The 2025 UK Budget introduces one of the most significant overhauls to the tax system in more than a decade, reshaping how individuals, landlords, investors and businesses are taxed. Unlike previous Budgets that focused on incremental change, the 2025 statement marks a shift toward structural reform broadening the tax base, reshaping wealth taxation, and tightening compliance in response to an estimated £10 billion SME tax gap
The Chancellor framed these measures as necessary to “restore fairness, support working families, and modernise the UK tax system”. However, many changes represent substantial cost increases for middle-income earners, landlords, and investors, while offering targeted relief for SMEs investing in growth, green infrastructure or new premises.
This year’s Budget also diverges heavily from 2024 themes. While 2024 focused on National Insurance and non-dom reform, the 2025 Budget expands into new territory: EV taxation, landlord tax, mansion tax, dividend tax increases, customs reforms, business rates restructuring, and significant sector-specific duties such as gambling, ride-hailing and online imports.
(Read Time: Approx. 15 minutes)
Topics Discussed:
- Introduction & Major Tax Changes for Individuals
- Property, Landlord & Wealth Taxes
- Business Taxation, Rates & Capital Allowances
- SME Support Measures & Compliance Crackdowns
- Transport, EV & Fuel Reforms
- Welfare Policies, Cost-of-Living Measures & Sector Reforms
Budget 2025: At-a-Glance Summary
What’s going up:
- Dividend tax
- Property income tax
- Higher-rate thresholds (via freeze)
- EV mileage charges
- Remote gaming duty
- Online betting duty
- VAT on ride-hailing journeys
- CGT on EOT business sales
- Costs of importing goods under £135
What’s going down:
- Bingo duty (to zero)
- Business rates for RHL businesses
- Cost of apprenticeships for SMEs
- Fuel duty (held at reduced level until 2026)
What’s new:
- Landlord Tax
- Mansion Tax
- EV road-use tax
- High-street crime taskforce
- New HMRC SME enforcement unit
- 40% First-Year Allowance
Income Tax & Threshold Freezes Extended to 2031
One of the most consequential announcements is the extension of the current income tax band freeze until 2031, an additional three-year extension beyond earlier commitments
Because thresholds remain fixed while wages rise, more earners are pulled into higher tax brackets known as fiscal drag. This affects:
- Basic-rate earners receiving regular pay rises
- First-time managers moving into higher-rate bands
- Dual-income households
- Pensioners with part-time work
- Business owners who pay themselves through salary
The freeze accelerates the rate at which individuals move into the 40% and 45% brackets. By 2031, millions more taxpayers will pay higher or additional rate tax compared with today.
Why the government is doing this
The Chancellor described the freeze as a “temporary stabilisation measure”, but it is also one of the lowest-visibility ways to raise tax revenue.
Who will feel this most
- Employees receiving inflationary pay rises
- Directors paying themselves via PAYE
- Households with two earners
- Workers receiving overtime or bonuses
Dividend Tax Increases From April 2026
Dividend taxation will rise by 2 percentage points across all bands from April 2026
- 10.75% basic rate (up from 8.75%)
- 35.75% higher rate (up from 33.75%)
This disproportionately affects:
- Small business owners who rely on dividends
- Directors of limited companies
- Investors with portfolio dividends
- Retirees drawing from investment portfolios
Just as the 2024 Budget shifted the burden toward employer NI, the 2025 Budget shifts the burden toward investment income, closing the gap between salaried income and returns from capital.
Impact Example
A company owner taking £40,000 in dividends per year would pay approximately £800–£900 extra in annual tax once the new rates take effect.
Pension Contributions: New National Insurance Charge
From April 2029, salary-sacrifice pension contributions will only be National Insurance–free up to £2,000 per year
What this changes
Currently, many employees especially higher earners reduce their NI bill by exchanging salary for pension contributions. Under the new rules:
- The first £2,000 remains NI-exempt
- Anything above is subject to NI at the employee’s rate
Who this affects most
- Higher-rate earners maximising contributions
- Employees using bonus-sacrifice arrangements
- Directors using salary-sacrifice to reduce payroll taxes
Government justification
The Chancellor framed the move as removing an “unintended advantage” for higher earners.
Impact Example
A company owner taking £40,000 in dividends per year would pay approximately £800–£900 extra in annual tax once the new rates take effect.
