Budget 2025: Review and Comments from our Legal Team
Rachel Reeve’s 2025 Budget brought a wide range of changes affecting individuals, families and businesses across the UK. While some measures had been anticipated, others represent a shift in approach that will have a practical impact on planning, investment decisions and day-to-day financial management. Our legal teams have reviewed the key announcements and shared their perspective on what these changes are likely to mean for our clients over the coming years.
Later Life Planning (Private Client) Perspective
From an estate planning, wealth management and later-life perspective, this year’s Budget continues the theme of frozen thresholds and a growing tax burden across a number of areas. With no movement on inheritance tax allowances and further changes on the horizon for pensions, many families will need to take a fresh look at their long-term planning. Below, we highlight the most relevant points for those thinking about passing assets on, managing retirement savings or protecting family wealth.
Inheritance tax
Inheritance tax remains unchanged in yesterday’s Budget. The current thresholds will stay in place until at least April 2031, meaning the £325,000 nil-rate band – unchanged since 2009 – is set to remain frozen. With pensions being brought into the allowance from April 2027, even more modest estates are likely to be affected. We expect to see a rise in clients seeking advice on how best to pass wealth and assets down through generations.
There has been a slight softening in the proposed reforms to Business Property Relief and Agricultural Relief, allowing the transfer of the allowance between spouses and civil partners. While this is unlikely to offer significant relief to families facing inheritance tax when passing down farms and businesses, it does create some additional planning opportunities between spouses. Farmers, meanwhile, ignored the tractor ban today to protest at Westminster against the inheritance tax changes.
Until now, payments from the Infected Blood Scheme were subject to inheritance tax for bereaved families. The Chancellor has confirmed today that inheritance tax will be removed from these payments for people who have died as a result of the infected blood scandal. This follows a long-running campaign by affected families, the Association of Lifetime Lawyers and STEP – both of which we are members of.
Pensions
Further taxation has been introduced in relation to pensions, effectively creating an additional tax burden on pension contributions above £2,000. From 2029, a cap will be introduced on pension salary sacrifice schemes, meaning any contributions over £2,000 will be taxed in the usual way. This will particularly affect individuals who use higher-rate or additional-rate salary sacrifice to reduce their tax bill, as contributing at this level will no longer provide the same tax-efficient advantage.
Laura Rumsey, Director and Head of Private Client, commented: “Many people looking to plan for passing wealth to future generations will find the continual raft of additional taxation, combined with the ongoing freeze on allowances, a difficult pill to swallow. Those who have saved into pensions and already paid tax on these assets during their lifetime now face a further inheritance tax burden from April 2027, when pensions begin to fall within the inheritance tax net. Today’s Budget announcement increasing taxation for those using salary sacrifice is another blow to the ability of pensions to remain both an effective tool for later-life planning and a tax-efficient method of saving.
The farming community’s protest outside Westminster today reflects just how significant these concerns are. The slight softening of the rules to allow allowances to pass between spouses will do little to ease the pressure. For many families, there is a real risk that farms held for generations may simply be unable to meet the inheritance tax liabilities that could arise when older generations pass away.
We do, however, welcome the Chancellor’s decision to remove inheritance tax from payments made under the Infected Blood Scheme. As proud members of both STEP and the Association of Lifetime Lawyers – organisations that have campaigned strongly for this change – we know this will provide some much-needed relief to families at an already difficult time.”
Commercial and Corporate Perspective
Alongside the personal tax announcements, the Budget also introduced several measures with direct implications for business owners, employers and those operating across commercial sectors.
Employee Ownership Trusts (EOTs)
The Capital Gains Tax relief available on disposals to Employee Ownership Trusts has been reduced from 100% to 50% with immediate effect. This is a significant consideration for business owners exploring EOTs as part of their succession plans. While relief remains available, the halved exemption will inevitably influence how owners approach timing and structure.
Associate and Corporate and Commercial Solicitor Chloe Tooley commented: “As a general point on Capital Gains Tax, it is worth reminding business owners that the rate for Business Asset Disposal Relief will rise from 14% to 18% in April 2026, which was announced in the 2024 Budget. Therefore, business owners who plan to sell their business or qualifying business assets may be subject to a higher tax bill if completion takes place after this increase comes into effect.”
Taken together, the reduction in EOT relief and the upcoming increase in Business Asset Disposal Relief rates provide a timely prompt for business owners to review their exit strategies.
Business rates reform
The Government has set out further support for the retail, hospitality and leisure sectors. From April 2026, business rates tax rates will be permanently lowered for more than 750,000 properties across these sectors – support worth nearly £900 million per year. This aims to give businesses more stability, particularly those still feeling the impact of inflation and shifting consumer behaviour.
Additionally, a £4.3 billion business rates support package will cap increases for businesses hardest hit by revaluations from April 2026, offering some protection for those operating in sectors with large premises or multiple locations.
National Minimum Wage and National Living Wage
The Budget also confirmed increases to both the National Living Wage and National Minimum Wage, which will take effect from April 2026. The changes are as follows:
- The National Living Wage will rise from £12.21 to £12.71 per hour for workers aged 21 and over.
- The National Minimum Wage for those aged 18–20 will increase from £10.00 to £10.85 per hour.
These increases will have a direct financial impact on employers, particularly in labour-intensive sectors such as hospitality, retail, care and leisure. Many businesses will need to review staffing models, budget forecasts and contractual arrangements to ensure compliance and manage rising employment costs.
