Budget 2025 Explained: Full Summary of Key Changes for Individuals, Families and UK Business Owners
The 2025 Autumn Budget introduced a comprehensive set of tax, welfare, pension, property and business administration reforms. This report provides a clear and detailed overview of the measures confirmed by the Chancellor and published by HMRC.
All changes are presented factually, with the applicable dates and expected impacts.
Child Benefit Cap Removed (From April 2026)
From 6 April 2026, the two-child limit on Child Benefit will be abolished.
This means families with three or more children will once again receive full Child Benefit entitlement for every child in their household.
Impact:
Increases financial support for larger families
Reverses a 2017 policy that restricted support to two children
Expected to bring tens of thousands of children out of poverty
Helps stabilise household budgets during rising living costs
Provides more consistent support for self-employed parents with fluctuating income
This is one of the most significant welfare changes in the 2025 Budget.
Income Tax Threshold Freeze Extended to 2028
Personal Income Tax thresholds will remain frozen until April 2028.
Although tax rates remain unchanged, frozen thresholds combined with rising wages will increase the number of taxpayers entering higher tax bands — known as “fiscal drag.”
Practical impact:
More individuals will pay higher-rate tax
Increased overall tax liabilities
Reduced real-terms take-home pay
Heightened pressure on household finances
National Living Wage Rise (From April 2026)
From next April, the National Living Wage will increase by 4.1%, raising the hourly rate to:
£12.71 per hour for workers aged 21 and over
The National Minimum Wage will also rise:
£10.85 per hour for 18 to 20-year-olds (up 8.5%)
£8.00 per hour for 16 to 17-year-olds and apprentices (up 6%)
The impact:
Employers will face increased wage costs across all age groups
Outsourcing costs may rise as contractors adjust their rates
Supports lower-income workers with inflation and cost-of-living pressures
Dividend Tax Rates Increasing (From April 2026)
Dividend tax rates will rise by 2 percentage points for basic and higher-rate taxpayers.
New rates from 6 April 2026:
10.75% – ordinary rate
35.75% – higher rate
39.35% – additional rate (unchanged)
The process for reporting and paying dividend tax remains the same.
Voluntary National Insurance Changes (From April 2026)
Major reforms will apply to voluntary NI contributions for periods spent abroad.
From April 2026:
Voluntary Class 2 NICs for overseas periods will be removed
Voluntary Class 3 NICs for overseas years will require 10 years continuous UK residency
Individuals who wish to fill gaps for earlier years may still do so under existing rules for pre-2026/27 periods.
Mileage Tax for Electric Vehicles
A new mileage-based tax will be introduced for electric vehicles (EVs), replacing the current low or zero Vehicle Excise Duty status.
Who is affected:
EV owners with medium or high mileage
Business owners using EVs for work travel
Companies operating EV fleets
Employees with EVs under company benefit schemes
Business mileage will remain deductible under current HMRC rules.
Salary Sacrifice Pension Reform (From April 2029)
From April 2029, the amount an employee can sacrifice into their pension before attracting employer and employee National Insurance contributions will be capped at £2,000 per year.
Key details:
Salary sacrifice above £2,000 must be treated as NIC-liable income
Income Tax relief on pension contributions remains unchanged
Standard workplace pension contributions for most employees will be unaffected
Directors and higher earners using sacrifice as a tax strategy will be impacted
This is one of the largest structural changes to pension taxation in recent years.
State Pension Increase Maintained
The State Pension will rise in line with the triple lock mechanism — whichever is highest of inflation, average earnings growth, or 2.5%.
This ensures the State Pension continues to rise in real terms, reflecting cost-of-living increases.
Savings & ISA Tax Changes (From April 2027)
From April 2027, tax on savings income will increase to:
22% – basic rate
42% – higher rate
47% – additional rate
Additional points:
ISA allowances and structure will be modernised
Further detailed guidance will follow consultations
Reporting methods do not change — only the tax rates applied
These adjustments align savings taxation with the government’s new property income tax structure.
Capital Gains Tax Relief for Employee Ownership Trusts Reduced (From November 2025)
From 26 November 2025, CGT relief for qualifying disposals to Employee Ownership Trusts (EOTs) will reduce from 100% to 50%.
This affects owners planning to transition their business through the EOT model.
Incorporation Relief: Manual Claim Required (From April 2026)
From 6 April 2026, incorporation relief will no longer apply automatically.
Taxpayers transferring a business into a limited company must:
Claim incorporation relief through Self Assessment
Provide relevant valuations and supporting information
Failure to claim will result in Capital Gains Tax becoming due.
Real-Time Reporting of Benefits in Kind (From April 2027)
From April 2027, most taxable benefits and expenses must be reported in real time via PAYE, replacing P11D reporting in most cases.
Benefits affected include:
Company cars
Equipment
Professional subscriptions
Homeworking support
Health and wellbeing benefits
Draft legislation and worked examples have been published to support employers and software developers.
Simplified Homeworking Expense Rules (From April 2026)
From April 2026, the following will be exempt from Income Tax and NICs when provided or reimbursed by employers:
Homeworking equipment
Eye tests
Flu vaccinations
This simplifies compliance and reflects modern working practices.
New Property Income Tax Structure (From April 2027)
From 6 April 2027, property income will be taxed under a dedicated income category with the following rates:
22% – basic rate
42% – higher rate
47% – additional rate
This applies to:
Residential rental properties
Room rentals (including Rent-a-Room scheme income)
Holiday lets
Annexes, studios and similar property-based income
Mixed commercial/residential lets
This marks a major structural change to rental taxation in the UK.
New High-Value Property Council Tax Band (“Mansion Tax”)
A new top-tier council tax band will be created for high-value residential properties.
Key facts:
Final valuation thresholds have not yet been published
Expected to apply to properties valued significantly above current Band H levels
Aimed at increasing contributions from wealthier property owners
Additional details will be released in upcoming legislation
This measure introduces a more progressive council tax structure, focusing on the highest-value homes.
Digital-by-Default HMRC Communication (From Spring 2026)
From spring 2026, HMRC will increasingly issue correspondence through digital channels by default.
Taxpayers may opt out if they require paper communication, and digitally excluded individuals will continue receiving physical letters.
Business Systems Integration Consultation (2026)
In early 2026, the government will consult on expanding automated data transfer between business systems and accounting software.
The goal is to improve accuracy, reduce reporting errors, and encourage digital record-keeping.
If you need support understanding how these Budget changes affect your tax position, property income, or business finances, Serenity Accounting Services can help.
Book a consultation to review your situation and prepare for the 2025–2026 tax year with confidence and clarity.