Economic Update

The Treasury reports that net financial debt remains close to its pandemic-era peak, with public sector net borrowing (PSNB) holding at around 5% of GDP since COVID-19. Borrowing in 2024–25 is projected to reach approximately £150 billion, leaving the UK with the third-highest borrowing level in the G7 as a share of GDP.

GDP growth is expected to ease slightly to 1.4% in 2026, before stabilising at 1.5% thereafter. Average growth between 2026 and 2029 is forecast at 1.5%. The OBR anticipates inflation peaked in Q3 2025, with a steady decline expected until it reaches the Bank of England’s 2% target by Q1 2027.

 Individuals

• Personal tax thresholds and the NIC secondary threshold remain frozen until 2031; the Plan 2 student loan repayment threshold is frozen until 2029–30.
• From April 2027, property income tax rates rise to:
  • 22% (basic rate)
  • 42% (higher rate)
  • 47% (additional rate)
• Dividend tax rates will increase by 2 percentage points for the ordinary and upper rates from April 2026, with no change to the additional rate.
• Savings income tax rates rise by 2 percentage points across all bands from April 2027.
• The dividend tax credit for non-UK residents will be abolished, aligning their tax treatment with UK residents.

• The Universal Credit two-child limit will be scrapped, with additional support for larger working families through higher maximum childcare cost allowances.

• From 6 April 2026, the government will remove access to pay voluntary Class 2 NICs abroad and increase the initial residency or contributions requirement to pay voluntary NICs outside of the UK to 10 years.
• The State Pension will be uprated by 4.8%.

Inheritance Tax

• IHT thresholds will be frozen until April 2031.
• A £5 million cap on IHT trust charges for historic non-dom trusts will apply from 6 April 2025.
• The £1 million agricultural/business property relief allowance (from April 2026) will be transferable between spouses and civil partners.
• Personal representatives may instruct pension schemes to withhold 50% of taxable benefits for up to 15 months to assist with IHT payments.

Property Tax

• A High Value Council Tax Surcharge (HVCTS) will apply in England from April 2028 to homes valued at £2m+, based on updated property valuations:
  • £2,500 per year for £2m+ homes
  • Rising to £7,500 per year for homes valued above £5m

Capital Gains and Investments

• As previously announced, from April 2026, the CGT rate for Business Asset Disposal Relief and Investors’ Relief will rise to 18%.
• Employee Ownership Trust CGT relief will fall from 100% to 50% from 26 November 2025.
• From April 2027, the annual ISA cash limit will be £12,000, within the unchanged overall ISA cap of £20,000 for the under 65s. Lifetime and Junior ISA subscription limited remain unchanged.
• Cryptoasset Service Providers must report UK-resident customer data to HMRC from 2027, with data collection beginning 1 January 2026.

Employees

• Employer-provided reimbursements for eye tests, home-working equipment, and flu vaccinations will become exempt from income tax and NICs from 6 April 2026.
• The EMI scheme will be updated, increasing the employee limit to 500, the gross assets test to £120 million, and the company share option limit to £6 million from April 2026. The maximum holding period will increase to 15 years including in respect of existing EMI contracts. The EMI notification requirement will also be removed from April 2027.
• The tax deduction for non-reimbursed home-working expenses will end from April 2026 (employers can still reimburse tax-free where eligible).
• NIC relief on salary-sacrifice pension contributions will be capped at the first £2,000 per person from 2029.
• Changes to benefit-in-kind rules for Employee Car Ownership Schemes will be deferred to April 2030.
• A cap will limit the proportion of earnings excluded from PAYE to 30% for qualifying new residents claiming Overseas Workday Relief (from April 2026).
• From April 2027, all employment-related image rights payments will be treated as taxable employment income.

Business

• Employer NIC relief for hiring veterans will be extended to April 2028.
• An increase to the VCT and EIS company investment limit to £10 million, and £20 million for Knowledge Intensive Companies 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%.
• The general writing-down allowance for capital allowances will reduce to 14% from April 2026.
• A new 40% first-year allowance for main-rate assets begins on 1 January 2026, excluding cars, second-hand assets, and leased overseas assets.
• The 100% first-year allowance for zero-emission cars and EV charge points is extended to 2027.
• Penalties for late Corporation Tax returns will double from 1 April 2026.
• Incorporation relief must be actively claimed for transfers occurring after 6 April 2026.
• The National Living Wage will increase to £12.71 per hour in April 2026.
• Business rates will be reduced for retail, hospitality and leisure, funded by higher rates on premium properties.
• Customs duty relief for goods worth £135 or less will be removed.
• From April 2029, businesses will be required to issue all VAT invoices as e-invoices.

Other Announcements

• VAT relief will apply to business donations of goods to charity from 1 April 2026.
• The Soft Drinks Industry Levy threshold will be tightened and extended to milk-based drinks and milk substitutes from 1 January 2028.
• Anti-avoidance rules for share exchanges and company reorganisations are being modernised with immediate effect.
• Remote Gaming Duty will rise steeply from 21% to 40% in April 2026.
• A new UK Listing Relief will apply under the Stamp Duty Reserve Tax regime.
• Electric Vehicle Excise Duty (eVED) — a mileage-based charge for EVs and plug-in hybrids — will begin in April 2028.
• From April 2029, PAYE taxpayers must pay more of their Self Assessment liability in-year through PAYE.
• A consultation in early 2026 will explore requiring more tax payments via direct debit to prevent arrears of VAT.
• Additional measures will target abuse of insolvency processes used to evade tax and write off debts.
• Business rates retention pilots in Cornwall, the West of England and Liverpool City Region will be extended to 2028–29.

https://www.gov.uk/government/publications/budget-2025-document