Introduction
Rachel Reeves delivered her second budget as Chancellor on 26 November 2025. The following summarises the most relevant measures for our client-base. In addition to this summary, there are more detailed articles on our website on some of these changes, but if you have specific queries please contact Joanne Lamberth joanne@fairwaytax.com.au for advice.
Personal Income Taxes
Extended Band Freeze:
The freeze on Income Tax and National Insurances allowances and thresholds has been extended for a further 3 years to 6 April 2031 – so the current Personal Allowance, Basic and Higher Rate Tax bands and National Insurance Bands will remain in place up to and including 2030-31 tax year.
Property Income:
A new separate rate of UK Income Tax for Property Income will be introduced from 6 April 2027:
- This will mean that rental profits are taxed at 22% in the Basic Rate Band (currently 20%), 42% in the Higher-Rate Band (currently 40%) and 47% in the Additional Band (currently 45%)
- In addition, reliefs and allowances will only be applied to property income after all other sources of income
For non-UK-resident clients with UK rental properties and UK-resident clients with worldwide rental properties, this will increase their UK tax burden. For recent arrivals in the UK, this may make the FIG (Foreign Income and Gains) Regime – more attractive for the first 4 years of UK-residence.
Dividend Income:
Dividends are already taxed at special dividend tax rates in the UK from 6 April 2026 the Basic and Higher-Rate Dividend rates will be increased by 2% – so that dividends in the Basic Rate band will be taxed at 10.75% (up from 8.75%) and those in the Higher Rate band will be taxed at 35.75% (up from 33.75%). The rate for dividends in the Additional Rate band will remain at 39.75%.
The non-resident dividend tax credit will also be abolished from 6 April 2026.
For clients whose dividends subject to UK tax exceed the Dividend Allowance (now only £500 per annum), the UK tax burden on dividends will increase as a result.
Savings Income:
Like Dividends, Savings Income (interest) has its own UK tax rates and allowances. From 6 April 2027 the Savings Tax rates will increase as follows:
Basic Rate Band increased from 20% to 22%
Higher Rate Band increased from 40% to 42%
Additional Rate Band increased from 45% to 47%
Removal of Relief for non-Reimbursed Home Working Expenses:
From 6 April 2026, employees will no longer be able claim a deduction for home working expenses where the employer does not reimburse these.
ISA Investment:
Despite the widespread speculation – the overall annual ISA allowance remains at £20,000, however from 6 April 2027 the amount of that allowance that can be invested in Cash-ISAs is capped at £12k per annum.
Capping NI Relief on Salary Sacrifice to UK Pension:
Many UK-residents currently salary sacrifice some of their UK employment income into UK pension. At present, this saves both UK Income Tax and National Insurance. From 6 April 2029, National Insurance relief will only be available on the first £2,000 per annum of salary-sacrifice to pension.
New High-Value Council Tax Surcharge
From April 2028, owners of UK properties worth £2m or more (based on Valuation Office pricing) will be subject to a new high value council tax surcharge on top of their existing Council Tax Liability:
- This applies to your home as well as investment properties
- For investment properties this is usually paid by the tenants (except for vacant periods) so will impact on the affordability of the rental for tenants
- Where the property is your home, this will increase your annual ownership costs
Inheritance Tax (IHT)
IHT Threshold Freeze Extended
The freeze in IHT thresholds is extended for another year to 6 April 2031.
Confirmation that Unused Pensions will be brought into IHT
The budget confirmed the previously-announced intention to bring unused balances on pensions within scope to UK IHT from 6 April 2027 – and Finance Bill 2025-26 includes the draft legislation to effect this change.
Agricultural Property
The treatment of UK Agricultural Property held by non-UK entities has been aligned to the treatment of UK residential property – so that from 6 April 2026 this is treated a UK situs property – so subject to UK IHT regardless of whether the owner is a Long-Term UK Resident or not.
Transferrable Allowance – APR and BPR
The £1m allowance for 100% rate of APR and BPR will be transferable between spouses and civil partners.
Restriction to Charitable IHT Exemption
Exemptions from IHT for donations to charities and clubs will be restricted to direct gifts – from 26 Nov 25 for lifetime donations and 6 April 2026 for gifts on death.
Exit Charges for Trusts – where Settlor Ceases to be a Long-Term UK Resident
As part of the changes to the Inheritance Tax regime, introduced from 6 April 2025, exit charges may apply for the trustees of a settlement, when the settlor ceases to be a Long-Term UK-Resident (and we would note that the UK legislative definition of a settlor is very much broader than the artificial legal construct used in many countries – including Australia). The 2025 Budget changes remove some of the exemptions from these exit charges.
Summary
While there are numerous other changes, and some, not mentioned above, that may impact a few of our clients, the above summary focuses on the changes that will impact the majority of clients. If you have questions about other 2025 Budget measures please contact Joanne Lamberth by emailing: joanne@fairwaytax.com.au