cafés, restaurants or similar premises. It is principally relevant to producers, packagers and importers of pre-packaged drinks.
Business Rates Changes
Business rates in England were updated from 1 April 2026 following the 2026 revaluation.
The national small-business multiplier reduced to 43.2p and the standard multiplier reduced to 48p for 2026/27.
Eligible retail, hospitality and leisure properties with rateable values below £500,000 receive permanently lower multipliers:
- 38.2p for properties using the small-business retail, hospitality and leisure multiplier.
- 43p for properties using the standard retail, hospitality and leisure multiplier.
A higher multiplier of 50.8p applies to properties with rateable values of £500,000 or more.
Transitional relief and supporting-small-business schemes limit some increases resulting from the revaluation. Businesses should check their actual bill rather than assuming a lower multiplier automatically means a lower overall payment, as the property’s rateable value may also have changed.
Capital Allowances and Corporation Tax
The main Corporation Tax rate remains 25%.
From 1 January 2026, a new 40% first-year capital allowance became available for qualifying main-rate expenditure.
From April 2026, the main writing-down allowance reduced from 18% to 14%.
Full expensing remains available to qualifying companies purchasing eligible new plant and machinery. The interaction between full expensing, the Annual Investment Allowance, the new first-year allowance and writing-down allowances should be considered before substantial equipment purchases are made.
The Budget also doubled Corporation Tax late-filing penalties from 1 April 2026, making timely records and filing processes increasingly important.
Customs Duty on Low-Value Imports
The Government will remove customs-duty relief for goods imported into the UK with a value of £135 or less.
The change will take effect by March 2029 at the latest, following consultation on the detailed customs arrangements.
This will affect overseas online retailers and marketplaces that sell low-value goods directly to UK consumers. It may also affect the prices paid by customers and competition between overseas sellers and UK-based retailers.
Remote Gambling Duty Changes
The Budget increased taxes on remote gambling while applying different rates to betting and gaming.
- Remote Gaming Duty increased from 21% to 40% on 1 April 2026.
- A new 25% Remote Betting Rate will apply from 1 April 2027.
- Remote horseracing bets will remain taxed at 15%.
- Bingo Duty was abolished from 1 April 2026.
Family and Cost-of-Living Measures
Removal of the Two-Child Limit
The two-child limit on the Universal Credit Child Element was removed from April 2026.
This means qualifying families can receive the Child Element for more than two children, subject to the remaining Universal Credit eligibility rules.
Energy Bills
The Budget introduced measures expected to reduce average household energy costs in Great Britain by approximately £150 during 2026/27.
The reduction is being delivered mainly by funding part of the cost of the historic Renewables Obligation from general taxation and ending the Energy Company Obligation previously funded through bills.
Support for Young People
The Government committed more than £1.5 billion to employment and skills support through the Youth Guarantee and Growth and Skills Levy.
This includes a guaranteed six-month paid work placement for eligible people aged 18 to 21 who have claimed Universal Credit and been looking for work for 18 months.
Practical Steps for Individuals and Businesses
For Employers
- Confirm that payroll uses the April 2026 minimum wage rates.
- Review the combined cost of wages, employer National Insurance and pension contributions.
- Assess the future impact of the pension salary-sacrifice changes.
- Check business rates bills following the 2026 revaluation.
For Company Directors
- Review the effect of the higher dividend tax rates.
- Plan equipment purchases around the available capital allowances.
- Ensure Corporation Tax returns are submitted on time.
- Update budgets and cash flow forecasts for wage and tax changes.
For Landlords
- Forecast the effect of the new property-income tax rates from April 2027.
- Review mortgage costs, maintenance expenditure and rental profitability.
- Check whether any property may fall within the High Value Council Tax Surcharge.
- Maintain accurate records of rental income and allowable expenditure.
For Savers and Pension Contributors
- Review how the 2027 Cash ISA limit affects future savings.
- Consider the tax position of savings held outside an ISA.
- Review salary-sacrifice pension arrangements before April 2029.
- Seek regulated financial advice where investment or pension recommendations are required.
Frequently Asked Questions
Did the Budget Increase Income Tax?
The main headline Income Tax rates were not increased. However, personal tax thresholds were frozen for a further three years from April 2028 to April 2031, which can increase the amount of tax collected as earnings rise.
Do Landlords Have to Pay National Insurance on Rental Income?
The Budget did not introduce National Insurance on rental income. It introduced separate property-income tax rates of 22%, 42% and 47% from April 2027.
Is the Cash ISA Allowance Being Reduced to £12,000?
Yes, from 6 April 2027 the Cash ISA limit for savers under 65 will be £12,000 within the overall £20,000 annual ISA allowance. Savers aged 65 and over will retain a £20,000 Cash ISA limit.
Are Pension Contributions Limited to £2,000?
No. The £2,000 limit applies to the National Insurance exemption for employee pension contributions made through salary sacrifice from April 2029.
Contributions above £2,000 can continue, but the amount above the threshold will be subject to employee and employer National Insurance. Normal pension tax-relief rules will continue to apply.
Will Electric Vehicles Be Charged Per Mile?
Yes. From April 2028, fully electric cars will be charged 3p per mile and plug-in hybrid cars 1.5p per mile under Electric Vehicle Excise Duty.
Does the Sugar Levy Apply to Drinks Made in Cafés?
The 2028 extension principally applies to qualifying pre-packaged drinks. Open-cup drinks prepared in cafés, bars and restaurants generally remain outside the levy.
Make Sure Your Business Is Prepared
The Budget introduced changes over several years rather than on a single date. Businesses therefore need to distinguish between measures already in force and those requiring preparation for 2027, 2028 or 2029.
Accurate bookkeeping, realistic budgets and regular cash flow forecasts make it easier to understand how wage, tax and operating-cost changes affect your business.
A Bookkeeping Health Check can identify incomplete records, cash flow risks and areas where your financial processes need to be improved.
Read our full guide: What’s Included in a Bookkeeping Health Check? A Simple Guide for Busy Business Owners
Contact Carter Bookkeeping Services Limited to arrange a bookkeeping review and gain a clearer understanding of your business finances.