Navigating the 2025 UK Autumn Budget: Key Tax Changes for Private Clients

The UK Autumn Budget 2025, delivered by Chancellor Rachel Reeves on 26 November, unveiled a £26 billion tax-raising package. Although headline income tax rates were left untouched, the measures introduce significant stealth increases through frozen thresholds and targeted hikes on investment income. For many clients these changes represent a material tightening of the fiscal environment.

This summary focuses on the three key areas that matter most to private clients: income tax, capital gains tax (CGT), and inheritance tax (IHT).

 

Income Tax – Frozen Thresholds and Higher Rates on Investment Income

• Core rates remain unchanged 20% (basic), 40% (higher) and 45% (additional rate).
• The personal allowance (£12,570) and higher-rate threshold (£50,270 total) are frozen until April 2031, continuing the policy of fiscal drag.
• From 6 April 2026, dividend tax rates increase by 2% to 10.75% / 35.75% / 39.35% (previously 8.75% / 33.75% / 39.35%). The £500 dividend allowance is unchanged.
• From 6 April 2027, the tax rates on savings and property income rise to 22% (basic), 42% (higher) and 47% (additional rate).
• A new £12,000 annual cap on cash ISAs for under-65s is introduced (within the overall £20,000 ISA limit).
• Since trusts often have an additional rate exposure to income tax, trustees will be liable for up to 47% on investment income, significantly increasing the cost of many family investment structures.

Capital Gains Tax – Erosion of Entrepreneurial Reliefs

• The main CGT rates remain 18% (basic-rate taxpayers) and 24% (higher/additional-rate taxpayers).
• The annual exempt amount stays frozen at £3,000 (individuals) and £1,500 (trusts).
• Business Asset Disposal Relief (BADR) rate rises from 10% to 14% immediately and then to 18% from April 2026 – effectively aligning it with the main basic rate over time. Note that as rates creep up there has been no re-introduction of indexation allowance or taper relief, so tax is effectively levied on inflation.
• The 100% CGT exemption for transfers to Employee Ownership Trusts is reduced to 50% with immediate effect.
• As previously announced, from April 2026, the IHT Business Relief available on AIM shares is halved from 100% to 50%, removing a popular combined IHT/CGT planning tool.

Inheritance Tax – Pensions in the Net and Non-Dom Restrictions

• The nil-rate band (£325,000) and residence nil-rate band (£175,000) remain frozen until April 2031.
• As previously announced, from April 2027, unused defined-contribution pension pots and death benefits will be brought into the IHT estate – ending one of the last major IHT shelters.
• Non-domiciled individuals face a new £5 million lifetime cap on the amount that can be excluded from IHT via pre-residency trusts.
• Full UK IHT exposure now applies after 10 years of UK residency (building on the 2024 reforms), with anti-avoidance rules targeting short-term departures and returns.
• In one piece of good news, the £1 million allowance for 100% Agricultural Property Relief and Business Property Relief will now be transferable between spouses and civil partners.

Practical Next Steps for Private Clients

1) Review dividend-heavy portfolios and trusts or family investment companies ahead of the April 2026 increase.

2) Consider accelerating any planned business disposals to secure the current 14% BADR rate before it rises to 18%.

3) Reassess pension vs ISA vs onshore/offshore trust strategies in light of the 2027 pension IHT inclusion.

4) Consider lifetime gifting programmes and the use of the 100% APR/BPR regimes for farming and trading businesses.

5) Model the impact of frozen IHT thresholds on growing estates – many more families will breach the nil-rate bands over the next six years.

While the 2025 Budget avoids dramatic headline-grabbing reforms, the cumulative effect of frozen allowances, higher investment income rates, reduced reliefs and the upcoming inclusion of pensions for IHT represents one of the most significant tax increases for wealthy private clients in a generation. Early, detailed planning with professional advisers is essential to mitigate the impact.

Contact Us

Our Private team at Cleaver Fulton Rankin can provide you with the specialist advice you need. For advice and guidance, please contact a member of our team.

This article has been produced for general information purposes, and further advice should be sought from a professional advisor. 

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