Cash ISA Allowance Cuts for Under-65s
The annual cash ISA allowance is being cut from £20,000 to £12,000 for savers under 65, encouraging more investment through Stocks & Shares ISAs.
Who benefits
- Over-65s retain the full £20,000 allowance
- Equity investors gain a relative advantage
Who loses
- Risk-averse savers
- Individuals relying on cash ISAs for emergency funds
National Minimum & Living Wage Increases
Significant wage increases will take effect:
- £12.71/hr for workers 21+
- £10.85/hr for ages 18–20
- £8.00/hr for ages 16–17 and apprentices
These align with the government’s broader cost-of-living response and continue the upward wage trajectory set in 2024.
Impact on businesses
- Possible shift toward reduced hours or automation
- Increased payroll costs, especially in hospitality, retail and care
- Higher NI contributions (exacerbated by 2024 NI threshold cuts)
Introduction of a New ‘Landlord Tax’ From April 2027
One of the most significant property-related changes is the introduction of a new Landlord Tax from April 2027. This reform merges property, dividend and savings income into a new tax banding system, bringing levels closer to the rates paid on employment income.
New Landlord Tax Rates (from April 2027):
- 22% basic rate
- 42% higher rate
- 47% additional rate
These represent large jumps from today’s structure and will substantially increase the tax liability of landlords, especially those with rental portfolios generating moderate to high income.
How this changes the landscape
Under the current system, rental income is taxed at normal income tax rates, but landlords often benefit from deductions, allowances, and the fact that employment income faces National Insurance while property income does not.
The government emphasised fairness in making this change, arguing that:
“A landlord with an income of £25,000 will pay nearly £1,200 less in tax than their tenant earning the same amount, purely because no National Insurance is charged on property, dividend, or savings income.”
The Landlord Tax directly targets this imbalance.
Who will be most affected?
- Small landlords with 1–3 properties
- Portfolio landlords with higher rental yields
- Landlords with interest-heavy mortgages (unable to deduct interest fully since Section 24 restrictions)
- Higher-rate taxpayers with mixed income sources
Combined with frozen income tax thresholds until 2031, thousands of landlords who are currently basic-rate taxpayers will be pushed into the higher-rate bracket by 2027.
Impact on Renters
While the government’s intention is to equalise tax fairness, it’s likely that costs will be partially passed onto tenants, especially in regions of strong rental demand.
‘Mansion Tax’ From April 2028
The Budget confirms the introduction of a new Mansion Tax, which adds an annual surcharge on high-value homes. This supplements existing council tax charges rather than replacing them.
Rates:
- £2,500 for homes valued £2m–£2.5m
- Up to £7,500 for homes valued £5m+
Why this matters
Historically, the UK has had relatively low annual taxes on property compared with other countries. The Mansion Tax moves the UK closer to international norms where annual charges scale with property value.
Who will feel this most
- Owners of high-end London property
- Individuals with inherited homes
- Older homeowners with high-value properties but lower incomes
- Overseas investors holding UK property
New 40% First-Year Allowance (FYA) From January 2026
The most notable business tax reform is the creation of a 40% First-Year Allowance (FYA) for qualifying main pool plant and machinery purchased from 1 January 2026
Therefore Businesses can deduct 40% of the cost of eligible equipment from their taxable profits in the first year alone, giving a far larger upfront tax benefit than the standard Writing-Down Allowance (WDA).
Most SMEs already rely on the £1 million Annual Investment Allowance (AIA), which offers 100% relief on eligible plant and machinery
Typical pattern for SMEs from 2026:
- Use AIA first (100% relief)
- Apply 40% FYA for additional spending above £1m
- Remaining 60% moves into the main pool, relieved at 14% annually
To partly fund the new FYA, the government is reducing the main pool WDA from 18% to 14%.
Business Rates Reform for Retail, Hospitality & Leisure
A standout policy is the targeted support package for 750,000 retail, hospitality and leisure (RHL) businesses, who will benefit from major reductions in 2025–26.
Key Business Rates Measures
- Significant rate reductions for premises with rateable value under £500,000
- Two permanently lower multipliers introduced from April 2026
- Larger premises and warehouses face higher charges to fund the reliefs
This is a meaningful shakeup of a system long criticised for disadvantaging small high-street businesses.