Associate and Corporate and Commercial Solicitor Chloe Tooley added: ‘‘Employers should be reviewing their internal processes early to ensure compliance with the updated minimum hourly rates, which are likely to affect both operational costs and contractual obligations to employees.’’
Dividend tax
Another point worth highlighting is the increase to dividend tax, which will come into effect from April 2026. The basic-rate charge on dividend income will rise from 8.75% to 10.75%, and the higher-rate from 33.75% to 35.75%, while the dividend allowance itself remains unchanged. This will affect anyone holding shares outside an ISA or regulated pension, including many owner-managed businesses that use dividends as part of their remuneration planning, as well as individual investors who rely on dividend income as part of their long-term financial arrangements.
Managing Director and Commercial Property Solicitor Bruce Faulkner commented: “It’s a point that hasn’t attracted much attention in the media, but the increase in dividend tax will have a noticeable impact on business owners and individual investors. Anyone drawing income through dividends outside an ISA or pension is likely to see a higher tax bill from April 2026, so it’s important that people take stock now and review how their income and investments are structured.”
With allowances having already reduced over recent years, the latest increase serves as a timely reminder for individuals and business owners to revisit their planning ahead of the 2026 changes.
Litigation Perspective
Although much of yesterday’s Budget focused on taxation and business support, several measures are likely to influence the disputes landscape over the next few years.
Commercial and contractual disputes
Rising costs for employers, landlords and business owners – including higher wage obligations, increased dividend tax and changes to property income – may prompt more pressure on existing commercial arrangements. We expect to see parties revisiting contracts, renegotiating terms or dealing with disputes where performance becomes more difficult.
Debt recovery and enforcement
Periods of economic change often lead to cashflow strain, and we anticipate an increase in debt recovery instructions as businesses take steps to secure payments and protect working capital. Prompt action will remain key for clients seeking to recover overdue invoices or enforce contractual rights.
Property and landlord-tenant issues
The new property income tax structure and the forthcoming levy on homes over £2 million may drive landlords to review their arrangements and financial positions, which in turn may lead to more disputes around arrears, lease terms and management obligations in both the residential and commercial sectors.
Regulatory challenges
With new frameworks for business rates, Motability reform and the coming EV mileage charge, we may see greater uncertainty around classification and compliance. These areas often give rise to appeals or challenges, particularly where decisions by public bodies directly affect operations or investment.
Employment-related disputes
The increases to the National Living Wage and National Minimum Wage may also lead to a rise in employment-related claims, particularly around unlawful deduction of wages, misclassification of workers and disputes arising from changes to working patterns or restructuring. Employers should ensure that policies, contracts and payroll processes are updated well in advance of April 2026 to avoid inadvertent breaches.
Property Law Perspective
Today’s Budget brought several developments affecting homeowners, landlords and those with property interests.
High-Value Property Levy
A new charge on higher-value homes has been announced, applying to properties worth more than £2 million from April 2028. Although widely referred to as a “mansion tax,” the measure is being introduced as an additional levy linked to Council Tax rather than a standalone tax. Further details on how valuations will be assessed are expected shortly, but the introduction of this levy means owners of higher-value properties may face a notable increase in annual property-related costs.
Tax on property income
From April 2027, property income will be moved into its own dedicated tax structure, separate from general income tax. Instead of being taxed at the existing income tax rates, property income will fall under new bandings: a basic rate of 22%, a higher rate of 42% and an additional rate of 47%. Mortgage interest relief will also align with the new property basic rate. This change will be particularly relevant for landlords and individuals with rental portfolios, and many may wish to review how their lettings are structured ahead of the shift to ensure the most efficient approach.
Capital Gains Tax and Stamp Duty
The Budget confirmed that Capital Gains Tax rates for residential property will remain unchanged at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. Stamp Duty Land Tax is also unchanged, providing some stability in what has otherwise been an active policy area in recent years.
Other Key Announcements
The Budget also included a number of additional measures that will be relevant to individuals and businesses over the coming years.
Income tax thresholds
The Chancellor confirmed that income tax thresholds will remain frozen until 2031. This long-term freeze means more people are likely to drift into higher tax brackets over time as salaries increase, continuing a pattern we’ve already seen in recent years.
Electric and hybrid vehicle mileage charge
A new mileage charge for electric and hybrid vehicles has been announced. While the detail isn’t yet available, this signals the beginning of a move towards bringing low-emission vehicles into a more consistent road charging system as the number of electric cars on the road continues to grow.
Increase to remote gambling duty
There will be a significant rise in remote gambling duty, which will increase from 21% to 40%. This is a substantial jump for online gambling operators and is likely to influence the way businesses in this sector price and structure their services.
Reform of the Motability scheme
The Budget included plans to update the Motability scheme, with the aim of keeping it fit for purpose and financially sustainable. More detail is expected, but the intention is to modernise how support is offered to disabled drivers.
Changes to ISA allowances
A key change is that Cash ISAs will be capped at £12,000 from April 2027 for those under 65. The remaining £8,000 of the current annual allowance will still be available but only for investment-based ISAs. This change may be particularly relevant for younger savers who prefer the stability of cash savings over investments.
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*This article is provided for general information purposes only and does not constitute legal or any other professional advice.