Budget 2025: Initial tax analysis

The UK Budget on 26 November 2025 announced £26 billion in tax increases to attempt to balance the UK's books. The Chancellor introduced a wide package of measures, drawing on a range of sources, being careful not to noticeably raise the main rates of income tax, national insurance contributions or VAT. 

The Chancellor instead relied on fiscal drag and increased complexity, in a collection of measures that push the overall tax burden toward historic highs. The measures demonstrate a shift to increasing the tax take from the wealthy, turning attention to assets rather than just income alone. There is plenty for businesses, individuals, investors and business owners to digest and consider when reviewing their tax and remuneration strategies.

Read the key areas of this update:

• Income Tax and National Insurance Contributions

• Capital Gains Tax

• Other changes affecting businesses

• Private Capital update

• Contact our UK experts if you need any advice on how the budget affects you or your business 

Income Tax and National Insurance Contributions

Income tax thresholds

The Government has confirmed a significant extension to the freeze on personal income tax and national insurance thresholds, a policy that will have a substantial impact on both taxpayers and the Exchequer over the coming years.

The income tax personal allowance (£12,570), higher-rate threshold (£50,270), and additional-rate threshold (£125,140) will now be frozen until the end of the 2030–31 tax year. This extends the freeze by a further three years beyond the previous end date of April 2028, as set out in the Autumn Statement 2022. The National Insurance Contributions ("NICs") secondary threshold, which was reduced significantly from £9,100 to £5,000 in the 2024 Budget, is also frozen until 2030–31. 

The extension of these threshold freezes is expected to raise substantial additional revenue:

• The freezes to personal tax thresholds are forecast to raise £8.3 billion in 2029–30, with £7.6 billion of this attributable to income tax threshold freezes alone. Behavioural adjustments (such as workers negotiating higher wages) are expected to increase this yield by a further £0.2 billion.  
• By 2030–31, the total yield from all income tax threshold freezes (including those announced previously) is forecast at £56 billion, with £12 billion directly resulting from the measures in the 2025 Budget.
• The freeze to the employer NIC secondary threshold is forecast to yield around £11 billion in 2030–31, with £0.9 billion from the latest extension.
• The overall impact of freezing all allowances and thresholds is estimated to be £67 billion (1.8% of GDP) by the end of the forecast period, with the 2025 Budget’s measures contributing £13 billion in 2030–31.

The Office for Budget Responsibility projects that, between 2022–23 and 2030–31, 5.2 million additional individuals will be brought into paying income tax; 4.8 million more tax payers will move into paying the higher rate of income tax; and 600,000 more taxpayers will pay the additional rate of income tax. The proportion of taxpayers paying the higher or additional rate is forecast to rise from 15% in 2021–22 to 24% by 2030–31. 

Income tax – Investment income

Because individuals who receive property, dividends and savings income do not pay NICs, the Government is increasing the income tax rates on  these types of income as follows:

• Separate income tax rates will apply to property income received by English, Welsh and Northern Irish taxpayers – from April 2027, the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%.
• From April 2026, the basic rate of tax on dividend income will increase for all UK taxpayers from 8.75% to 10.75% and the upper rate will increase from 33.75% to 35.75%. The additional rate of 39.35% will not be changed.
• From April 2027, the income tax rate on savings interest income will increase for all UK taxpayers by 2 percentage points across all bands, i.e. the basic rate band will rise from 20% to 22%; the higher rate from 40% to 42%; and the additional rate from 45% to 47%.

Although this is a rise in income tax, it is economically equivalent to levying a flat 2% employee national insurance contribution on these types of income. The Government may have chosen not to raise the additional rate of income tax for dividend income in an attempt to provide some comfort and stability to high-income investors and business owners, amidst other tax measures targeting the wealthy. 

These increases were a surprise announcement in the Budget, although a reduction in national insurance and corresponding increase in income tax, which would have had a similar effect, was widely reported. The Government has noted in the Budget documents that over 90% of UK taxpayers do not have taxable property income and do not pay income tax on savings income or receive taxable dividend income. The political reason for raising these taxes is clear – according to the Budget statement, two thirds of the £2.1 billion expected to be raised from these tax increases is expected to come from the top 20% of the wealthiest households. The Government is therefore claiming to keep to its manifesto promise of not increasing taxes on working people and ensuring greater equity between the tax treatment of income received from employment and income received from assets.

