Today’s UK Budget has delivered a wide range of measures set to shape the financial landscape for businesses over the coming years. After months of speculation and with a much publicised spending gap to plug, this was always going to be a tax raising budget, and so it has proved.

In this Budget 2025 summary, we break down the key announcements that matter most to business owners, highlighting the tax changes, incentives, and policy reforms that could influence strategy, investment, and day-to-day operations. We aim to provide a clear and concise overview of the developments that will have the greatest impact on you and your business.

Corporation Tax

The headline corporation tax rate remains unchanged and capped at 25% for the life of this parliament.  This will at least give business owners some planning certainty in the short to medium term, even though the 25% main rate remains high when compared to recent history – the last time the main rate was higher was in 2011.

For capital allowances, the existing regime of “full expensing” for qualifying business capital expenditure (i.e. plant and machinery) will continue.

To encourage further business investment, a new measure is being introduced. This measure will be a 40% first-year allowance from January 2026 for “main-rate assets” likely to benefit businesses that buy assets that are not eligible for full expensing, such as assets used in a leasing trade.

In contrast, as a blow to businesses, the government will reduce the writing-down allowance (WDA) for main-rate assets by 4% (from 18% to 14%) from April 2026. This means the remaining cost will be written down more slowly over time.

The 100% first-year allowance for zero-emission vehicles will be extended to March 2027.

Capital Gains Tax and EOTs

There was a significant announcement affecting EOTs (Employee Ownership Trusts) which had become a popular exit vehicle for businesses considering succession and exit planning.  Until today, sales to an EOT were generally CGT-free. However,  with immediate effect, qualifying business sales to an EOT will now only benefit from a 50% rate of relief.  We anticipate that this measure will significantly dampen the appetite among business owners to sell their business to an EOT.

In practice, that means:

• 50% of the gain on a disposal to an EOT will remain exempt.
• The other 50% will be subject to CGT at the seller’s applicable rate.

Enterprise Investment Scheme (EIS)

According to early coverage of the Budget, the Chancellor pledged to “re-engineer” EIS (and VCT).

The government has confirmed it will increase the VCT and EIS company investment limit to £10 million, and £20 million for Knowledge Intensive Companies (KICs) and increase the lifetime company investment limit to £24 million, and £40 million for KICs. The gross assets test will increase to £30 million before share issue, and £35 million after, from April 2026. Alongside this, the VCT income tax relief will decrease to 20%.

EIS has come under scrutiny in the past, and many believe that further changes could lead to a more substantial overhaul. This has prompted worries about how reliable the scheme will remain for founders and investors over the long term.

With wider tax increases affecting savings, dividends, and property income, there’s also growing uncertainty about whether future amendments will preserve EIS as a competitive and appealing investment option.

Enterprise Management Incentive (EMI)

Ahead of the Budget, there was a strong indication that the government intended to expand EMI, particularly by raising the existing cap on the value of share options an employee can receive under EMI.

Alongside EIS, the government said they are planning to boost incentives for businesses, for example, by increasing the limits under the Enterprise Management Incentive (EMI) scheme.

From April 2026, the employee limit will increase to 500, the gross assets test to £120 million, and the company share option limit to £6 million. The maximum holding period will increase to 15 years, including for existing EMI contracts. The EMI notification requirement will also be removed from April 2027.

Property, dividend and savings income

The Budget introduces higher taxes on income from certain assets, with rates on rental income, dividends and savings set to rise by 2%. Such income does not attract National Insurance and there had been speculation that these forms of income could become subject to National Insurance, or, as has instead been announced, a higher rate of income tax. The new rates come into effect from April 2026 for dividends.

Business owners will want to consider if and how they can manage profit extraction from their business – for example, with today’s announcement meaning tax rates increasing for dividends, but not salary, extracting profits via dividends will become relatively more expensive (when compared to salary).

From 2026-27, the basic rate of dividend tax will increase by 2% to 10.75%, and the upper rate will also increase by 2% to 35.75%. The additional rate will remain unchanged at 39.35%.