Expected savings
Government modelling suggests many RHL businesses will see a 40% reduction in business rates for 2025–26 and further rate decreases from 2026 onward via new multipliers
A “small pub” or independent high-street retailer could save thousands of pounds per year.
These savings are particularly important given the ongoing wage rises and overhead pressures across consumer-facing industries.
Sector Impact: Warehouses & Large Distribution Centres
The government notes that business rate reductions for small premises will be “funded by an increase on premises worth more than £500,000”
This will significantly impact:
- Warehouses
- Distribution hubs
- Large online-retail spaces
- Out-of-town fulfilment centres
- Supermarkets with large footprints
This aligns with the broader push to support the high street and rebalance the tax burden between online and physical retail.
VAT & Duties Affecting Businesses
While detailed VAT changes are covered later in Part 6, businesses should note:
- Ride-hailing VAT standardisation (20%) affecting tech platforms as employers
- Customs duty relief removed for sub-£135 imports increasing costs of imported stock
- Gambling operator tax increased to 40% major shift for gaming companies
These changes will have immediate cost implications for specific sectors.
Corporate Tax Stability
Mirroring the 2024 Budget, the government again opts for no change to the 25% Corporation Tax rate.
While capital allowances and business rates undergo overhauls, corporation tax remains the stable pillar in an otherwise turbulent landscape.
HMRC Expansion & New Powers to Tackle the £10 Billion SME Tax Gap
The Budget states that the government aims to “bridge a £10 billion tax gap created by the avoidance of tax not being paid by small businesses”
To achieve this, sweeping new enforcement resources are being deployed.
Key measures include:
- Hiring hundreds of new compliance officers
- Increasing debt-management teams
- Expanded use of private collection agencies
- Stronger powers to pursue unpaid or disputed taxes
- A focus on hard-to-trace SME owners
Ending Customs Duty Relief on Low-Value Imports
A major structural change affecting both SMEs and online retailers is the removal of customs duty relief for imports valued under £135
Why this matters
Currently, many SMEs especially e-commerce sellers benefit from cheaper imports of:
- Components
- Packaging
- Resale stock
- Accessories
- Consumer goods
The end of this relief means higher costs for goods sourced from abroad.
Expected impact
- Higher landed cost for online retailers
- Reduced price advantage compared to UK high street stock
- Fairer competition between domestic and international sellers
- Potential inflationary pressure on consumer goods
The measure is expected to be fully implemented by March 2029
Ride-Hailing VAT Standardisation, the ‘Taxi Tax’
All ride-hailing journeys, including those on platforms like Uber and Bolt, will become subject to the standard 20% VAT rate
Currently, many of these journeys avoid full VAT because:
- Drivers fall below the VAT registration threshold
- Operators treat drivers as “agents” rather than principals
The reform standardises VAT treatment across the sector.
Effects on SMEs:
- Higher costs for businesses relying on ride-hailing for staff travel
- Potential price increases passed onto customers
- Administrative changes for operators and accounting systems
This marks one of the biggest tax shifts in the gig economy to date.
Apprenticeship Training Free for SMEs (Under 25s)
In one of the Budget’s most supportive measures, training for apprentices under age 25 will become completely free for SMEs from August 2025
What this means
- No co-funding requirement
- No levy transfer complexity
- Reduced barriers to taking on young apprentices
This could bolster industries struggling with staffing, such as:
- Construction
- Hospitality
- Hair & beauty
- Retail
- Manufacturing
- Engineering
Government hopes this will incentivise long-term workforce development.
Removal of Voluntary Class 2 NI Contributions for UK Citizens Living Abroad
- Individuals living abroad will lose access to voluntary Class 2 NI
- This may prevent them from filling gaps in their NI record
- Which may, in turn, block them from qualifying for the full UK state pension
Impact on small business owners
SME’s with:
- Overseas contractors
- Owners spending extended periods abroad
- Dual-residency director may need alternative retirement planning pathways.
New EV “Pay-Per-Mile” Road Use Tax From April 2028
Transport policy sits at the centre of the 2025 Budget, with sweeping changes to EV taxation, ongoing fuel-duty freezes, and adjustments to the Motability Scheme. For the first time, EVs will be taxed not at the point of purchase but at the point of use, reshaping future cost calculations for both individuals and businesses.