However, the Office for Budget Responsibility has noted that these changes are expected to result in some behavioural changes, such as individuals reducing their taxable dividend income, moving more savings into ISAs and, in the longer term, when taken together with previous measures that have reduced returns to landlords, reduce the supply of rental property.

Cap on National Insurance Contributions exemption for salary sacrificed pensions contributions

Many employers offer an option for employees to contribute to their pensions arrangements by means of a salary sacrifice arrangement. The main benefit of salary sacrifice is to save on NICs for both the employee and the employer.

In simple terms when employees contribute to their pension directly from their salary, there are no NICs savings, as NICs are calculated on the full amount of earnings. However, if part of an employee’s salary is exchanged for an employer pension contribution (known as salary sacrifice), gross earnings are reduced. This makes salary sacrifice arrangements a tax-efficient way to fund pensions savings.

The Budget announced that the NICs exemption for salary-sacrificed pension contributions will be capped at £2,000 per annum from 6 April 2029. Salary-sacrificed pension contributions above £2,000 will therefore be treated as ordinary employee pension contributions and be subject to both employer and employee NICs. 

The Government has confirmed that employer pension contributions will remain exempt from employer NICs.

In its Budget publication, the Government estimated that the annual cost of the relief as it stood would rise from £2.8 billion in 2016-17 to £8 billion by 2030-31, pointing out that the relief disproportionately benefitted higher earners. The Office for Budget Responsibility has assessed that capping the NIC exemption will raise £4.7 billion in 2029-30 and £2.6 billion in 2031-31. 

Given the long lead-in time, employers have time to prepare for changes to the payroll process, but perhaps more importantly, consider their overall remuneration strategies and options for offsetting the additional NIC costs, which may include making use of tax-advantaged share option schemes or alternative benefits or rewards. 

Income tax – abolition of notional tax credit on dividends received by non-UK residents

From April 2026, the Government will abolish the dividend tax credit for non-UK residents with other UK income. Under the current rules, non-UK residents with UK dividend and UK rental or partnership income can decide whether to have the entirety of their UK income assessed to UK income tax or only their UK rental or partnership income. If they elect for the entirety of their UK income to be assessed to UK income tax, they receive a tax credit for their UK dividend income at the basic rate (currently 8.75%). The abolition of this will align their position with UK resident taxpayers and sees the final elimination of the dividend credit regime.

Capital Gains Tax

Employee Ownership Trusts

The Government has announced that it is reducing the relief from capital gains tax ("CGT") that business owners receive when they dispose of shares in their company to an employee ownership trust ("EOT"). The change is effective from Budget day (26 November 2025). 

Prior to the 2025 Budget, the CGT relief allowed business owners full relief from any CGT on a disposal of their shares to an EOT, provided that certain conditions were met. This relief is now being reduced from 100% to 50% of the gain on the shares being disposed of. 

Business owners selling to an EOT will therefore now be liable to CGT where they would not have been before today. Under the proposed legislation, the shareholder's CGT liability cannot be relieved further through the use of business asset disposal relief ("BADR"). Therefore, the rate of CGT payable will likely be 24% on 50% of the gain on the shares. 

This change follows on from changes in last year's budget that broadened the scope of the disqualifying events for the CGT relief and increased the clawback period for any CGT relief. While last year's changes were widely seen as sensible protections for EOTs and the employee beneficiaries, this year's changes reduce the generosity of the CGT relief for business owners selling to an EOT. The changes will reduce the attractiveness of EOTs for business owners considering an EOT as a route to exit from their business. 

However, in the context of the reduced attractiveness of BADR (with the rate of CGT payable under BADR increasing again from 14% to 18% from 6 April 2026), a disposal to an EOT still provides business owners with an generous relief from the CGT that would otherwise be payable on a more traditional sale. 

The Government has justified the reduction in the relief by pointing out that the initial costing of the CGT relief for sales to EOTs forecast on its introduction in 2014 could increase to more than 20 times the amount of the original forecast. 

The Government is concerned that EOTs are being utilised by some for the tax relief alone, rather than as a genuine effort to increase employee ownership.

The EOT CGT relief defers the CGT liability to a future sale by the EOT trustee by reducing the EOT trustee's base cost for the shares. Therefore, the CGT liability is ultimately payable by the beneficiaries of the EOT (the employees of the relevant business). While the change to the rate of the CGT relief will mean that the CGT burden for a future sale by the EOT trustee should be reduced (as the base cost of the shares should be higher than if 100% CGT relief was applicable) as the EOT is a tax deferral and transfer of tax liability form the owner to the EOT one might expect that the overall tax take should not increase. However, the Government estimates the measure will raise nearly £3.7 billion by 2030/31.

