Personal and employment taxes

Income tax thresholds

The Autumn Budget extends the existing freezes on key personal tax thresholds for a further three years, now running until the end of 2030-31. This measure continues the approach (of this and previous governments) of using threshold freezes to increase tax receipts through fiscal drag, as rising nominal wages bring more individuals into higher tax bands. The extension applies to the income tax personal allowance, higher-rate and additional-rate thresholds, as well as the employer National Insurance contributions (NICs) secondary threshold.

The income tax personal allowance remains frozen at £12,570, the higher-rate threshold at £50,270, and the additional-rate threshold at £125,140 until 2030-31. The employer NICs secondary threshold, which was reduced from £9,100 to £5,000 in the Autumn Budget 2024, is also frozen at this level until 2030-31. These measures are forecast to raise £8.3bn in 2029-30. The government's costing accounts for behavioural adjustment, reflecting an expectation that some of the tax increase will be passed on to employers through higher wage demands.

These freezes build on a series of previous measures as set out in the OBR Economic and Fiscal Outlook. After an initial two-year freeze from April 2019, thresholds were increased with inflation in 2021-22, then frozen again from 2022-23. The additional-rate threshold was lowered from £150,000 to £125,140 in April 2023 and is now also frozen until 2030-31. Had the personal allowance and higher-rate threshold increased in line with inflation, they would be £4,900 and £20,100 higher, respectively, by 2030-31. The combined effect of all threshold freezes is significant: by 2030-31, 5.2m more individuals are expected to be paying income tax, 4.8 million more will be higher-rate taxpayers, and 600,000 more will be subject to the additional rate, compared to 2022-23. The proportion of taxpayers at the higher or additional rate is forecast to rise from 15 per cent in 2021-22 to 24 per cent in 2030-31.

The extension of threshold freezes provides the government with additional revenue estimated at £13bn in 2030-31 from the measures announced in this Budget alone. The OBR Economic and Fiscal Outlook highlights that frozen thresholds are the largest single contributor to the increase in the tax take this decade, accounting for almost three-fifths of the 3.1 per cent of GDP rise in taxes from 2022-23 to 2030-31. While the measures represent a major cornerstone of the UK government's tax raising agenda, they may also prompt behavioural responses amongst taxpayers, such as increased wage bargaining, and raise questions about the long-term impact on work incentives and the increasing pressure on disposable incomes.

Dividend, savings and property income taxes

The Autumn Budget introduces a series of measures to increase the tax paid on income from assets, including property, dividends and savings, with the stated aim of narrowing the gap between the tax paid on work and on income from assets. These changes are expected to raise £2.2bn in 2029-30, with the majority of the additional revenue coming from the top 20 per cent of households. The government emphasises that most taxpayers and pensioners will not be affected, as over 90 per cent of taxpayers do not pay savings tax and those with small amounts of asset income will continue to benefit from tax-free allowances and the protection of Individual Savings Accounts (ISAs). The aim of the changes is to reflect the fact that income from those sources faces no equivalent of National Insurance that employees pay.

For dividend income, from 6 April 2026, the ordinary rate will increase by two percentage points to 10.75 per cent and the upper rate will increase by two percentage points to 35.75 per cent. The additional rate for dividends will remain unchanged at 39.35 per cent. In addition, the dividend tax credit for non-UK residents with UK income will be abolished from 6 April 2026, aligning their treatment with that of UK residents. These changes will also be legislated for in Finance Bill 2025-26.

From 6 April 2027, separate tax rates for property income will be introduced in England, Wales and Northern Ireland, with a property basic rate of 22 per cent, a property higher rate of 42 per cent, and a property additional rate of 47 per cent. The government will engage with the devolved governments of Scotland and Wales to provide them with the ability to set property income rates in line with their existing fiscal frameworks. These changes will be legislated for in Finance Bill 2025-26.

The tax rates on savings income will rise by two percentage points across all bands from 6 April 2027, resulting in a savings basic rate of 22 per cent, a savings higher rate of 42 per cent and a savings additional rate of 47 per cent. These changes will be legislated for in Finance Bill 2025-26 and will apply across the UK.

The Autumn Budget also introduces a change to the ordering of income tax reliefs and allowances. From 6 April 2027, reliefs and allowances deductible at the relevant steps of the income tax calculation will only be applied to property, savings and dividend income after they have been applied to other sources of income. This change will be legislated for in Finance Bill 2025-26.

The UK government intends these measures to raise greater tax revenue from income from assets without affecting the tax take on income from work. The continued protection of ISAs and tax-free allowances for those with small amounts of income from assets is likely to limit the impact on lower and middle-income taxpayers. However, the changes will increase the tax burden for individuals with significant property, dividend or savings income, and may prompt affected taxpayers to review their investment and remuneration strategies. The OBR Economic and Fiscal Outlook notes that some behavioural responses are expected, including a shift of savings into ISAs and changes in the timing of dividend payments.

