One of South West’s leading accountancy firms Milsted Langdon is urging taxpayers to review their finances as they face tougher choices, as the Chancellor Rachel Reeves moves to close personal tax opportunities in her latest Budget.
Despite some early dramatics following the OBR report being published hours ahead of the Autumn Budget, we finally have a clear picture of what’s to come from this Government over the course of the current parliament.
Rising to address The Commons, Rachel Reeves described her plan as a Budget of fairness. She said the Government had a duty to restore stability after weak growth and rising national debt.
The early release of the OBR report confirmed what was expected, that Income Tax thresholds will stay frozen until at least 2030. However, Reeves later confirmed that the freeze will actually run to April 2031.
Rob Chedzoy, Tax Partner at Milsted Langdon, said, “While these long freezes are expected to raise billions, the impact will be felt by many over the coming years. By freezing Income Tax, more workers and families are forced into higher tax bands as their wages and income rise in line with inflation. Overall however, tax rises were – thankfully – not as extensive or painful as we feared.”
“The Chancellor did not address the Inheritance Tax threshold in her speech. However, from reading the ‘red book’ published alongside her speech we can see that she has also chosen to keep that at £325,000 until 2031 as well – a year longer than expected.”
The Budget also revealed a new property charge, already dubbed a ‘mansion tax’ by many, adding additional tax cost for those with high-value homes. Owners with properties worth more than £2 million will pay an annual levy starting at £2,500 and those with properties over £5 million will pay £7,500.
Basic and higher rates on property, savings and dividend income will also rise by two per cent.
Income Tax rates for property income will be 22 per cent at the property basic rate, 42 percent at the property higher rate, and 47 per cent at the property additional rate for 2027 to 2028.
Income Tax for savings income will now be 22 per cent at the savings basic rate, 42 per cent at the savings higher rate and 47 per cent at the savings additional rate for 2027 to 2028.
Income Tax for dividend income will now be 10.75 per cent at the ordinary rate and 35.75 per cent at the upper rate from 2026 to 2027. The dividend additional rate and dividend trust rate will both remain unchanged at 39.35 per cent.
“Many local business owners will be affected by the changes in dividend tax with the ordinary rate rising from April next year.
“Many will need to appraise whether dividends or salary are the better means of extracting income, as the difference was quite marginal in many cases, even before these changes.
“Landlords are likely to feel quite aggrieved by the changes, as they have been hit with numerous tax rises and changes in legislation over recent years, including the restriction in mortgage interest relief, which we understand will be restricted to 22 per cent under these new rules. A further 2 per cent income tax rise may force some to look very carefully at their profit margins in this sector.”
With the Inheritance Tax freeze running to 2031, the overall cost of holding and passing on property will rise. Individuals should take time to consider the future impact rather than make impulsive decisions.”
The Chancellor also confirmed new rules on salary sacrificed pension contributions. From April 2029, contributions above £2,000 will attract National Insurance (NI).
“These rules will alter how many people choose to plan for their retirement,” added Rob. “Pension contributions through salary sacrifice have been one of the main tools for long-term saving. Once the charge applies, clients will need to think carefully about the most efficient way to build their retirement funds.”
Another topic that has made headlines in the last few months is changes to Individual Savings Accounts (ISAs).
The Government wants to increase the flow of money into the stock market to support growth and strengthen the UK’s position as a place to build and scale businesses. To make this possible the Chancellor has announced changes to the structure of the allowance.
Reeves confirmed that the £20,000 annual tax-free allowance will remain, but from April 2027, the cash limit will be reduced to £12,000 for under-65s. The other £8,000 can be put in a stocks and shares ISA.
“The new ISA rules have been introduced to encourage more personal investment in UK companies,” explained Rob.
“Shares can offer higher rewards over time, but they also carry more risk than cash. Clients will need to decide how comfortable they are with market movements before shifting a larger share of their savings into stocks. This is a big change for people who prefer the security of cash, so early advice will be important here.”
Businesses appear to have escaped fairly unscathed in this year’s Budget in contrast to the announcements in 2024. However, one of the major pressures for business owners will be the additional rise in National Minimum Wage and the National Living Wage due in April 2026. The minimum wage for over-21s is to rise 4.1 per cent in April, from £12.21 to £12.71 per hour.
Milsted Langdon encourages individuals and local businesses to take early advice and review earnings, pensions, property assets and estate plans before the new measures come into effect.
“If you are keen to protect family wealth and secure your position, we’d strongly recommend dropping us a note and arranging a no obligation meeting with one of our experienced tax team. There are numerous other announcements, including some major inheritance tax changes – which formed part of the previous Budget – also need to be considered. There is still time to plan for these changes, but tailored personal advice is essential,” added Rob.
Do you want to know how the measures announced in the Autumn Budget affect you? Find out how Milsted Langdon can help by contacting the team today.