Capital gains tax: anti avoidance – share exchanges and reorganisations 

The Government will introduce legislation in Finance Bill 2025-26, that will apply from Budget day, to amend the capital gains tax anti-avoidance rules that apply to company reorganisations. Where an individual receives shares in exchange for shares in another company, this is not treated as a disposal for CGT purposes and instead the gain is rolled over into the new shares acquired.

The change looks technical on the face of it, but could have potentially significant consequences for how share sales and reorganisations are carried out. 

Before the Budget, general anti-avoidance provisions applied, meaning that the roll-over capital gains tax treatment only applied where the share exchange did not form part of a scheme or arrangement with the main purpose, or one of the main purposes, of avoiding CGT. The new legislation will introduce an additional anti-avoidance rule that will mean that the roll-over capital gains tax treatment will not apply where the individual has entered into the arrangements with the main purpose, or one of the main purposes, of securing a tax advantage. This new anti-avoidance rule looks at the specific share for share exchange by the tax payer, rather than the purpose of the overall transaction. 

Depending on how this is implemented, this could have potentially dramatic implications. Under the current rules, provided the overall transaction has a clear commercial objective, taxpayers have a wide latitude as to how that reorganisation is carried out to ensure various tax reliefs are utilised. This new rule will require much greater scrutiny of each individual step. Well understood structures, such as capital reduction demergers, will need to be reconsidered. It is to be hoped that HMRC guidance will shed further light on the full effect of these rules.

The old anti-avoidance provisions will apply to any share for share exchange clearance applications received by HMRC before 26 November 2025, provided that the share for share exchange takes place within 60 days of Budget day or, if later, within 60 days of the date that clearance is received from HMRC.

From 26 November 2025 onwards, individuals carrying out share for share exchanges will need to ensure that these transactions are not being entered into in a way to secure a tax advantage for them, rather than relying on the wider transaction being carried out for commercial purposes. While the majority of transactions are not likely to fall within the new anti-avoidance rules, tax advice will need to be taken to ensure that individuals do not inadvertently fall foul of them.

Other changes affecting businesses

Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCT")

The Government has announced changes to both the EIS and VCT rules, which had already been extended to 6 April 2035 in the 2024 Budget. These changes ensure that vital sources of finance for small and growing businesses remain available to increase those businesses capacity and enable follow-on investments are available for such growing start-up businesses. 

From 6 April 2026, the following changes will apply to both EIS and VCTs: 

• Annual company investment limit: Increased to £10 million (from £5 million), and £20 million for Knowledge Intensive Companies ("KICs") (from £10 million).
• Lifetime company investment limit: Increased to £24 million (from £12 million), and £40 million for KICs (from £20 million).
• Gross assets test: Increased to £30 million before share issue (from £15 million), and £35 million after (from £16 million).

However, the upfront income tax relief for individuals investing in VCTs will fall from 30% to 20%. This change is intended to better align the relief with EIS, which does not provide dividend relief, and to encourage VCT funds to focus on higher-growth companies.

Following the reduction in VCT relief, EIS funds may become more appealing to investors seeking to maximise upfront tax benefits. From 6 April 2026, EIS will retain the 30% income tax relief and typically allows pooled investments through a nominee, offering access to a diversified portfolio of early-stage companies similar to VCTs.

The changes also mean that start-up and early-stage companies will be able to access more tax advantaged capital and do so at a later stage in their growth. The clear political bet here is that rather than raising revenue directly, these changes will drive wider growth across the economy.

This shift could prompt some investors to move from VCTs, which remain attractive for tax-free dividends and greater liquidity, to EIS funds. Ultimately, the choice will depend on individual priorities around income, growth, and risk appetite.

Enterprise Management Incentive Changes

The number of companies in the UK that can utilise Enterprise Management Incentives ("EMI") will increase in April 2026 as a result of the Government increasing the thresholds for what constitutes a "qualifying company" for EMI purposes. 

The changes are:

• the limit on the value of company options able to be granted at any one time will be increased from £3 million to £6 million;
• the maximum value of a company's gross assets at the time of grant will be increased from £30 million to £120 million; and
• the maximum number of employees that a qualifying company can have at the time of grant will be increased from 250 employees to 500 employees.

The maximum period for holding an EMI qualifying option will also increase from ten to 15 years.