NICs cap on pension contributions via salary sacrifice

The Autumn Budget introduces a new cap on the National Insurance contributions (NICs) relief available for employee pension contributions made via salary sacrifice arrangements. From 6 April 2029, employer and employee NICs will be charged on the portion of employee pension contributions made through salary sacrifice that exceeds £2,000 per annum. Contributions up to £2,000 per year will continue to benefit from the current NICs relief, with the new charge applying only to amounts above this threshold. All employer pension contributions will continue to be free of NICs.

This measure affects employees and employers who use salary sacrifice to make pension contributions, particularly those whose annual contributions via salary sacrifice exceed £2,000. The government will legislate for this change through both primary and secondary legislation, with further detail to be provided in due course.

The policy is expected to increase NICs receipts by £4.7bn in 2029-30 and £2.6bn in 2030-31, though the OBR Economic and Fiscal Outlook notes that the estimated yield is subject to uncertainties, including potential behavioural responses from both employers and employees. Employers may seek to replicate the tax benefits of salary sacrifice by reducing future wage growth and increasing employer pension contributions, or by formally agreeing to reduce wages and increase employer contributions. However, such arrangements are constrained by Operational Remuneration Agreement (OpRA) rules and employment law, which require workforce-wide agreement, making widespread adoption unlikely. Employees may switch to making ordinary pension contributions, including to relief at source (RAS) schemes. In these cases, higher- and additional-rate taxpayers will initially pay income tax on their contributions and reclaim it through self-assessment, creating a temporary timing effect that boosts 2029-30 receipts by £1.6bn. The Autumn Budget also assumes that employers will seek to pass 76 per cent of the additional NICs cost to employees, with half of this passed through lower ordinary employer contributions (not taxed) and half through lower salaries and bonuses (taxed), reducing the overall yield by £0.7bn by 2030-31. The Autumn Budget does not set out any transitional rules or further detail on the interaction with existing pension or NICs regimes.

The introduction of the £2,000 cap is described as a pragmatic approach to controlling costs, and the Autumn Budget estimates that 74 per cent of basic rate taxpayers and their employers currently using salary sacrifice will be unaffected (subject to the assumptions mentioned above). This provides continued relief for the majority of lower and middle-income employees, while limiting the benefit for higher contributions. The measure is likely to increase NICs liabilities for higher earners and their employers, potentially reducing the attractiveness of salary sacrifice for larger pension contributions. The Autumn Budget does not set out any transitional rules or further detail on the interaction with existing pension or NICs regimes. Taxpayers and employers should monitor the legislative process for further guidance as the implementation date approaches.

Share exchanges and reorganisations

The Budget announced that significant changes have been made to the UK rules providing for roll-over relief from CGT in connection with share exchanges and reorganisations. These changes were made with effect from 26 November 2025, with transitional rules for applications for clearance received by HMRC before 26 November 2025. Equivalent amendments have also been made to the provisions dealing with reorganisations of collective investment schemes.

The capital gains share reorganisation rules broadly apply where a company’s share capital is reorganised and are extended to where shares are issued to a person in exchange for shares in another company or its share capital is reconstructed. These rules provide that there is no immediate charge to CGT on shareholders and, instead, any gain is rolled over into the new shares. The reorganisation provisions are subject to anti-avoidance rules found in sections 137 and 139 TCGA 1992 and a clearance procedure at section 138 TCGA 1992.

The Court of Appeal recently held that arrangements entered into as part of a larger share exchange to ensure the part of the consideration was received in a tax efficient manner did not prevent the application of these roll over provisions (HMRC v Delinian Ltd (formerly Euromoney Institutional Investor Plc) [2023] EWCA 1281). The exchange as a whole was entered into for bona fide commercial reasons and it could not be said that the more limited scheme or arrangements to avoid tax formed part of that exchange. The Court of Appeal forcefully made the point that it was clear from its wording that section 137 did not apply to all tax avoidance. It was only tax avoidance that was a main purpose of the exchange as a whole that will taint an exchange.

The changes, set out in draft legislation, appear designed to reverse the Euromoney decision. Legislation will be introduced in Finance Bill 2025-26 amending the anti-avoidance provisions that apply to reorganisations, so that they now apply to those cases where a person has entered into arrangements where the main purpose, or one of the main purposes, of those arrangements was to secure a tax advantage. Where this is satisfied, the reorganisation provisions will not apply. The requirement for the exchange as a whole to have a tax avoidance purpose has been removed. It will now be sufficient if the specific tax avoidance arrangement is one “relating to an exchange or scheme of reconstruction”. The amended legislation no longer requires the exchange in question to be effected for bona fide commercial reasons, presumably since the focus is no longer on the wider exchange.

