Budget 2025 Reflections

by Angela Wood | Dec 4, 2025 | News, Budget

The things that you and your clients REALLY need to know

Immediately after the Budget, you will have been inundated with budget ‘instant’ reactions, rapid-fire summaries and social media posts.

However, at ETC Tax, we like to take a little extra time to get our Budget content out to you to ensure it is as useful as possible.

With that in mind, below are the parts of the Budget that we think will matter most to our network of professional advisers and their and our clients.

If you or your clients have a property rental portfolio.

Unfortunately, landlords have taken another ‘hit’ in the Budget with tax rates on rental income to rise by 2% from 2027–28, and dividend tax rates also increasing by 2% for basic, higher and additional-rate taxpayers from 2026–27.

This means that whether you hold property personally (as a sole trader or in partnership) or through a company (and take income by way of dividends), you will feel the impact.

For some landlords, incorporation may still make sense, especially where borrowing is high, profits are retained, or you’re building a long-term property portfolio, but the gap has narrowed and the benefits are now far more marginal.

If you’re unsure whether to stay as you are or restructure, we can help you understand the impact on your numbers both before and after the new rates take effect. We can model the figures, compare structures and give you a clear view on what is most tax-efficient for you.

Incorporation is not right for everyone, and given that HMRC also announced at the budget that those relying on incorporation relief will now need to formally claim it on their Self-Assessment tax return for the year of transfer (including details of the transaction, tax computations and the nature of the business transferred) as part of wider anti-avoidance measures, if you are considering incorporation, it is now even more important to take specialist tax advice. We can help. Click here to view our property tax section on our web.

If you or your clients are concerned about your inheritance tax position

Transferable £1m allowance

As announced in last year’s Budget, from 6 April 2026, a new £1 million allowance will apply to the combined value of property in an estate qualifying for 100% Business Property Relief or 100% Agricultural Property Relief. Any qualifying relievable property over £1 million will receive tax relief at 50%.

It was originally proposed that the £1m allowance could not be transferred between spouses. However, this year’s Budget now amends this so that any unused amount of the £1 million allowance can be transferred to a surviving spouse or civil partner from 6 April 2026. If the first death was before 6 April 2026, it will be assumed the entirety of the £1 million allowance will be available for transfer to the surviving spouse or civil partner.

In addition, the option to pay Inheritance Tax by equal annual instalments over 10 years interest-free will also be extended to all property which is eligible for agricultural property relief or business property relief. This will be particularly helpful to those estates that are “asset rich, cash poor”.

IHT due on pension funds

At Autumn Budget 2024, it was announced that personal pension funds would be subject to IHT from 6 April 2027.

It was originally proposed that pension scheme administrators would be liable for reporting and paying any Inheritance Tax on the pension element of an individual’s estate. However, following consultation, this year’s budget announced that personal representatives, rather than pension scheme administrators, will be liable for reporting and paying any Inheritance Tax due on unused pension funds and pension death benefits from 6 April 2027. It also confirmed that death in service benefits payable from a registered pension scheme will remain outside the of scope of Inheritance Tax which is welcome news.

Further freezing of IHT rate bands and reliefs

The Nil Rate Band of £325,000 has been fixed at £325,000 since 2009/10. It will now remain at that rate until 2030/31.

Similarly, the Residence Nil Rate Band (RNRB) will remain at £175,000 until 2030/31.

The £175,000 RNRB is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the RNRB by £1 for every £2 that the net value of the estate is more than £2 million. This limit is also frozen until 2030/31.

The government announced at Autumn Budget 2024 that the new £1 million allowance will apply to the combined value of property in an estate qualifying for the 100% rate of APR or BPR. This limit has also been frozen until 2030/31.

IHT anti-avoidance

Previously, individuals who are not long-term UK residents could avoid IHT by placing business/agricultural property in offshore structures. As these would not be UK-situs assets, no IHT would be due.

Legislation will be introduced which will allow HMRC to look-through non-UK companies or similar bodies to treat UK agricultural land and buildings as situated in the UK for IHT purposes. This will be effective from 6 April 2026 but will apply to any transfers of value from Budget day (26 November 2025).

This follows the existing treatment for UK residential property for IHT introduced from 6 April 2017.

There will be some transitional relief for trusts in existence as at 30 October 2024 with IHT charges capped at £5m per trust.

Finally, in line with other taxes, IHT charity exemption will be restricted to gifts made directly to UK charities and community amateur sports clubs. Gifts to trusts which do not meet the required charity or club definition will not be exempted as they may not have UK jurisdiction or be regulated.

What’s next?

We recognise that inheritance tax is something a lot of our clients feel passionately about, and at ETC Tax we have extensive experience helping clients structure their affairs to allow them to pass on as much of their wealth to their families as they can within the remit of what is possible.