The Government guidance suggests that if your company has existing EMI options that are due to lapse as the tenth anniversary of the date of grant is approaching, you could consider amending the scheme rules and option agreements to extend the holding period to take advantage of the new 15-year period.  HMRC has noted that such change would not result in the EMI options being considered to be surrendered and regranted.

The Government has also announced that the EMI notification requirements will also be removed from April 2027. This extends on HMRC's previous changes to the EMI notification requirements. 

This is the first change to thresholds for what constitutes a "qualifying company" for EMI purposes since the EMI scheme was introduced in 2003. These increases are welcome and well overdue and will bring many larger companies within the scope of qualifying to grant EMI options. The EMI option scheme is generally considered to have been very successful since its introduction and provides companies and employees with significant tax advantages if the rules are followed correctly. Therefore, we would encourage larger companies who, from April, will be within the scope of the EMI legislation and who are looking for ways to incentivise and retain staff to consider setting up an EMI option scheme. Our Tax and Share Schemes team has extensive experience in establishing EMI schemes so please do get in touch with us if you would like to discuss this further. 

Proposed changes to income tax rules for umbrella companies

As anticipated in our article in September, the Government has confirmed significant changes to tackle non-compliance in the umbrella company market in the Budget. From 6 April 2026, recruitment agencies will share legal responsibility for operating Pay As You Earn ("PAYE") and Class 1 NICs on payments made to workers supplied through umbrella companies. Where no agency is involved, the end client will share this responsibility. This is being implemented earlier than was initially expected.

Why this change is necessary?

Umbrella companies are easily set up when their non-compliant predecessor companies are wound up. Consequently, pursuing umbrella companies for unpaid tax is frequently ineffective. By making recruitment agencies and end-users jointly responsible, the Government aims to improve compliance and raise standards across the temporary labour market.

The Government has articulated three aims: 

• Close the tax gap by reducing losses caused by fraudulent umbrella companies.
• Protect workers from large, unforeseen tax liabilities.
• Create a level playing field by preventing non-compliant operators from undercutting legitimate businesses.

Who should seek advice?

Recruitment agencies, end clients using temporary workforces labour, and umbrella companies should review their compliance processes and due diligence procedures now. Our Employment and Tax teams at DWF can help assess risk and prepare for April 2026 when the changes are due to come into force.

Construction Industry Scheme

The Government has announced that it will strengthen HMRC's powers to tackle fraud within the Construction Industry Scheme ("CIS"). 

We understand that this will include giving HMRC the power to:

• immediately remove Gross Payment Status ("GPS") under the CIS;
• assess a business for tax loss related to fraudulent payments; and
• charge a penalty of 30%, which can apply to the business or its officers.

These changes are intended to apply from 6 April 2026 and apply if a business makes or receives a payment that it knew or should have known was connected to fraud. In addition, those who have GPS removed immediately due to fraud or serious non-compliance will be prevented from reapplying for GPS for a period of 5 years. 

This measure is part of a wider effort to clamp down on fraud within the construction industry. We previously wrote about changes to the CIS and the impact it can have on a business here.

The Government has also announced that it will look to consult on simplifying the administration connected with the CIS. 

We await further details of these announcements. 

National Minimum Wage and National Living Wage

Following advice from the Low Pay Commission ("LPC"), the Government has accepted the LPC’s recommendations in full, raising National Minimum Wage rates from April 2026 with the aim of easing cost of living pressures.

From 1 April 2026, the new rates will be:

• National Living Wage (workers aged over 21 years): £12.71
• 18-20 years: £10.85
• 16-17 years: £8.00
• Apprentice Rate: £8.00
• Accommodation Offset: £11.10 

Each rate will increase by at least 4.1 per cent, with the 18-20 years rate having the largest increase of 8.5 per cent. The Government estimates that around 2.4 million low paid workers will benefit from these increases. It is important for businesses to ensure that these changes are implemented correctly in their payroll systems to capture payments to be made from 1 April 2026.

Employment rights

Marking a significant shift in enforcement strategy, the Government will introduce a dedicated “hidden economy” team within the Fair Work Agency from April 2026 with a clear mandate to tackle serious breaches of employment rights, illegal working and tax evasion. The Fair Work Agency will work more closely with trade unions and local business groups to gather intelligence about unscrupulous employers. Employers who exploit workers will face increased scrutiny.

The Government is exploring how powers under the Companies Directors Disqualification Act 1986 can be used against directors who repeatedly breach employment rights. This could mean personal consequences individual directors, not just corporate penalties.