The supporting Policy Paper notes that the focus of the current rule is on the reason for, or purpose of the overall reorganisation and that the proposed revisions mean that the rule will now target those cases where, as part of a commercial exchange or company reconstruction, additional arrangements have been put in place to obtain a tax advantage.

There are two further significant changes to the legislation. Firstly, the new legislation will empower HMRC to make just and reasonable adjustments to counteract the tax advantage that would otherwise be obtained, instead of the all or nothing position under the previous legislation. Secondly, unlike the previous anti-avoidance rule, which applied to holders of 5% plus of the relevant target entity or of a class of shares in the relevant target entity, there is no de minimis under the new legislation.

Post departure trade profits

The UK's temporary non-residence rules impose income tax and capital gains tax on certain income and gains realised by certain individuals who return to the UK after a period of temporary non-UK residence.  This broadly includes previously UK resident individuals who return to the UK within 5 years of leaving. One category of income covered by the rules is distributions from close companies. However, there is currently an exclusion from the rules for distributions made from post departure trade profits.  Post departure trade profits are trade profits of the relevant close company that accrue after the relevant individual has left the UK.

The government has announced that the exclusion for post departure trade profits will be removed for individuals returning to the UK on or after 6 April 2026. As a result, from 6 April 2026, an individual falling within the temporary non-residence rules will be chargeable to income tax on all distributions received from a close company whilst the individual is temporarily non-resident. The government has indicated that provisions will be introduced to ensure that double taxation relief is available to individuals who are taxed on distributions both under the temporary non-residence rules and in their state of residence, even if unilateral relief or relief under a double tax treaty is not available.

This measure is intended to close a perceived loophole in the UK tax system and is expected to affect only a small number of individuals who are temporarily non-UK resident, resident in a low tax jurisdiction and receiving distributions from close companies.

Cash ISA cull

From 6 April 2027, the annual cash limit for ISAs will be set at £12,000, within the overall annual ISA limit of £20,000. ISA holders over the modest age of 65 will be exempt and can continue to save up to £20,000 in a cash ISA each tax year. This change is intended to encourage individual savers to diversify and invest a greater proportion of their savings into the wider economy (e.g. via a stocks and shares ISA, which continues to benefit from the full £20,000 limit). When combined with the uplifts in the EIS and VCT incentives, these measures point to this government's take on encouraging greater domestic investment in the UK, though perhaps adopting a more subdued "back British business" line than the "British ISA" proposed (but never implemented) by the previous government.

Notes on other changes to personal taxation

From 6 April 2027, all image rights payments related to an employment will be treated as taxable employment income and subject to both income tax and employer and employee NICs. This change seeks to reduce confusion on whether or not image rights should fall within the scope of the UK employment tax regime. This measure will be legislated for in Finance Bill 2026-27.

From 6 April 2026, the deduction from income tax for non-reimbursed home working expenses will be removed. Employers will still be able to reimburse employees for eligible home working costs without deducting income tax or NICs contributions. This measure will likely shift the burden of home working expenses away from government and either towards employers through increased reimbursement requests or employees who can no longer receive a deduction or reimbursement. This change will be legislated for in Finance Bill 2025-26.

Non-resident capital gains and UK property rich conditions

This measure will tighten up the non-resident company UK real estate rules to ensure that each cell of a protected cell company is looked at individually rather than looking at the company as whole in determining whether the entity's gross assets derive 75 per cent of their value from UK real estate either directly or indirectly.   

Under the draft legislation, a cell company is defined as a company where under arrangements that regulate the company's affairs, certain assets are only available to meet certain liabilities of the company and only certain members and creditors of the company have access to particular assets.

Similar provisions already exist in the UK's controlled foreign companies' legislation which look at each cell of an overseas company when testing the relevance of those provisions and also existed in the original non-residents capital gains tax charge for residential property.  

The amendments will have effect for disposals by non-UK residents (companies or individuals) of interests in protected cell companies that own UK real estate on or after 26 November 2025.   

New charge for owners of high-value residential property

Since the current council tax system was introduced in 1993, considerable imbalance has developed, whereby, for example, an average Band D family home across England could pay more council tax than a £10m Band H property in Mayfair. To address this imbalance, a new High Value Council Tax Surcharge (HVCTS) will be introduced from April 2028 for residential properties in England valued at £2m or more.

The HVCTS will be levied on property owners, not occupiers, and will be in addition to their existing council tax liabilities. It will not apply to social housing.