If you or your clients would like advice on IHT, estate and succession planning matters whether relating to personal or business wealth and whether your assets are held in the UK or overseas, please do get in touch and we would be happy to help – click here to view our IHT section on our website.

If you or your clients have cryptoassets

Whilst the Autumn Budget did not alter how crypto gains are taxed, there were changes to the reporting framework for crypto assets.

The UK has now implemented the OECD’s Cryptoasset Reporting Framework (CARF) and aligned it with the existing requirements for Reporting Cryptoasset Service Providers (RCASPs). RCASPs are exchanges or platforms that facilitate the trading or management of cryptoassets such as Binance and Kraken.

Under the updated rules, which take effect 1st January 2026, RCASPs must gather information not only on customers who live outside the UK, as they currently do, but also on UK-resident users. This information will be exchanged automatically between jurisdictions. As a result, HMRC will receive annual CARF data covering all UK taxpayers who use either UK-based or overseas RCASPs. With estimates suggesting 12% of UK adults own some form of crypto assets, and some of those no doubt using overseas RCASPs, there is no doubt that that the new reporting standards will uncover some non-disclosed crypto activity.

This information is designed to provide HMRC with consistent, structured data to strengthen compliance work, address tax avoidance, and help ensure taxpayers meet their reporting obligations.

With HMRC gaining access to much more detailed information, keeping your crypto records accurate and up to date is more important than ever. If you require support with bringing your crypto position up to date, historic disclosure of your crypto activity, and/or in year reporting, please contact us. Click here to view the crypto section on our webiste.

If you or your clients are moving overseas

Post-departure profits

The government is abolishing the long-standing “post-departure trade profits” exception. As a result, any dividends or distributions taken from a close company while an individual is temporarily non-resident will become taxable on their return to the UK, irrespective of whether the underlying profits arose after departure or not.

Under current rules, UK-resident individuals who leave the UK but return within five years may be taxed on income such as capital gains realised while abroad. However, distributions from close companies have historically fallen outside this where they relate to post-departure profits.

From 6 April 2026, this distinction disappears.

The revised rules provide that:

• The timing and origin of the profits no longer matter.
• All dividends taken while temporarily non-resident will be subject to UK tax upon return.
• Anyone returning within five years is likely to fall within the scope of the charge.

Example

A UK-resident director relocates to Dubai in 2023 and remains non-resident for three years. During that period, they withdraw £300,000 of dividends from their UK close company. Under the current framework, it may be argued that the dividends relate to post-departure profits and should not be taxed in the UK.

However, if the individual returns to the UK in August 2026 and within the five-year temporary non-residence period, the full £300,000 will be taxable. The origin of the profits becomes irrelevant. Any foreign tax may provide limited relief, but the UK tax charge will still apply.

Abolition of the dividend tax credit for non-UK residents

Non-UK residents who receive UK dividends and also have UK rental income or partnership income currently benefit from a notional tax credit at the ordinary dividend rate, often reducing or eliminating a UK liability.

From 6 April 2026, this credit is abolished. Non-residents will instead need to choose between:

• Being taxed on all UK income and claiming a Personal Allowance, with dividends taxed at normal UK dividend rates; or

• Being taxed only on UK rental/partnership income, but without a Personal Allowance.

Alignment of PAYE with Overseas Workday Relief (OWR)

From 6 April 2026, employers applying in-year PAYE relief for non-UK resident employees with mixed UK and overseas duties will be subject to a new 30% cap on the proportion of pay that can be excluded under a PAYE direction.

Historically, this 30% limit applied only when an employee made an OWR claim through Self- Assessment.

This change ensures that in-year PAYE exclusions align with the maximum relief available via a tax return, reducing the risk of underpaid tax. Previously, employers often excluded a larger share based on anticipated overseas work.

Example

An employee earns £120,000 while performing duties both in the UK and overseas. Historically, an employer might have excluded 50–60% from PAYE. From 6 April 2026, only 30% (£36,000) may be excluded. The remainder will be subject to PAYE in the normal way.

What’s next?

We are receiving more and more enquiries from clients looking to leave the UK, and have helped many clients successfully navigate this change. If you need help with any matters relating to relocating overseas (whether individual or corporate) please get in touch.

If you or your clients are subject to the loan charge

As you may be aware, the government commissioned an independent review of the loan charge in January 2025, and the findings of that have now been published resulting in the government accepting all but one of the recommendations. As such, HMRC will now implement a new settlement opportunity for those affected by the loan charge, who have not yet agreed a settlement with HMRC.

This settlement is designed to substantially reduce tax liabilities, particularly for those on lower incomes.