Transparency is the new norm. All employers who break the law will be named within a year of their case closing. Reputational risk will become a major deterrent, so compliance is no longer just a legal obligation, it’s a brand protection issue.

Compliance should be a strategic priority. With a raft of new employment legislation making its way through Parliament, it is crucial for employers to keep on top of the changes. Those who fail to act risk not only financial penalties but also lasting damage to their reputation and leadership credibility.  In an environment where enforcement is becoming more proactive and public, businesses that invest in robust compliance frameworks and foster a culture of fair treatment will be better placed to attract talent, maintain trust, and safeguard their future.

Stamp Duty Reserve Tax Relief

Companies first listed on the main market of the London Stock Exchange on or after 27 November 2025 are to enjoy an exemption from Stamp Duty Reserve Tax ("SDRT") (a stamp duty at 0.5% on dematerialised shares) on any transfers in their securities (not just the listed shares) for three years after listing. This is not expected by the Government to have any significant revenue implications. The intention, rather, must be to attempt to stimulate the UK IPO market. The SDRT exemption is intended to increase liquidity in recently listed shares which should in turn make those shares more attractive, potentially making new listings more viable.

That, at least, is the Government's hope. Whether the exemption will achieve this policy intention remains to be seen.

Overnight Visitor Levy in England 

The Government has confirmed in the 2025 Budget that Mayors of Strategic Authorities in England will have the option to introduce an overnight visitor levy to raise revenue locally. 

A consultation on the structure of this new power was published on 26 November 2025 and will end on 18 February 2026. It seeks views on the structure of the power, how the levy should be implemented and whether it should be extended to local leaders in Foundation Strategic Authorities. 

As highlighted in the consultation, this change demonstrates the Government’s dedication to fiscal devolution, currently enabling mayors, and possibly other local leaders, depending on the consultation, to introduce a visitor levy on overnight visitor accommodation in their region.

This change aims to bring English cities in line with other major tourist destinations, including parts of the UK that already apply a visitor levy, including Edinburgh as noted in our prior articles on this subject.

Customs treatment of low value imports into the UK

The Government has announced the end of the low value import relief, which allows individual consignments imported into the UK with a declared value of £135 or less to be imported without paying customs duty.

In April 2025 the Chancellor announced that a comprehensive review of the customs treatment of low value imports ("LVI") was needed after concerns from high-street retailers who considered that they were being disadvantaged in comparison to online retailers; whom they considered were benefitting from a customs duty relief and less stringent data requirements.

The Government has decided to remove the current low value import limit, making LVIs subject to tariffs and will replace the existing customs arrangements with a new duty and new payment and data requirements. The proposed changes will result in increased customs duty being payable and an increased compliance burden for businesses.

HM Treasury and HMRC have launched a joint consultation, which will run until 6 March 2026, on the removal of the £135 customs duty relief and the design of the new replacement LVI customs arrangements. The new measures are expected to be implemented from March 2029 at the latest. A consultation launch event will be held on 4 December 2025, which will provide further details about the consultation.

Capital allowances changes

The Government has announced two important changes to the rates of capital allowances that businesses can claim on plant and machinery expenditure.

The first is a 4 percentage point reduction in the rate of writing down allowances for "main pool" qualifying expenditure from 18% to 14% per year effective from April 2026. This will decrease the rate at which businesses can claim a deduction for most expenditure qualifying for capital allowances against their total profits for corporation tax and income tax. 

This reduction will not be relevant where a business is able to claim a first-year allowance ("FYA") or annual investment allowance ("AIA") on its expenditure. These potentially permit businesses to claim a 100% tax deduction on qualifying capital allowance expenditure in the period in which the expenditure is incurred.

Currently, the most important FYA, full expensing, is only available to companies and is not available on expenditure on assets that are leased. This latter limitation has been an important practical problem for larger corporate groups with asset holding companies that lease assets to other group members.

The second important change announced in the 2025 Budget partly addresses this issue.  The Government will introduce a new 40% FYA from April 2026 that will be available for leased assets, and can be claimed by all businesses rather than just companies. However, like full expensing, it will only be available on the purchase of new assets.

While the new FYA will provide some welcome relief (particularly for leasing companies), it also adds further complexity and distinctions for those making significant capital investments.

Annual Tax on Enveloped Dwellings

Annual Tax on Enveloper Dwellings ("ATED") is an annual tax on enveloped residential dwellings with a value of above £500,000. It is subject to a number of reliefs where such dwellings are held for certain commercial purposes (such as for letting or development businesses), with relief subject to claim.

