02.12.25

Key Takeaways from the 2025 Budget

The Chancellor’s 2025 Budget introduced several significant changes impacting individuals, families, and Trusts over the coming years.

We have summarised the key points below:

Inheritance Tax (IHT) – key announcements

Nil-rate band

The nil-rate bands for IHT (standard nil-rate £325,000, residence nil-rate £175,000) are frozen until at least April 2031.

Agricultural Property Relief (APR) / Business Property Relief (BPR)

The existing combined allowance for 100% relief under APR/BPR is fixed at £1 million until April 2031. However, the big announcement was that this £1 million of APR/BPR allowance will now be transferable between spouses or civil partners.

As previously signalled, from 6 April 2026, the relief rate above the £1 million allowance will drop and qualifying assets beyond the allowance will receive only 50% relief. This means assets above the threshold will effectively be subject to an Inheritance Tax charge of 20% (half of the 40% IHT main rate).

The £1 million allowance applies per individual and will refresh every seven years for lifetime gifts (or ten years for Trusts).

From April 2031, the £1 million allowance for 100% relief on qualifying agricultural and business property will be adjusted in line with the Consumer Price Index.

Pensions

Encouragingly, HMRC has also responded to representations from professional bodies on the treatment of pensions within estates, with two notable changes:

1. Personal Representatives will now be able to direct pension scheme administrators to withhold up to 50% of a deceased individual’s pension fund for 15 months from death, to cover potential IHT liabilities, interest and associated costs.
2. Personal Representatives will no longer be held liable for IHT on pension entitlements that come to light only after a Certificate of Discharge has been issued.

Income Tax – changes to savings, property and dividend income tax increases

Rates and allowances

Whilst the 2025 Budget freezes income tax thresholds (personal allowance, higher-rate thresholds, additional-rate threshold) until 2031, it is changing the rate of tax for savings, property and dividend income as follows:

• Dividends

Dividend income tax will come into effect first with an increase by 2% from April 2026, moving to 10.75% and 35.7%, depending on taxpayer status).

• Property income

From April 2027, property income will be taxed under a new, separate rate structure, with rates of 22%, 42% and 47%, depending on the level of income.

• Savings income

Savings income will also see a 2% rate increase from April 2027 to 22%, 42% and 47%.

ISAs and pensions – changes to allowances and pension-related taxation

ISAs

The standard annual ISA allowance remains at £20,000, but from the next tax year there’s a new requirement that at least £8,000 must be invested in qualifying investments (unless aged 65 or over).

Pensions

From April 2029, salary-sacrifice pension arrangements will be hit. Pension contributions above £2,000 made via salary sacrifice will attract National Insurance contributions.

This is a significant change to pensions, and individuals and families who are currently retirement planning would be wise to speak to a financial planner. The team at Renaissance Financial can provide advice in this area.

Property wealth surcharge for high-value homes

A new high-value property surcharge will apply from 2028. Properties valued between £2 million–£2.5 million will face £2,500 per year and properties over £5 million face £7,500 per year.

What this means for you

The Budget continues a trend of freezing thresholds (so, inflation and rising asset values push more people into higher tax bands over time), tightening reliefs and incentives that have historically helped wealthy individuals, business owners, or those with Trusts (especially non-UK domiciled).

For owners of property, businesses or Trusts, this is a strong cue to review estate planning and Trust structures sooner rather than later.

How we can help

Our message to clients is ‘the earlier you act, the more options you preserve’. If you are concerned about how these changes may affect you, or would like to discuss your personal circumstances, please contact us.