Autumn Budget: Individuals

Author: Pete Fairchild, Partner, National Head of Private Clients

The Chancellor announced that the present income tax allowances and rate thresholds will be frozen for a further three years to 2030/31. The same applies to national insurance contributions (NIC). It had been predicted that this would be the case for two years, so the extension to three, is a surprise.

This measure will create more fiscal drag, resulting in more people being brought into a tax-paying situation. The OBR estimates that 780,000 more people will be affected.

Furthermore, for existing taxpayers, many will see their income tax liabilities increase as a result of pay rises and bonuses being subjected to the 40% higher or 45% additional tax rates. There will be taxpayers that see their income breach the £100,000 threshold for starting to lose their personal allowance. Those with incomes between £100,000 and £125,140 pay an effective 60% tax rate on that slice, so pension contributions or gift aid contributions should be considered to avoid this horrible situation.

By the time we get to 2031, income tax thresholds will have been frozen for almost 10-years. The announcement will mean that more people will be brought into the self-assessment regime and, for the first time, will need to file annual tax returns. This will increase complexity and tax compliance costs for those previously outside the system.

Despite Labour’s election manifesto promising not to increase the tax burden for working people, it’s clear this is precisely what is happening.

Author: Mark Stemp, Partner, Private Clients

The Labour Party’s election manifesto stated that "we will not raise the basic, higher or additional rates of income tax". However, it was announced in today’s Budget that from April 2027 there will be a 2% income tax increase on rental profits.

The measure will increase the income tax liability on rental profits for those landlords who have rental portfolios held in their own names. While not explicitly stated, we expect this will also affect the income tax rates of trusts receiving rental income.

The tax increase is being introduced as a way of making the tax system fairer. Currently profits from property income is not subject to national insurance. The 2% income tax rate increase is effectively seen as the equivalent of NIC.

This is coming at the same time as it was announced that personal tax rate bands are to remain frozen for three years, which means that fiscal drag will be pulling further landlords into increasingly higher tax bands.

It should be remembered that the way rental profits are taxed is already very complex due to the distortion that the loan interest rate restriction makes. If a rental property has a mortgage, the interest which is paid by the landlord makes the marginal rates of tax far exceed the headline rates quoted.

Those planning on renewing the bathroom/kitchen and other maintenance may choose to postpone making these changes until relief at the higher income tax rate applies.

Those landlords who hold property in a company will also be impacted by the wider policy of a 2% increase in the dividend tax rates (for basic and higher rate bands), which is due to be introduced from April 2026. This could trigger the immediate reaction of rushing to incorporate, but there is also likely merit in re-looking at the cost/benefits of incorporation under these new tax changes, especially for those with larger portfolios.

The new rules are coming in from April 2027, which gives time for landlords to evaluate the additional cost of this change. In an already highly taxed and legislated sector, will these changes push for even more to decide to sell up?

For those who have higher-yielding portfolios, where retaining the property remains financially prudent, the drive to incorporate is looking even more attractive than before the Budget. We will have to see what is published in the draft legislation before re-running the cost/benefit analysis of planning.

Author: Simon Warne, Partner, Private Clients

Rachel Reeves's second budget was delivered against the constraints of politically important manifesto pledges and intense lobbying by businesses and their workers. Long-term low GDP growth, a stagnant housing market, and persistent moderate inflation have left many business owners and workers feeling that they are treading water, at best.

The significant rise in employer’s national insurance, which became active last April, has had an indirect but undeniably adverse impact on new entrants to the job market and also on those at the lower end of the income scale, as employers sought to moderate the profit impact of increased employment costs.

Rachel Reeves decided that on this occasion she would: 

• Raise income tax on earners but defer some of the pain by extending the personal allowances freeze for a further three years to 2030/31. This measure relies on more workers being gradually pulled into higher rates on static real-terms income. As it intersects with the personal allowance set by the coalition government, it will have been frozen for over eight years, and 4% inflation will have eroded its worth to 50% of its original value.
• Restrict national insurance relief for pension savings over £2,000 made by salary sacrifice schemes from April 2029. These changes will increase future employment costs and will act as a disincentive to pension saving for those on median earnings and above, but at least the increases are deferred.

