Budget 2025 – The ‘Shambles’ Budget

In the lead-up to the budget there were, by some counts, 14 tax leaks or “pitch rolls,” depending on which term you prefer. So much so, that there was an official announcement of a U-turn on a tax hike that hadn’t actually been officially announced! Then, at the final moment, the OBR fires a torpedo at Rachel Reeves’ credibility by releasing all the data early, sending the news outlets into overdrive.

See our budget article here for our analysis of:

1. Dividends vs Salary vs Self Employment – Are limited companies dead?

2. What does NI on Salary Sacrifice Pensions really mean?

3. What is the impact of the tax rises for rental businesses?

Key takeaways for business owners:

Dividend rates for company owners are increasing by 2% for amounts in the basic and higher rate tax bands. From April 2026, these will rise to 10.75% (basic rate) and 35.75% (higher rate).

Tax thresholds frozen until April 2031, which is a three year extension. This means that Fiscal Drag will continue for a while yet, pushing more and more people into higher rates of tax. It actually means that inflation is the Government’s friend for raising taxes!

Income tax rates for savings and rental profits rise by 2% from April 2026:

• 20% → 22% (basic rate)
• 40% → 42% (higher rate)
• 45% → 47% (top rate)

This feels like a little left-over change that would have complimented a general income tax increase, but was limited after the fears from Labour bank benchers being unhappy.

Changes to pension contributions made under a salary sacrifice arrangement. The legislation is yet to be reviewed with a fine-tooth comb, however our analysis so far suggests that employer pension contributions, such as pension top ups for company directors, are un-affected and so many of our clients can continue to put in their £60,000 per year pension allowance with no change.

However, businesses with Auto Enrolment Pension Schemes set up via salary sacrifice (these are often promoted as saving the employer National Insurance) should review their schemes with their provider. This change won’t come into effect until April 2029, so there is time to plan.

A cut in the main rate of capital allowances from 18% to 14% will apply from April 2026. Most small businesses will be unaffected due to the Annual Investment Allowance (AIA) which allows £1m of investment to receive tax relief up front.

However, businesses that buy secondhand electric cars, non-qualifying assets, or that can’t claim AIA, will see a slight reduction in the tax relief for capital expenditure.

Employee Ownership Trust (EOT) relief reduced. Capital Gains Tax relief on selling shares to an EOT drops from 100% to 50%, effective immediately. It’s still more tax-efficient than standard Business Asset Disposal Relief (BADR) charges for those business owners selling direct to their employees, but it’s not as lucrative as it once was.

What this means for owner managed businesses – Summary

This Budget isn’t SME friendly, but it could have been worse. LLPs, Partnerships, and self-employment structures remain tax-efficient if you need to draw all profits. If you are operating via a Limited Company, with the ability to retain undrawn profits each year, dividends alongside a small salary remains the most tax-efficient option for drawing income.

No significant announcements were made on Inheritance Tax (IHT), Capital Gains Tax (CGT), or the pension contribution allowance, including the 25% tax-free pension drawdown.

We cover all these items in much greater detail on our website.

Click here to read our full article on the Impact on Owner Managed Businesses.

P.S. For deeper insight and the chance to speak with our team directly, join us on Wednesday 3rd December for Budget & Beyond – What’s next?

Only a few tickets are left! Find out more & reserve your free ticket here