UK Autumn Budget 2025 – An initial view

Talking of leaks, there was a rather extraordinary hour or so prior to the budget where many of the key budget announcements were published in advance, through an early issue of an OBR report. The Chancellor, in the moments before speaking, was seen checking her own and colleagues’ mobile phones to see what had been announced, cueing calls from the Speaker of the House for potential criminal enquiries…

Nevertheless, the show still went on. So long has the countdown been, government ministers have recently been forced to defend the lengthy lead time as having not had a negative impact on UK growth, nor spooked the markets. These were hardly ideal preparations for what has been billed as a budget which requires to raise tens of billions in taxes. As we have written about previously (read here), the government has looked to face real difficulties securing the tax rises needed given their “non-negotiable” pledges and manifesto commitments. 

From the Channel Islands perspective, much of the pre-budget talk centred around a raft of potential new measures that could include mansion taxes, exit taxes and wealth taxes. Also, it was hoped that we may see some relaxations to the non-domiciled and Inheritance Tax tax rewrites that took place following the 2024 Autumn budget.

With all the time for speculating coming to an end at the dispatch box today, what did we hear from the OBR report, and indeed the Chancellor?

High Value Council Tax Surcharge, or “Mansion Tax”

It was confirmed that there will be a new tax levied on homes which are valued at more than £2m. The tax will start at £2,500 per annum for properties valued at over £2m, rising to £7,500 for properties valued at over £5m. This will take effect from April 2028 and will be collected alongside the current council tax system.

Income Tax Rates and Thresholds

Whilst there is no headline rate increase on employment income, there will be a further freeze to the income tax thresholds until at least April 2031. Through “fiscal drag” this shall bring a greater number of working taxpayers into higher rates of tax as wages increase.

Income Tax Surcharge

An additional 2% surcharge on the basic and higher rates of savings income, dividend income and rental income. 

This is effective from April 2026 for dividend income and will see the rates increase from 8.75% to 10.75% basic rate, and 33.75% to 35.75% higher rate, (the additional rate remains at 39.35%.)

For savings income, the basic rate will increase from 20% to 22%, the higher rate from 40% to 42% and the additional rate from 45% to 47%, from April 2027.

In relation to property income, separate bands will be created. From April 2027, the property basic rate will be 22%, higher rate 42% and additional rate 47%.

The way individuals report and pay these taxes remains the same, it is only the rates which are changing.

Salary Sacrifice

UK taxpayers who sacrifice part of their salary into their pensions can currently benefit from National Insurance relief on these payments. This will be restricted to only £2,000 of contributions per annum, from April 2029. 

Corporation Tax

No increase in rates of Corporate Tax were announced. There will however be a reduction in the rates at which companies can claim writing down allowances (akin to tax depreciation) annually. The reduction will be from 18% to 14% from April 2026 in relation to assets that are within the Main Pool. There was also an announcement of a new 40% First Year Allowance (tax write down) on certain acquisitions made by companies from January 2026, in addition to the current £1m Annual Investment Allowance tax relief.

In addition, there were announcements in relation to various other measures including mileage taxes for electric vehicles, gambling duty, reductions in cash ISA allowances (for under 65s), together with reduced capital gains tax reliefs on certain disposals made by individuals and trustees of assets to employee ownership and benefit trusts. 

The budget appears to seek to raise taxes by £26bn – with the main contributors to this being the freeze on thresholds (£8bn), salary sacrifice (£4.7bn) and surcharges (£2.1bn.) 

The mansion tax in particular stands out as a real headline grabber, but seemingly with a high degree of administration for what is a relatively small amount of additional tax - £400m.

We also heard that there will be an aim to raise £2.3bn in relation to tax administration, compliance and debt collection measures, to try and plug the “tax gap,” being the difference between what the treasury should, and does, collect.  We might therefore expect a greater number of enquiries/nudge letters from HMRC, in addition to more aggressive pursuit of unpaid tax liabilities.

Devil is in the Detail

The above measures are some of the key announcements that were noted in the budget speech. From an initial review of the accompanying documents, there are a number of other areas that are of interest that we shall be reviewing in more detail in order to determine their impact:

• Non-resident dividend tax credit – the government plans to abolish dividend tax credits that can apply to non-UK residents with UK income, from April 2026.
• Voluntary National Insurance Contributions – currently, individuals who have left the UK can pay Voluntary Class 2 NICs in order to preserve their right to certain UK benefits and pensions. It is noted that this system will change from April 2026. 
• Inheritance Tax Anti Avoidance – the government will seek to legislate to prevent IHT avoidance through using non-UK companies as a means of avoiding IHT on agricultural property.
• Capping IHT trust charges for excluded property in trusts – a £5m cap on relevant property trust charges for pre-30 October 2024 excluded property trusts will apply to trust charges from 6 April 2025. 
• Protected Cell Companies – there is reference to “closing loopholes for PCCs”, in relation to non-resident capital gains tax, which may have an impact in particular on funds that have such PCCs in place for tax efficiency.
• Business Property Relief and Agricultural Property Relief – the £1m allowance that can apply to this relief can be transferred between spouses.
• Corporate Tax late filing penalties will be doubled from 1 April 2026. We also expect changes to penalty regimes for Self Assessment and VAT.

Conclusion

From the Channel Islands perspective, there is unlikely to be much announced in the budget from the speech itself that will cause too much concern – certainly not when compared with budgets of late (read this as the Autumn of 2024!) 

There was no mention of the fabled exit nor wealth taxes that have been prompting a number of high and ultra-high net worth individuals to leave the UK in anticipation of such taxes being enacted.

The “mansion tax” will be unwelcome news for those with UK property interests valued above £2 million, albeit the rates which it is set are not (arguably) overly punitive. It may though be the final straw for some who were already contemplating a UK property sale.  

The reduction in writing down allowances is not ideal for Channel Islands corporates which own UK non-residential real estate, but ultimately this is a timing difference and hopefully offset by benefits, at least to some, from the increased first year allowances.

The Income Tax surcharges will impact upon those business owners in the UK who remunerate themselves through dividends, and have other savings and property investment interests. These measures may well see the trend of individuals looking to relocate from the UK continue, or indeed increase.  

What has been clear to us in recent times, and in particular the last 12-18 months, has been the steady stream of high and ultra-high net worth individuals looking to leave the UK and relocate to the Channel Islands in search of a more tax and wealth friendly regime. There is certainly an opportunity for the islands to continue to grasp the opportunity to attract these wealth creators, and position the islands as the ideal choice for such relocations. The Budget did not do much to inspire the current and next generation of entrepreneurs to remain within the UK, and hopefully the Channel Islands can be seen as a welcoming destination. 

As always with the budget announcements, the devil will be in the detail. The above represents only our initial view, and additional commentary will be provided as necessary once we have had the opportunity to review in detail the various publications which have also been made available today.