Autumn Budget 2025

The Chancellor presented her second budget on 26 November 2025.

Without resorting to politics, the budget represented a frustrating set of measures that complicate the UK tax system. An article in Taxation magazine referred to the budget as “Extraordinary chaos” and this refers not only to the build up to the event but what was actually announced.

We’re sure that you’ve already read about the actual headline changes. Here, we want to talk about a few issues and planning opportunities available.

Dividend tax rate:

The basic and higher rates of dividend income tax will increase by 2% from 6 April 2026. The additional rate remains unchanged, surprisingly.

Planning point: salary versus dividends

We thought it was best to run with an example to give you an idea of the impact of these changes.

Mr and Mrs Smith run their own limited company. They each have a salary of £12,600 and take dividends of £37,600. This means they are just taxed at the basic rate.

In 2025/26 they each pay £3,246 in income tax.

In 2026/27, with the same income levels, they will each pay £742 extra in income tax, £1,484 in total.

This increases further for higher rate taxpayers.

The increase in the dividend tax rate means we have to rethink what is the best salary and dividend combination for director shareholders to extract money from their business for 2026/27. There is no simple answer to this as companies pay corporation tax at different rates once company profits are over £50,000.

Each client’s circumstances will be specific and unrelated to others. We will be reviewing all our limited company clients prior to April 2026 and will offer a review of the salary dividend split. We will have to charge for this extra piece of work and will contact you in advance to see if you would like us to advise on the optimum salary and dividend split for your own circumstances.

Pension salary sacrifice:

A disappointing measure is the restriction of salary sacrifice on pension contributions, albeit from April 2029. The amount exempt from National Insurance will be restricted to £2,000 for employees making a contribution under a salary sacrifice scheme. You’ll still be able to contribute more than £2,000 but there will be National Insurance charges.

Planning point: owner managed companies

Owner managed companies aren’t affected by this measure where it is a decision by the employer to contribute into an employee/ Director’s pension, without reduction of their salary. It’s clear that there is no sacrifice involved here so it is not caught by the rule change. We’d suggest a board minute to reflect the fact that the individual had no choice in receiving the contribution to their pension and that their existing remuneration remains unchanged, to avoid any HMRC misunderstanding.

Inheritance Tax (IHT):

Planning point: Agricultural and business property relief

There’s been no reprieve for the restriction of full relief to £1m each that is due to come into force in April 2026. What has been relaxed is the ability for a spouse/civil partner to pass their unused £1m allowance to the surviving spouse/civil partner, especially if mirror wills are used. If all assets transferred to the survivor, they would have £650K of nil rate band and £2m of allowance towards agricultural or business property.

Sounds good on paper, but don’t forget that if the survivor’s estate is worth £2m or more then the residential nil rate band will be tapered, that could be expensive.

A deed of variation can be used to pass assets of the first deceased down a generation, rather than inflate the survivor’s estate to well over £2m and thus deny them all of the residential nil rate band. Again, individual circumstances will dictate the correct policy, but a deed of variation is a useful tools subject to the usual caveat of taking professional advice first.

Digital agenda at HMRC

Just when you thought it might be safe to get back in the water, HMRC have come up with another idea, that of compulsory electronic VAT invoicing from 2029. Readers will be relieved to know that the Government is not favouring the model of all invoicing running through a Government platform prior to going to the customer. There are no further details available at this stage aside from a road map to be published next year and talk of reducing the tax gap and raising tax revenue, as usual.

From next Spring, HMRC will adopt a default digital first for all communications with taxpayers. You must opt out of digital rather than the other way round. We hope there is adequate provision for those that can’t use digital means.

Sum up

There have been significant increases in the tax burden announced in this budget which will impact on many of us, not just the usual taxes, but also the high value council tax surcharge and changes to business rates. It is key to plan your financial circumstances so that any taxes can be managed as best as possible but you must seek professional advice before making any changes.

Happy Christmas to all, and we’ll be back with more updates soon.

The Team at Cleverdons
(Our office closes at 4pm on Tuesday 23 December and re-opens at 8am on Monday 5 January 2026)