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Posted: November 26, 2025
Rachel Reeves has delivered her second Budget following an unprecedented leak of OBR data prior to the speech, which meant some of her policies were unveiled prematurely.
We expected it to be a tax raising Budget and it was, with an overall tax increase of £26bn, following last year’s record £40bn increase. According to the Office for Budget Responsibility, taxes as a share of UK GDP are set to reach an all-time high in coming years, based on current predictions.
A tax landscape like this means forward planning is more important than ever. Here’s our initial overview of some of the most significant changes announced. Look out for a more detailed analysis from us in the coming weeks.
What was announced today?
Dividend tax goes up by 2%
One of the most significant changes unveiled affects the millions of small business owners in the UK who draw some of their income through dividends. From April 2026, dividend tax rates will rise by 2% as follows:
Basic rate: increases from 8.75% to 10.75%
Higher rate: increases from 33.75% to 35.75%
Additional rate: no change – remains at 39.35%.
The £500 dividend allowance remains unchanged.
What this means in practice
Here is a short overview of how this tax rise will impact those affected.
If an owner-director takes a basic £12,570 salary plus £37,700 in dividends, they will pay £744 in extra tax each year. Their total tax bill will rise from £3,255 to £3,999.
For anyone taking a £12,570 salary plus £50,000 dividends, the increase is steeper and they will pay an extra £990 in tax per year. Their annual tax bill will jump from £7,406.25 to £8,396.25.
Bear in mind that dividends are paid from company profits, which will already been taxed at between 19% and 25%.
This dividend tax increase policy will also impact landlords and property investors operating within a company wrapper. They will also be subject to the 2% increase if they take company dividends, albeit at slightly lower overall rates than for private landlords who will pay the surcharge on income.
Increased tax on property and savings income
April 2027 sees the introduction of new separate tax rates for property and savings income. If you earn money from a property, you will be subject to a flat rate surcharge on this income regardless of the property value. These rates will be as follows:
• Property basic rate: 22% (up from 20%)
• Property higher rate: 42% (up from 40%)
• Property additional rate: 47% (up from 45%).
Income tax levied on interest from savings income will also increase by 2 percentage points across all bands, effective from April 2027:
• Interest basic rate: 22% (up from 20%)
• Interest higher rate: 42% (up from 40%)
• Interest additional rate: 47% (up from 45%).
The way individuals will need to report and pay these taxes remains unchanged – only the rates are different. The extra tax to be declared must be reported on your Self Assessment Tax Return in the usual way.
Both these tax increases will become effective from April 2027 – but the dividend tax increases come into operation sooner, from April 2026.
Income tax thresholds remain frozen
After all the fanfare about income tax not being increased, this next policy is effectively a tax rise in everything but name. Income tax thresholds are to remain frozen for a further three years, continuing the fiscal drag that pulls more earners into higher tax bands as wages rise with inflation.
For business owners, when this policy is combined with the new higher dividend rates, even modest income increases over the next few years will significantly increase the overall percentage of profits that are paid in tax.
For many employees, these frozen income tax thresholds will mean more people are paying the higher rate of tax as wages continue to increase with inflation.
National minimum wage increases
The legal minimum wage for over-21s will rise by 4.1%, from £12.21 to £12.71 per hour from April 2026.
The minimum wage for 18 to 20-year-olds will increase by 8.5%, from £10 to £10.85 per hour, as part of a long term plan to establish a single rate for all adults.
These increases will affect payroll costs for businesses employing younger workers.
National insurance payable on pension salary sacrifice
The government will start to apply National Insurance to salary sacrifice arrangements for pensions. This closes a tax-efficient way of investing in a pension that was previously available to business owners and employees. This change becomes effective from April 2029 and it will mean the amount that can be invested into a pension through salary sacrifice tax free (with no NICs) will be cut to £2,000.
Venture Capital Trust (VCT) tax relief cut
From April 2026, the amount of income tax relief available on Venture Capital Trusts will be reduced from 30% to 20%.
In contrast, the limits for investing in VCT and EIS approved companies has been increased to £10million and £20million for knowledge intensive companies. In addition, the lifetime company investment limit has been increased to £24million and £40million respectively.
Reform of ISA schemes from April 2027
The government will consult in early 2026 on scrapping the Lifetime ISA, which was introduced in 2017. It will be replaced with a new, simpler ISA product aimed at first-time buyers.
Whilst the overall ISA limit remains at £20,000 per year, the current £20,000 cash ISA allowance will be reduced to £12,000 with a separate £8,000 investment ISA allowance for under-65s. Over 65’s can continue to invest the full £20,000 allowable into a cash ISA if they wish.
Existing ISA tax benefits are unchanged – meaning interest and dividends earned within ISA wrappers continue to be tax-free.
New tax on EVs and hybrids
A new mileage-based tax is being introduced for full EV and hybrid cars, which ends their previous exemptions from car taxes. This comes into effect in April 2028.
Full electric car users will be charged 3p per mile and plug in hybrids 1.5p per mile. Full details, for instance how mileage will be reported or tracked, have not yet been published.
New property tax on high value homes
A new ‘mansion tax’ is being added to properties in England worth more than £2m. They will be subject to a council tax surcharge of between £2,500 to £7,500, following a revaluation of all the homes in council tax bands F, G and H.
The cumulative effect of these changes – especially the dividend tax increase combined with frozen income tax thresholds – means business owners drawing income through dividends will face materially higher tax bills from April 2026 onwards.
With taxes as a share of GDP reaching record highs, small business owners should consider proactively reviewing their tax planning strategies as soon as possible.
