Understanding the Budget 2025 Changes

Introduction to Budget 2025 Changes

The Budget 2025 has introduced a series of changes this Autumn, aimed at addressing current economic challenges and fostering sustainable growth. Understanding these changes is crucial and I will go into some of the main changes which will affect businesses and individuals.

Tax

A continuation of the 'stealth tax' is now staying frozen for a further 3 years. This means that the personal allowance threshold of £12570 (your tax free allowance) is still not increasing with inflation.

This means you will continue to pay higher amounts of tax, and if you get a pay rise, you will pay even more. This will affect individuals.

Tax on VAT and NIC will remain the same.

Tax Adjustments

The government are now introducing individual tax adjustments to certain tyoes of income. For property income, dividend income and interest income, the basic and higher bands are increasing by 2%.

This raises bands to the following -

Basic rate (interest and property) - 22% from 20%

Higher rate (interest and property) - 42% from 40%

Basic rate (dividend) - 10.75% from 8.75%

Higher rate (dividend) - 33.75% to 35.75%

It appears additional rate is staying the same at 45% (int/prop) and 39.35% (div).

This change will affect landlords, savers and directors of ltd companies.

Corporate Tax Modifications

A more welcome change. The new budget outlines a gradual reduction in corporate tax rates to stimulate investment and boost economic activity for businesses. Additionally, incentives for green technology adoption have been introduced to encourage sustainable practices among corporations.

Mansion surcharges

From April 2028, any properties valued over £2 million will be subject to a Council Tax Surcharge of £2500 per year.

This increases to £7500 per year for properties worth over £5 million.

Caps on investments

Salary sacrifice

The government have been pushing for people to save on tax by using salary sacrifce, but now there seeing how much money they are missing out on!

So, for those of you paying into a pension using salary sacrifice, and therefore avoiding paying National Insurance on these contributions,will see a cap being put in place from April 2029. This cap will be £2000 per year. After this, you can continue to put money into your pension with salary sacrifice, but will be required to pay NI.

ISAs

They are also reducing the amount of tax free cash ISA savings per year, from £20000 to £12000. This can severly affect new buyers who are saving for their first deposit, and any other saver.

However, you can still save £20000 tax free in a stocks and shares ISA.

This comes into effect from April 2027.

Changes for businesses

For businesses with employees, wages are increasing for 18-20 year olds.

Minimum wage - From £10 to £10.85 per hour

Living wage - From £12.21 to £12.71 per hour

If you own shares in your business which you choose to sell, capital gains tax releif is also being cut by half. So instead of receiving 100% exemption from CG Tax, you are going to be paying tax on 50% when selling to an Employee Ownership Trust.

The remaining 50% of the gain isn’t taxed immediately, but is “held over”— effectively becoming part of the acquisition cost for the trustees of the EOT. If/when those trustees later dispose of the shares, the deferred gain becomes taxable.

And more...

I will not delve into all areas of the budget as there are many, and I urge you to do your own research into how the changes will affect you going forwards.

But I have listed the key changes that will affect my clients and I hope you have found it useful.