The Government has announced that from Royal Assent of the Finance Bill 2025-26 (but with effect as if it had always been in force) it will remove the time limit for claiming, or increasing a claim for, ATED relief where the amount of ATED payable in a tax year is less than the amount that was expected to be paid (and on which ATED will have been paid at the start of a tax year). This should reduce the number of cases in which ATED relief is lost due to compliance failures. However, there will still be penalties for late ATED submissions.  

Business rates in England 

There are a number of important business rates changes to be aware of following the 2025 Budget. Key changes are: 

• a new business rates structure confirmed for England – From April 2026, there will be permanently lower business rates multipliers for retail, hospitality and leisure ("RHL") properties that have a rateable value under £500,000. This reduction will be funded by a higher multiplier on all properties with a rateable value over £500,000; 
• the multiplier (rates) applicable from April 2026 have been published; 
• the Valuation Office Agency has published the outcome of the latest revaluation for England and Wales; 
• a transitional support package for some businesses facing changes to business rates liabilities as a result of the revaluation;
• a new Call for Evidence considering further business rates reform in England; and
• a ten-year relief for electric vehicle ("EV") charging points and EV-only forecourts. 

Business rates are devolved to Scotland and Wales, where different regimes and rates apply. Navigating these changes and planning for potential increases will be a critical part of business and tax plans for businesses. You can read our more detailed analysis about business rates changes in our Consumer Budget update. 

The Soft Drink Industry Levy extension (the "milkshake" tax)

In April 2018, the Government introduced the Soft Drinks Industry Levy ("SDIL"), a tax on pre-packaged soft drinks with levels of sugar above 5g per 100 ml. There are various exceptions to this levy and a number of products have been out of scope, including drinks made with fruit or vegetable juice with no additional sugar. Small producers also escape the levy. 

The Government consulted on three proposals to strengthen the SDIL, with the intention of making more drinks subject to the levy and stimulating further reductions in sugar content. 

1. Reducing the threshold of in-scope drinks from 5g to 4g per 100 ml.

The Government has decided to lower the threshold to 4.5 g per 100ml (not 4g as originally consulted), having listened to industry on the challenge of reformulating products below 4g. The Government says this "strikes the appropriate balance between supporting health objectives and fostering conditions that allow the soft drink industry to continue to grow and invest."

2. Removing the milk-based exemption, which means drinks containing 75% of milk by volume will now be subject to SDIL.

The Government has decided to bring milk-based products into scope because it believes excess sugar cannot justify its continued exemption. 
The Government has departed from its proposal to aggregate the average lactose content of semi-skimmed milk (3.8 lactose per 100ml) with the SDIL thresholds. Instead (with the exception of sugars added as an ingredient, hydrolysed lactose and lactose in milk powder) other lactose will be excluded from the "total sugar" value when determining liability to SDIL.

3. Removing the exemption for milk-substitute drinks, meaning drinks containing at least 120 mg of calcium per 100 ml. The added sugars beyond that derived from the principal ingredient (e.g. oat or rice) would be subject to the levy.

The Government has gone ahead with this proposal. Sugars derived from the principal ingredient (e.g. oat or rice) would not be subject to the levy so long as there were no additional sugars. Where there are additional sugars, the aggregate of sugars from the principal ingredient and additional sugars would be subject to the SDIL thresholds.  

With the drinks industry preparing for the Deposit Return Scheme, the Government has decided to delay the implementation of stronger SDIL until 1 January 2028 (originally 1 April 2027).

Plastic packaging tax

From April 2026, the Plastic Packaging Tax ("PPT") rate will increase in line with CPI. Further changes include:

• Adoption of a "mass balance" approach to calculating chemically recycled content.
• Exclusion of pre-consumer waste from the 30% recycled content threshold.
• An upcoming consultation on mandatory certification for mechanically recycled packaging in early 2026.

More detailed analysis on these changes is included in our Consumer Budget update. 

Vaping Products Duty and Vaping Duty Stamps Scheme

The Government announced the introduction of a new Vaping Products Duty ("VPD") in the last year's Budget to be implemented from 1 October 2026. To support implementation and enforcement of VPD, it also announced a Vaping Duty Stamps ("VDS") scheme also to be brought into operation from 1 October 2026.

In this year's Budget, the Chancellor has confirmed the introduction of both VPD and VPS with effect from 1 October 2026 and issued two policy papers setting out a description of the measures and those who will be affected.