The government claims these reforms will make road taxation “fairer and more futureproof”. In practice, they will increase the cost of running an electric vehicle, eliminate certain incentives, and shift long-term behaviour for fleets and private drivers.
The most dramatic transport policy in the 2025 Budget is the introduction of a new mileage-based tax for electric and plug-in hybrid vehicles from April 2028
Rates announced:
- 3p per mile for fully electric vehicles (EVs)
- 1.5p per mile for plug-in hybrids
The charge will rise annually in line with CPI.
Why this is being introduced
EV drivers currently contribute far less to road maintenance and infrastructure because they do not pay
- Fuel duty
- Vehicle excise duty (in many cases)
- Emissions-based surcharges
The government argues that as EV adoption increases, the road tax system must adapt to avoid declining revenue.
Budget justification
Treasury documents state the move is to ensure “all road users contribute fairly” as the shift away from petrol and diesel accelerates.
Impact on drivers
Using the government’s estimate of 8,000 miles per year, the EV mileage tax will add roughly £240 per year for EV drivers and £120 per year for plug-in hybrid drivers
Fuel Duty Freeze Extended to September 2026
For petrol and diesel drivers, the government will extend the 5p per litre fuel duty cut until September 2026.
Why this matters
- It keeps pump prices lower during a period of high inflation.
- Helps businesses with petrol/diesel fleets remain competitive vs. early EV adopters.
- Temporarily blunts criticism that EV drivers are being newly taxed while fuel users continue receiving freezes.
This is one of the few “cost-neutral or cost-saving” measures in the transport section.
100% Business Rates Relief for EV Charging Spaces
Covered in earlier parts but worth detailing specifically for transport policy:
Businesses installing EV chargers will receive full business rates relief for affected premises.
Why this matters for SMEs
Installing EV chargers can:
- Increase footfall
- Attract customers
- Provide staff charging
- Futureproof the business
However, many SMEs avoided installation due to the potential increase in rateable value. The new relief eliminates that concern, encouraging wider infrastructure rollout ahead of 2028’s EV tax.
Motability Scheme Restrictions
Effective immediately, the government has restricted which vehicles qualify for the Motability Scheme
Vehicles no longer available under Motability:
- Coupes
- Convertibles
- Mercedes
- BMW
- Audi
- Lexus
- Alfa Romeo
This is a major shift, aimed at reshaping the scheme toward functional, accessible and cost-effective vehicles rather than premium or luxury options.
Two-Child Benefit Cap to Be Scrapped From April 2026
One of the most widely discussed announcements is the government’s decision to abolish the two-child limit for Universal Credit and related benefits from April 2026
Introduced in 2017, the cap restricted means-tested benefit payments to only the first two children in a household. A third or subsequent child received no additional support unless qualifying under certain exemptions.
Impact of the removal
- Families will receive benefit support for every child, not just the first two.
- Approximately 450,000 children are expected to be lifted out of poverty.
- Low-income families with larger households will experience significant income increases.
Why this matters
The policy has long been viewed as one of the sharpest cuts in the welfare system. Its reversal is a structural reform aimed at reducing child poverty and easing pressure on working families.
State Pension Rise of 4.8%
The government will increase the State Pension by 4.8%, continuing to honour the “triple lock” framework
Implications
- Pensioners receive inflation-aligned protection.
- Increased costs to the Exchequer during a period of high public spending commitments.
- Businesses with older workforces may see shifts in part-time working trends, as retirement becomes slightly more financially manageable.
Gambling Sector: Major Tax Overhaul
The gambling industry faces some of the steepest tax rises in the entire Budget.
Key announcements
- Remote Gaming Duty rises from 21% to 40%
- Online betting tax increases from 15% to 25%
- Bingo duty (on operators) is reduced from 10% to 0%
Importantly, individual winnings remain tax-free, maintaining a long-standing UK principle.
Impact on operators
The significant rise in Remote Gaming Duty may lead to:
- Increased stake or fee costs
- Reduced promotional offers
- Consolidation within the gaming sector
- Reduced profitability for smaller operators
Impact on consumers
- Less generous bonuses and free bet schemes
- Possible changes to game RTP (return-to-player) ratios
- Potential shift toward safer gambling tools as compliance costs rise
That’s our summary on the Budget. If you have any questions or concerns about some of the Budget, feel free to contact us.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