A new structure for taxing rental profits and savings will be rolled out from April 2027. Under this system, property and savings income will be taxed at 22% for basic-rate taxpayers, 42% for those in the higher band and 47% for taxpayers in the additional-rate bracket.

Inheritance tax

For owners of business or agricultural assets, the previously announced caps on Business Relief/Agricultural Relief remain in place and are due to come into effect from April 2026. Estates that rely heavily on those reliefs should reassess valuations and succession plans accordingly, as the ability to shelter the full asset value from IHT is now limited.

There were fears that the Budget may contain measures to limit the amount that individuals may be able to gift during their lifetime without incurring an IHT charge, but there appear to be no such proposals – meaning that individuals affected by the proposed AR/BR changes from April 2026 still have until then to plan accordingly.

The Chancellor announces today that the £1 million allowance for the 100% rate of agricultural property relief and business property relief will be transferable between spouses and civil partners, a sensible measure that will simplify estate planning.

Electric vehicles

From April 2028, the government will introduce a new usage-based tax for drivers of electric and plug-in hybrid cars. Under this system, motorists will pay a set rate for every mile driven. This rate will be 3p per mile for fully electric vehicles and 1.5p per mile for plug-in hybrids. This new charge will sit alongside the existing Vehicle Excise Duty, rather than replacing it.

Despite the new levy, the Chancellor reiterated the government’s commitment to supporting the transition to electric vehicles, including ongoing funding for EV grants and the continued rollout of charging infrastructure.

Fuel duty frozen

The Chancellor confirmed that the temporary reduction in fuel duty will remain in place for longer than initially planned. Rather than allowing the 5p cut to expire next spring, the government will extend it until September 2026, and thereafter it will be reversed in three stages. This means motorists will continue to benefit from slightly lower pump prices, offering some relief at a time when travel and commuting costs remain a concern for many households.

For businesses that rely heavily on transport, the extension of the fuel duty cut provides welcome cost stability. Keeping the five pence reduction in place helps limit fuel bills at a time when operating expenses are rising in other areas, easing some pressure on cash flow.

Income tax and National Insurance

The Budget confirmed that income tax and National Insurance thresholds will remain at their current levels until April 2031. This means the personal allowance and the points at which higher tax rates begin will not change for several more years, bringing more people into higher tax bands as earnings rise.

The Chancellor also confirmed that the government will cap the tax advantage of salary-sacrificed pension contributions. From April 2029 onwards, pension contributions made via salary sacrifice above £2,000 per year will no longer be exempt from National Insurance. Both employer and employee national insurance will be charged on salary sacrifice contributions above that threshold.

The combination of frozen thresholds and reduced National Insurance advantages on salary sacrifice is likely to increase the amount of tax many individuals pay over time as incomes and pension contributions continue to grow.

There had also been speculation that the Chancellor might seek to limit the 25% tax-free lump sum that eligible pensioners can draw down from their pension pots without suffering any income tax, but thankfully, no such announcements appear to have been made today.

National Minimum Wage and National Living Wage

Prior to the Budget, it was announced that the National Minimum Wage would increase from 1 April 2026 as follows:.

• The minimum wage for over-21s will increase by 4.1% (50p per hour) to £12.71 per hour.
• Workers aged 18 to 20 will get a larger increase of 8.5%, to £10.85 an hour.
• And 16 and 17-year-olds will get a 6% increase to £8 an hour.

The National Living Wage will also increase from 1 April 2026.

• The statutory National Living Wage (for workers aged 21 and over) will rise from £12.21/hour to £12.71/hour.
• For those aged 18–20, the NLW rate will increase from £10.00 to £10.85/hour.

Rising statutory wage levels will increase employers’ payroll costs across many sectors. Businesses that already operate on tight margins may feel the pressure most, as higher wages feed directly into their operating costs.

However, higher wages can help with staff retention and recruitment, reducing turnover and the associated costs of constantly hiring and training new employees.