Key features of the new settlement opportunity include:

• Tax liabilities recalculated using the tax rates in place when loans were made, rather than 2018/19 rates;

• Reductions to reflect historic promoter fees i.e if you paid promoter fees as part of your loan scheme agreement, the amount you paid per year can be used to reduce your tax liability, subject to a cap of £10,000 per year;

• A flat write-off of the first £5,000 of tax due per person, applied to the recalculated amount, to provide additional help for those on lower incomes;

• No late payment interest will be charged on the re-calculated liability;

• Any inheritance tax linked to loan scheme use is to be written off;

• Flexible payment arrangements tailored to an individual’s ability to pay, with an automatic option to spread payments over five years (though forward interest will apply).

Although these appear to be some positive changes, this does come with the caveat that no re-calculated liability can be reduced by any more than £70,000. However, the government suggests that most individuals (80%) will not be restricted by this cap as most liabilities appear to be lower than this.

Points of caution

It’s important to be aware that HMRC has not yet clarified how it will distinguish loan schemes from other disguised remuneration arrangements. Some taxpayers have already been told their cases fall outside the scope of the review, so you should not assume that you will automatically qualify for the opportunity. While the new settlement terms may offer significant reductions, the outcome will depend on HMRC’s assessment of your individual circumstances.

What next?

HMRC has previously written to those taxpayers who may be affected during the review process, and from January 2026, your named HMRC contact will confirm you whether your arrangements fall within the scope of the new settlement terms. If so, you should receive an invitation to settle at a reduced amount.

Alternatively, you can register your interest in settling under the new terms by contacting HMRC immediately.

If you have not yet settled your loan charge liability, this settlement opportunity could help reduce what you owe.

We can help you understand how the new terms apply to your position, check your figures and support you in preparing the information HMRC will need – if you need assistance, please contact us.

Other things you should be aware of:

Changes to Corporation Tax Penalties

The proposed legislation doubles the current penalty levels for late filing of Corporation Tax returns. Under the revised regime, the penalties will be:

• £200 for a late return
• £400 where the return is more than three months late
• £1,000 for three consecutive late filings
• £2,000 for three consecutive filings more than three months late

This represents a significant tightening of the penalty framework and reinforces the importance of timely compliance.

EMI – Increased Limits from 6 April 2026

For EMI options granted on or after 6 April 2026, the qualifying limits will be substantially increased:

• The company-wide limit on unexercised options will rise from £3 million to £6 million.
• The gross assets test will increase from £30 million to £120 million.
• The employee limit will rise from 250 to 500 employees.

These changes are designed to enable larger scale-ups, as well as early-stage companies, to use EMI to attract, retain and reward key employees more effectively.

EIS and VCT Reforms

The government is increasing several thresholds within the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) regimes to enhance support for early-stage and growing companies. The key changes include:

• Increasing the gross assets limit for EIS and VCT eligibility to £30 million (previously £15 million) immediately before the share issue, and to £35 million (previously £16 million) immediately after.
• Raising the annual investment cap to £10 million (from £5 million) for standard companies, and to £20 million (from £10 million) for knowledge-intensive companies.
• Doubling the lifetime investment limit to £24 million (from £12 million), and to £40 million (from £20 million) for knowledge-intensive companies.
• Reducing the rate of Income Tax relief for VCT investors from 30% to 20%.

These measures widen access to growth capital while repositioning the reliefs available to investors.

ATED – out-of-time relief claims

As a reminder, the Annual Tax on Enveloped Dwellings (ATED) applies when all three of the following conditions are met:

1. A “non-natural person” owns the property i.e. a company or collective investment vehicle

2. The property is a UK residential dwelling

3. The property is worth more than £500,000

However, some companies don’t actually have to pay ATED, because they qualify for a relief, such as lettings relief or property development relief.

However, previously, ATED relief had to be claimed within a strict statutory deadline (12 months following the chargeable period), using the normal ATED return or amendment process. Missed claims meant a full ATED charges applied.

This strict out-of-time limit for relief claims is removed, and a valid claim to reduce the ATED charge may be submitted at any date, although late filing penalties will apply as they always have.

Reduced CGT relief on disposals to Employee Ownership Trusts (EOTs)

Previously, individuals or trustees disposing of shares to a qualifying Employee Ownership Trust (EOT) could claim 100% CGT relief, meaning no Capital Gains Tax was payable if the conditions were met.

From 26 November 2025 relief is reduced from 100% to 50% for disposals on or after that date, meaning 50% of the gain is immediately taxable; but the remaining 50% is deferred.

Other CGT reliefs (e.g., Business Asset Disposal Relief) cannot be claimed on the same disposal.

Please do get in touch to discuss any aspect of this budget document and/or for specialist help with any other tax matters.