VPD will apply to apply to vaping liquid which is not a medical or tobacco product and will be charged at a flat rate of £2.20 per 10 millilitres on all vaping products produced or imported into the UK. The liability for payment will lie with UK manufacturers and importers. 

VDS will require all vaping products manufactured or imported into the UK to have a physical duty stamp affixed to them. Metadata collection will include details of the manufacturer and the product, date of stamping and date product leaves duty suspension or date of release for consumption in UK. Duty stamps will only be issued to approved individuals, manufacturers and importers. From 1 April 2026 businesses must apply for approval from HMRC to affix duty stamps.  It will be compulsory for stamps to be affixed from 1 October 2026.

The new measures are intended to include provisions for enforcement including penalties, forfeiture of goods, civil penalties, revocation of excise licences and potentially criminal prosecutions. 

HMRC has made it clear that all parties in the supply chain must ensure compliance and therefore businesses who obtain vaping products from a supplier must verify that duty tax has been paid. Supply chain due diligence will become crucial, and all businesses will need to ensure that they have put in place reasonable and proportionate checks to identify fraudulent transactions or transactions involving goods where duty may have been evaded. 

Manufacturers and importers of vaping products will need to register with HMRC in order to obtain the vape duty stamps and to become verified suppliers. Verification is likely to take approximately 45 days and so early registration is suggested and recommended.

Private Capital update

CGT: Non-Resident Capital Gains

The 2025 Budget introduces a series of technical amendments to the non-resident capital gains ("NRCG") regime. These changes are intended to clarify the rules and ensure that the rules operate as intended, particularly for complex offshore structures such as Protected Cell Companies ("PCCs").

The NRCG rules bring into UK capital gains tax ("CGT") disposals of UK land and property by non-UK tax resident persons, including individuals and companies. In practice, this means that non-residents who dispose of UK property or certain interests in UK property-rich entities may be liable for UK CGT.

The Finance Bill 2025-26 will introduce amendments to the test for whether PCCs are property-rich. PCCs are corporate structures that consist of multiple separate cells, each with its own assets and liabilities, which are legally segregated from those of other cells. Under the current rules, property richness is assessed at the level of the PCC as a whole, which can lead to unintended consequences when only one cell holds UK property.

The revised legislation will require the property richness test and the substantial indirect interest test to be applied at the individual cell level, rather than across the entire PCC. This change prevents aggregation across cells and ensures that the rules reflect the economic reality of these PCC structures. The changes to the definition of property-rich entities for PCCs applies to disposals made on or after 26 November 2025

In addition, the 2025 Budget confirms that an existing Extra-Statutory Concession will be formalised in legislation. This concession applies to non-UK resident individuals who invest in Collective Investment Vehicles.

CGT: Residence of Personal Representatives ("PRs") of a deceased’s estate

The 2025 Budget announced a tightening of the definition used for determining whether PRs of a deceased’s estate are UK resident for CGT purposes. PRs will now only be UK resident if the deceased was UK tax resident at the date of their death (rather than if the deceased was UK tax resident or a UK long-term resident ("LTR") at the date of death). This change applies retrospectively from 6 April 2025.

Inheritance Tax ("IHT"): Thresholds 

The following IHT thresholds have been frozen at their current levels for the tax year up to 5 April 2031 (they had already been fixed up to 5 April 2030):

• the IHT Nil Rate Band ("NRB") at £325,000;
• the IHT Residential NRB ("RNRB") at £175,000;
• IHT RNRB Taper, starting at £2 million; and
• the combined £1 million allowance for 100% Agricultural Property Relief ("APR") and Business Property Relief ("BPR").

It is well known that IHT is one of the UK’s most hated taxes. After a significant period of frozen thresholds (and the further freeze announced now) coupled with rising house prices, more individuals and families will be brought in to a position where they will need to pay IHT.

IHT: Capping IHT trust charges for non-UK domicile residents

A cap has been introduced on relevant property IHT charges for trusts that held excluded property (excluded from IHT) on 30 October 2024. The relevant property charges are capped at £5 million over each ten-year IHT periodic charge cycle.

This cap applies to settled property which was excluded property on 30 October 2024, and that is situated outside the UK at the time of the relevant IHT charge.

This measure will affect trustees of former excluded property trusts, former non-domiciled individuals who settled the property into trust, and the trust beneficiaries. The cap has been backdated to IHT charges arising from the start of the current tax year.