Mansion tax

The Budget introduced a new annual surcharge on high-value residential properties, creating a modern form of “mansion tax.”

From April 2028, homes valued at £2 million or more will attract an additional yearly charge, the High Value Council Tax Surcharge,  collected alongside the standard council tax. The levy is banded according to property value, starting at £2,500 per year for homes just over the £2 million threshold, rising to £7,500 for properties worth £5 million or more.

For homeowners, particularly those with expensive properties in high-value areas, the surcharge will increase the ongoing cost of ownership.

Property investors and landlords with high-end portfolios will also feel the impact, as the additional charge reduces net rental yields and increases the cost base of affected properties.

Changes to ISAs

The government is reshaping how ISAs work. Although the total yearly allowance will remain at £20,000, a dedicated £8,000 portion must now be allocated to investment products, with a £12,000 annual limit applying to cash ISAs. Those aged 65 and above, however, will continue to have the option to subscribe the full £20,000 in a cash ISA if they wish.

Accelerated payment of income tax

It was also announced that the government will require income tax Self Assessment taxpayers with Pay As You Earn (PAYE) income to pay more of their Self Assessment liabilities in-year via PAYE from April 2029. The government will publish a consultation in early 2026 on delivering this change, and on timelier tax payment for those with only Self Assessment income. This will be unwelcome news for many taxpayers suffering the effects of the rise in cost of living.

Reminder of other tax changes previously announced

Here’s a recap of other tax changes that were announced in the 2024 Autumn Budget that are still due to take place.

Capital Gains Tax

The special rate of Capital Gains Tax (CGT) under Business Asset Disposal Relief (BADR) and Investors Relief (IR) is set to increase to 18% from 6 April 2026. The lifetime £1m limit of the reliefs remains unchanged.

In practice, this means that business owners considering a sale may wish to crystallise gains before 6 April 2026 to secure the lower BADR rate.

Carried interest gains previously subject to CGT will largely be subject to income tax and national insurance from 6 April 2026.

You can read more of our tax tips on how to save Capital Gains Tax here.

IHT, BPR & APR

The changes announced in the 2024 Autumn Budget that affect the passing on of your estate are complex and far-reaching for business owners and farmers.

The changes announced were as follows:

• Agricultural Relief (AR) and Business Relief (BR) will have a combined limit of £1m. Thereafter, 50% relief applies, giving an effective 20% tax rate on value above the limit from 6 April 2026.
• Unused pensions will fall into the scope of IHT from 6th April 2027.
• The IHT Nil Rate Band £325K and Additional Nil Rate Band £175K were frozen until April 2030.
• The rate of BR available will reduce for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM; meaning AIM shares will only get 50% relief.

You can read more tax planning strategies to minimise and protect against IHT here.

Pensions & IHT

 From 6 April 2027, the tax rules around pensions will change significantly. Most unused pension funds and death-benefit payments from registered pension schemes will be included within the deceased person’s estate for Inheritance Tax (IHT) purposes — a major shift in what has historically been a tax-favourable area.

Under the new regime, the person handling the estate (the personal representative) will become responsible for reporting and paying any IHT due on those pension amounts. At the same time, existing exemptions for transfers to a spouse, civil partner or charity will remain in place.

Many business owners use pension schemes, especially those holding business assets or savings within a pension vehicle, to safeguard legacy wealth and provide flexibility for the next generation. The rule change means that unused pension funds and death-benefit payments that previously sat outside the taxable estate will now be included in it. This can significantly increase exposure to Inheritance Tax (IHT), potentially forcing a business-owner’s family to fund the tax from business assets or the estate rather than benefiting from the pension in full.

For families of business owners, the administrative and cash flow burdens grow. The personal representative must liaise with pension scheme administrators to value unused pension benefits, allocate those benefits in the estate, and pay any IHT due. This process can delay distributions and the resolution of the estate. The increased complexity may distract the successors from running the business and may introduce liquidity issues for the estate.

Contact Barnes Roffe

For more help and advice on any of the above announcements and changes, contact us today.