Family and Owner-Managed Businesses (FOMB) will be affected by a number of measures, including raising the dividend tax rates by 2% for basic and higher-rate payers (to 10.75% and 35.75%, respectively) from April 2026. These increases will be keenly felt by many FOMBs who tend to live on small salaries, topped up by lightly taxed dividend income. Back in 2015/16, basic-rate taxpayers did not pay any tax at all on dividends, following the logic that corporation tax had already been paid on company profits and there was no need for ‘double taxation.’ That logic has since been eroded and many FOMBs will now be re-examining their income extraction strategies in light of the changes announced.

For further information on anything discussed in this insight, please contact your usual Crowe contact.

Author: Nicky Owen, Partner, National Head of Professional Practices

The Income Tax relief available on Venture Capital Trusts (VCTs) is reducing by 10% to 20% from 6 April 2026. Income Tax relief on EIS is remaining at 30%.

This measure affects those taxpayers who pay sufficient income tax to cover the tax relief being claimed on the VCT and EIS investments that they make.

The annual and lifetime investment limits for VCTs and EIS companies are increasing to £24 million. For knowledge-intensive companies, the level of investment will increase to £40 million.

In addition, the gross asset test thresholds will increase to £30 million before share issue and £35 million thereafter.

This measure means that at any one time, more businesses will be eligible for VCT and EIS and therefore investors will have more choice in which to invest. Businesses close to the current limits will be able to raise additional investment. This is welcome news for investors and business to help them grow.

Author: Nicky Owen, Partner, National Head of Professional Practices

Income tax has increased on savings and property income falling into all tax bands and dividend income falling in basic and higher rate bands.

This affects partners in partnerships and LLPs, as in addition to their partnership profit, they often receive a share of interest earned by the firm and sometimes rental income through subletting. 

Some law firms hold substantial client monies, which generates a profit stream of bank interest. Firms will no doubt include in their cashflow modelling the additional tax charge. 

This change will also make the calculations for tax reserving on behalf of partners more complex. No one wants a surprise and to find that there is a shortfall when it comes to paying tax liabilities in the future. 

This income is incidental to running a professional services firm and is now taxed at the same rate as trading profit, which suffers National Insurance Contributions. 

Author: Caroline Fleet, Partner, Head of Real Estate

From April 2028, a new Annual High Value Council Tax Surcharge will apply to residential properties in England. This surcharge will be payable by the property owners rather than the occupiers, who will continue to pay the existing council tax rate. 

All owners of residential property valued at more than £2 million in England. However, there will be an exemption for social housing.

The surcharge will be payable from April 2028 and will be based on valuations undertaken in 2026. Subsequent revaluations will take place every five years. 

Anticipated surcharge rates:

The charges will increase in line with CPI inflation each year from 2029-30 onwards. Although the tax will be collected by the local authorities, this will be a national tax. 

The government will consult on a full set of relief and exemptions, including rules for complex ownership structures such as companies, funds, Trusts and partnerships. It will also introduce a deferral system for those who are “asset rich but cash poor.” Full details of the consultation will be issued in the new year. 

Any tax applied directly to property is a drag on the housing market and will likely lead to bunching of transactions around the threshold marks. It will be key to understanding how the deferral mechanism will work, as ownership of a property does not necessarily equate with equity in the property. 

Historically generous mortgage terms have meant that people often have invested further in their homes compared to other assets—such individuals will need to evaluate the additional annual cost and how the deferral mechanisms will work; for instance, does it create a further charge on the property? It is also likely that this surcharge will bite on many HMO properties, which have multiple occupants but are treated as one property for council tax purposes.
 
Whilst the valuation office will now be undertaking a targeted valuation exercise to identify properties caught within the surcharge, it is a shame that the government did not use this as an opportunity to reform council tax more widely. Despite this announcement, over 92% of all residential properties are still paying council tax based on what they would have been worth in the 1990s.