The value within such trusts would have to be significant to be affected by this. The cap has presumably been introduced in the hope of reducing the number of wealthy long-term resident individuals leaving the UK.

IHT: APR and BPR 

In the 2024 Budget, the Government announced that from 6 April 2026 onwards there would be a £1 million cap for assets qualifying for 100% APR and BPR. The £1 million allowance will effectively be a lifetime cap covering an individual’s estate on death, gifts in the seven years before death and lifetime transfers into trust. Any unused allowance was not transferable between spouses..

This reform has been softened in the 2025 Budget by allowing the transfer of the 100% APR or BPR relief allowance between spouses and registered civil partners. The Government comments that it seeks to balance, "the taxation of these valuable assets with the realities of family life".

This is good news, but undoubtedly not enough to appease farmers, who continue to be unhappy about any restriction on APR.

There are good and logical arguments for banking this allowance on first death (in the same way as is done for the ordinary IHT nil rate band), but at least spouses now have choice and it might take the pressure off smaller family farms in that they will not have to worry about taking professional advice to mitigate the changes to APR.

This announcement will make the administration of deceased’s estates more straightforward, although many business owners and farmers will have already made changes to the ownership of their assets over the last year as the Government had originally said that the allowances would not be transferable.

IHT: Infected Blood Compensation Payments

The Infected Blood Compensation Scheme aims to provide compensation to victims of infected blood in the UK. It is administered by the Infected Blood Compensation Authority ("IBCA"), which handles claims and makes payments. The scheme is designed to pay compensation to victims of infected blood, including those who were indirectly infected through someone else. 

The Government announced in the 2025 Budget that all payments from this scheme will be exempt from IHT regardless of:

• the circumstances in which those payments are made/passed down to children; and
• the timing of the payments.

In addition, any, "first living recipient of compensation payments" will have a two year window in which to gift some or all of the compensation IHT-free (so the normal IHT rules applying to lifetime gifts would not apply). This will apply to compensation payments received before or after 26 November 2025 and to gifts made on or after 4 December 2025.

IHT: Anti-avoidance measures for non-long term UK residents and trusts

These measures are being brought in to prevent opportunities for non-residents to use the situs of both personal and trust property to avoid IHT or pay less tax than long-term UK residents.

The legislation will target and look-through non-UK companies or similar vehicles to treat UK agricultural land and building as situated in the UK for IHT purposes. This follows the existing treatment for UK residential property. 

Where a settlor of a trust ceases to be a long-term UK resident, there will be an IHT charge if there is a later change in situs of their trust assets from UK to non-UK. This is to prevent the trust in question manipulating IHT situs rules to avoid an exit charge.

In line with other taxes, the IHT charity exemption will be restricted to gifts made directly to UK charities and community amateur sports clubs. Gifts to trusts that do not meet the required charity or club definition will not be exempt from IHT. This change does not affect the separate IHT regime for property held in trusts.

This will be legislated for in the Finance Bill 2025-2026 and take effect for gifts to charities in lifetime from 26 November 2025 or on a death from 6 April 2026. 

IHT: Unused pension funds and death benefits

At the 2024 Budget it was announced that many private pensions would fall within IHTfrom April 2027. Although this proposal is still under consultation and the draft legislation is awaited, the 2025 Budget Document does provide some clarity on how the proposal will operate. This is welcome news for PRs and will enable them to liaise with pension trustees to pay IHT in particular circumstances.

PRs will be able to provide directions to administrators of pension schemes to withhold 50% of the taxable benefits for up to 15 months and to pay IHT in certain circumstances. PRs will be discharged from a liability for payment of IHT on pensions discovered after they clearance has been issued by HMRC. This will be legislated for in the Finance Bill 2025-26 and take effect from 5 April 2027.

This is welcome news. However, it is questionable as to whether the 15-month period is long enough as it can take far longer to establish the IHT position when dealing with some complex estates.

Next steps 

We are currently reviewing further technical detail and additional measures announced as part of the Budget and will be publishing further analysis in due course. If you would like to speak to our experts about any of these measures, please contact our team below, or your usual DWF contacts. 

• For Tax and Share Scheme measures, please speak to Jon Stevens, Caroline Colliston, James Cashman, Tom Rank
• For IHT and Private Capital matters, please speak to Ian Cottam, Ian Sydenham
• For Pensions, please speak to Liz Ramsaran, Vicki Thomas
• For Employment matters, please speak to Jo Frew, Charlotte Lloyd-Jones