The Valuation Office will identify affected properties through a targeted valuation exercise, with revaluations every five years.  The Government currently estimates this measure will affect fewer than 1 per cent of properties.  Properties valued at £2m or more will be banded by value: £2.0-2.5m (HVCTS of £2,500), £2.5-3.5m (HVCTS of £3,500 per year), £3.5-5.0m (HVCTS of £5,000 per year) and above £5m (HVCTS of £7,500 per year). The HVCTS charges will increase annually from 2029-30 in line with CPI inflation.

The government will consult in early 2026 on the detailed implementation of HVCTS, including what support might be needed for those struggling to pay, as well as on reliefs, exemptions and the treatment of complex ownership structures. Owners of high-value properties should monitor this consultation.

Umbrella companies

In response to ongoing concern around non-compliance in the umbrella company market and the ease with which non-compliant umbrella companies can "phoenix", the government has confirmed that, with effect from 6 April 2026, employment agencies or end clients will be jointly and severally liable for any income tax and National Insurance contributions required to be accounted for through PAYE where there is an umbrella company in the labour supply chain. This forces the employment agency or end client (who are likely easier for HMRC to pursue, and potentially more solvent, than the umbrella company itself) to either change their arrangements or assume a degree of risk. If the umbrella company fails to operate PAYE correctly, HMRC will be able to pursue the employment agency, albeit that the draft legislation published earlier this year provided that if the employment agency is (i) connected with the umbrella company, or (ii) non-UK resident, the end client will be liable instead. An end client will similarly be liable if they contract directly with an umbrella company. This change is designed to make using umbrella company structures less attractive, but where employment agencies and end clients decide to continue using them, it will put greater emphasis on robust due diligence and monitoring by the employment agency / end client.  

Pensions

The Chancellor's Autumn Budget 2025 introduces several significant changes to pensions policy and taxation. These changes favour pensioners over employers and workers, by: making pension saving more expensive from April 2029 for employers and employees and reducing the ability for overseas residents to build up State pension whilst overseas; whilst continuing to fund the Triple Lock on State pensions, introducing greater inflation protection for individuals who have transferred to the Pension Protection Fund (PPF) or the Financial Assistance Scheme (FAS) and permitting lump sum payments out of defined benefit surplus to individuals who are over normal pension age.

Employers and trustees should monitor developments closely and consider the potential impact on scheme design, member communications and surplus management strategies.

Pension contributions

From April 2029, NICs relief on salary sacrifice into pension schemes will be capped at the first £2,000 of pension contributions per person. Employee and employer NICs will be charged in the usual way on amounts above this cap. The government states that 74 per cent of basic rate taxpayers using salary sacrifice will be unaffected by this change. This measure is intended to address what is seen as a disproportionate benefit to higher earners and to control the rising cost of this relief.

The Autumn Budget notes that the OBR estimates an increase in NICs of £4.7bn in 2029-30, reducing to £2.6bn in 2030-31 due to behavioural changes. (For example, employers could look to replicate the tax benefits of salary-sacrifice by reducing future wage growth and instead providing employees with higher employer pension contributions; or indeed simply reduce the generosity of their pension arrangements to account for the additional employer NICs.) Employers may wish to review their current pension contribution structures to account for the additional employer NICs burden from April 2029.

For further details, see “NICs cap on pension contributions via salary sacrifice”.

Defined benefit (DB) pension scheme surplus extraction

The government will enable well-funded DB pension schemes to pay surplus funds directly to scheme members over normal minimum pension age, where scheme rules and trustees permit, from April 2027. The Autumn Budget does not provide much detail on this, but it appears that it may allow payments direct to members without attracting an unauthorised payment charge. This may help realise the Government's goal of sharing surplus funds, including used them for productive finance.

State pension uprating

The State Pension will be increased by 4.8 per cent from April 2026, in line with average weekly earnings, maintaining the government's commitment to the Triple Lock. This will provide up to an additional £575 per year to pensioners, depending on entitlement.

Voluntary national insurance contributions (VNICs)

The government is closing loopholes in current VNICs rules that allow those with a limited connection to the UK to build State Pension entitlement at a cheaper rate whilst overseas. Access to the cheapest Class 2 VNICs for individuals abroad will be removed, and the initial residency or contributions requirement for VNICs will be increased to 10 years.

Inflation protection for pre-1997 pensions in the pension protection fund (PPF) and financial assistance scheme (FAS)

From January 2027, the government will introduce CPI-linked increases, capped at 2.5 per cent a year, on pre-1997 pension accruals in the PPF and FAS where their original schemes provided this benefit. The Autumn Budget does not provide further detail on the implementation process or any transitional arrangements for this change.