Budget 2025 – reaction from Sean Wiegand

It was my last year’s Budget comments that started by saying this is probably the Budget that gave me the most anxiety of all time. Who would have thought 12 months on, that statement could already be superseded by Budget 2025. The level of speculation and apparent U-turns were off the scale in the lead-up to the Budget, and then the OBR released the forecast document early. Whilst I am not a fan of Rachel Reeves, I do agree this needs to be investigated as there is no excuse for the OBR to “accidentally” release the Budget forecast early.

Again, Mrs Reeves gave information regarding the country’s deficit. In this information, I was surprised to hear that we will return to a surplus of £3.9billion as soon as 2028-29. Whether that happens, of course, remains to be seen, but one way or another, we need to get there. We cannot keep increasing our borrowing costs with them already being as high as 10% of GDP.

Here is a summary of the main points of interest:

Increase in tax on dividends, interest and rental income

The Chancellor has mounted an attack on income that does not come from employment. If you are a basic rate or higher rate taxpayer, you can expect to pay an extra 2% on all income from dividends, interest and rental income. Additional rate taxpayers will pay an extra 2% on interest and rental income, but dividends have escaped the increase for those earning over £125,140.

The above changes are over two tax years, with the increase to the dividend tax rate commencing in April 2026. The interest and rental income increase commences the year after in April 2027.

What this does mean is that the tax incentive of having a limited company has become worse. If you are a small lifestyle business with no desire for limited liability protection, it is very likely that a decision to become a limited company will be abandoned. Although I stress that every circumstance is different and everyone should take professional advice based on their own individual circumstances.

In addition to this, the income tax thresholds are being frozen for a further 3 years until 2031, which will drive more individuals into higher-rate tax, just with inflationary pay rises.

Attack on salary sacrifice pension contributions

From April 2029, any salary sacrifice to pay more into your pension that exceeds £2,000 will attract national insurance for the employee and the employer. Personally, this is a red line for me, as I think we should all be encouraged to save as much as we can for retirement so that we do not become a drain on society when we retire.

Capital Gains Tax (CGT)

Thankfully, there were no significant changes to Capital Gains Tax other than the reduction of relief from 100% to 50% when you sell your business to your employees via an Employee Ownership Trust (EOT). Whilst this is a significant change, it will affect few people, and to keep a 50% reduction is still a good saving should this be a viable option for business owners in the future.

We must remember that business asset disposal relief (BADR) is currently at 14% on the first £1m of lifetime disposals until 5 April 2026. This will then increase to 18% from 6 April 2026, which is still a saving from the 24% main rate of CGT. If you are in the process of selling your business, getting it completed by 5 April 2026 would therefore be an advantage.

Inheritance Tax (IHT)

There were no major changes to inheritance tax after the raft of amendments announced last year. It is 5 April 2026 when the changes surrounding agricultural property relief (APR) and business property relief (BPR) come into force. It is 5 April 2027 when pensions get sucked into your estate for IHT purposes.

One good announcement was to allow the transfer of any unused £1million APR/BPR allowance to your spouse on death, which will help some who will suffer from the rule changes. In my opinion, the £1 million limit should be scrapped and the rules should stay as they are currently. However, allowing the transfer of unused relief when these new rules come in is at least something.

National Minimum Wage

Another boost has been handed to workers aged 18-20 with their minimum wage increasing by 8.5% in April 2026. The problem with this is that businesses will have to pass this cost on. The sectors that will feel this the most will be entertainment and retail. Do you think large supermarkets will ask their shareholders to cover this through reduced dividends? No, they won’t, so in my opinion, this is a big driver to boost food inflation.

Pubs are already struggling, and they are going to have a large workforce that falls into the 18-20 age bracket. They will have to increase prices, but will they lose footfall as a result? – quite possibly.

Removal of the 2-child benefit cap

The Chancellor has removed this cap from April 2026 which is a costly decision for the country. I support the safety net for all UK citizens who, unfortunately, find themselves in difficulty, so that they can remain housed, fed and warm. However, as a country, we must ensure this remains a safety net and not a lifestyle choice.

The Chancellor also needs to look at how these benefits are withdrawn. I have spoken to people in the past who get stuck, as the rate of withdrawal of benefits is too fast once they start to earn. This disincentivises a return to work, which cannot be the objective. Working is a good thing; it can improve self-worth and help with a worker’s mental health and overall well-being.

Final thoughts

We need to achieve growth as a country. In my opinion, increasing benefits for those who do not work whilst increasing taxes for highly skilled individuals and the wealthy who can leave the UK is not the way to achieve that.

That said, Budget 2025 could have been worse, given the rumours that were flying around in the buildup. The question is, will we achieve growth and will this Budget help at all with the country’s productivity gap? We will have to wait and see, but if it does not, then the Chancellor is likely to be begging for more come Autumn 2026!

If you have any questions regarding the 2025 Autumn Budget, then please call your local Lambert Chapman contact on 01376 326266.