Exploring the Budget announcements with Azets: How are you impacted?

The Chancellor’s statement unfolded against a backdrop of a significant shortfall in public finances, lingering criticism of the previous Budget, and mounting pressure to avoid further unpopular measures. Delivering a package that could satisfy a broad range of stakeholders was always going to be challenging - and debate from today’s announcements seems inevitable.

Summary of the headline measures unveiled

• Income tax thresholds frozen until April 2031 – Despite previous announcements of alignment with inflation by 2028, the freeze has now been confirmed as extended. This “fiscal drag” means more people caught by higher tax thresholds as salaries rise. Note: Scottish income tax is set separately, so this does not apply in Scotland.
• Increased income tax rates on dividends – From April 2026, the basic and higher rates of tax on dividends will increase by two percentage points, rising to 10.75% and 35.75% respectively.
• Increased income tax rates on property and savings – From April 2027, the basic rate of property and savings income tax will increase to 22%, the higher rate to 42% and the additional rate to 47%.
• Cash ISAs – While the full £20,000 annual allowance will remain, £8,000 of this will need to be for investment purposes. Those over 65; however, will be able to retain the full £20,000 cash allowance.
• Mansion tax – Properties valued over £2m will attract an additional property tax from 2028. The new charge starts at £2,500, rising to £7,500 for properties valued over £5m..
• National Insurance on pension salary sacrifice – In a hit to tax on workforces, salary-sacrificed pension contributions of more than £2,000 a year will not be exempt from National Insurance from April 2029. This could have a significant impact on larger workforces and will impact where employees earn at around £40k (depending on pension scheme specifics). No changes to income tax relief in relation to pensions have been announced.
• Electric vehicle mileage tax – From April 2028, battery electric vehicles will be subject to a £0.03 per mile charge. Plug-in hybrids will face a £0.015 per mile charge.
• Capital Gains Tax (CGT) on Employee Ownership Trusts (EOT) – For EOT disposals, a business exit strategy growing in popularity, the CGT relief will be reduced from 100% to 50%, effective immediately.
• Corporation tax - capital allowances – Writing down allowance main rate cut from 18% to 14% per annum and new 40% first-year allowance for leased assets.
• Minimum wage – minimum wage rates to increase from April 2026.
• Enterprise Management Incentives scheme (EMI) and EIS/VCT – changes to increase the employee limit to 500 for EMI and gross assets test to £120m. VCT and EIS limits increased to £10m and £20m for Knowledge Intensive Companies and increases to lifetime investment limit and gross assets test.
• A new settlement opportunity for individuals who used loan schemes, who have yet to settle their liability.

Notably, there was no change or relaxation to inheritance tax (IHT), with the exception of a welcome announcement to permit the transfer of any unused IHT allowance between spouses. This is despite criticism of the reforms scheduled to take effect from April 2026. Individuals impacted have little time left to act and plan accordingly.

Who is impacted most?

Winners

• Younger and lower-paid workers
  The increase in minimum wage from April 2026 will provide a welcome boost to earnings for those on the lowest incomes, helping offset some of the cost-of-living pressures but could be offset by a contraction in recruitment by employers.
• Older savers
  While changes to ISA rules will require most savers to allocate £8,000 of the annual allowance to investments, those aged 65 and over retain the full £20,000 cash allowance - making them clear beneficiaries.
• Borrowers and cash savers
  Despite speculation about harsher restrictions, the overall ISA allowance remains at £20,000, and there were no major shocks for borrowers in terms of interest-related measures.
• SME employers
  Funding to make training for people under 25 on apprenticeships free.

Losers

• Middle and higher earners
  The extended freeze on income tax thresholds until 2031 means more individuals will drift into higher tax bands over time - a case of “fiscal drag.” Combined with increased rates on dividends, property, and savings, this group faces a heavier tax burden.
• Employees and employers using pension salary sacrifice
  From April 2029, salary-sacrificed pension contributions above £2,000 will attract National Insurance, reducing, but not eliminating, the tax efficiency of this popular retirement saving strategy.
• Employers with large workforces
  Rising minimum wage rates and the removal of NI exemptions on salary sacrifice pension contributions for those earning at around £40k will increase payroll costs, adding pressure to recruitment and retention budgets.
• Landlords and property owners
  Increased income tax rates on property income, coupled with the new mansion tax for properties over £2m, will significantly impact landlords and high-value homeowners.
• Small company directors
  Higher dividend tax rates from April 2026 will hit directors who rely on dividends for income, reducing the attractiveness of this remuneration strategy.
• Electric vehicle owners
  The introduction of mileage-based charges for EVs and hybrids from April 2028 adds a new cost for those who previously benefited from lower running expenses.
• Online retailers
  The changes to duty on online packages will increase costs for e-commerce businesses, particularly those importing goods from overseas. This could lead to higher prices for consumers and tighter margins for retailers operating in competitive markets.

We’re here to help

Many of the measures announced today - and in last year’s Budget - come with significant lead time before they take effect. That means businesses and individuals have a valuable window to prepare, review strategies, and make informed decisions.

Now is the time to:

• Review your tax position in light of upcoming changes.
• Plan ahead for major reforms such as inheritance tax, income tax threshold freezes, dividend tax increases, and pension contribution changes.
• Start conversations with your adviser to identify opportunities for tax efficiency and mitigate potential risks.

Proactive planning can help avoid costly surprises. To ensure you’re ready for what’s ahead, please get in touch with Lyn Newbury, lyn.newbury@azets.co.uk or 01233 629255.