UK Autumn Budget 2025

In the run up to today’s Autumn Budget, the Chancellor, Rachel Reeves made no secret of the fact she was focused on raising the UK Government’s fiscal headroom. That has been achieved with a raft of new revenue-raising measures which will have the effect of increasing the UK’s annual tax take by £26 billion and to an all-time high tax-to-GDP ratio of 38% by 2030-2031.

Rather than focusing on a well trailed increase in income tax, the Chancellor has decided on a range of tax rises impacting workers, businesses and certain asset holders. Our team in Northern Ireland have prepared an overview of the changes outlined today all of which have application in Northern Ireland unless indicated otherwise.

By freezing income tax and national insurance thresholds at their current level until 2031, the Chancellor acknowledged that ‘working people’ will be dragged into paying more tax, a move which will undoubtedly squeeze some already strained household budgets further.

Other investment income streams were also targeted, with the introduction of a tax increase for income on property, dividends and savings one of the more surprising moves. It will, in the main, be middle and higher earners who will be most impacted by this change.

The cap on the salary sacrifice schemes from 2029, meanwhile, was well flagged and one which will hit higher earners hardest while also dulling an incentive which has been widely used to attract and keep talent.

Unfortunately, no changes were announced to the very substantial proposed restrictions announced in last Autumn’s Budget in relation to business property and agricultural property reliefs. This will mean that with effect from April 2026, estates with assets qualifying for these reliefs will face a 20% inheritance tax bill (on any value over £1 million) and will present significant funding challenges and consequences.

For Northern Ireland business, a region which has an economy primed for growth, it is becoming clearer and clearer that the best means of driving economic growth and boosting public coffers lies not in tax increases but in a corporation tax cut to a level equivalent to that applying to businesses based in the Republic of Ireland.

That would encourage business investment from near and far, spur job creation and build a revenue stream which would far outweigh any short-term loss of tax receipts for the benefit of both Stormont and the Treasury.

Perhaps against the grain when tax hikes were the order of the day, but food for thought.

Johnny Hanna

Partner-in-charge, KPMG in Northern Ireland

KPMG in Ireland

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Private client

Key measures

Income Tax and National Insurance

The income tax personal allowance, the higher and additional rate thresholds and relevant national insurance thresholds will remain frozen for an additional three years until April 2031. These were previously frozen until 2028.

From April 2026, income tax rates for dividend income will be increased to 10.75% (basic rate) and 35.75% (higher rate). The additional rate remains unchanged at 39.25%.

From April 2027, income tax rates for savings and property income will be increased by 2% for all tax bands. This income is now taxed at either 22%, 42% or 47%.

Pensions

A £2,000 cap on pension contributions made under a salary sacrifice scheme will be introduced from April 2029. Employees and employers will be subject to national insurance on contributions above this amount. Normal employer pension contributions will remain exempt from national insurance.

There was no change to the tax-free lump sum from pensions on retirement.

Property Taxes

For properties in England, from April 2028 there will be a new ‘high-value council tax surcharge’ on properties valued at over £2 million, charged through the council tax system. In addition to existing council tax, there will be an annual charge of between £2,500 and £7,500 depending on the value of the property.

Inheritance Tax

The changes to business and agricultural property relief will go ahead as originally planned from April 2026. Any unused 100% allowance (up to a maximum of £1 million) will now be transferrable to a surviving spouse.

The inheritance tax thresholds will remain frozen for an additional three years until April 2031. These were previously frozen until 2028.

From 6 April 2026, UK agricultural land and buildings held through non-UK companies or similar bodies will be brought within the scope of UK inheritance tax.

Enterprise Investment Scheme and Venture Capital Trusts

From 6 April 2026, the existing annual investment, lifetime investment and gross assets limits for those companies that are raising investment under the EIS or VCT schemes will be substantially increased. Certain Northern Ireland companies will not be eligible for the increased limits.

From 6 April 2026, the VCT income tax relief rate for individuals will be decreased from 30% to 20%.

Individual Savings Account

The Individual Savings Account (ISA) allowance of £20,000 will be retained. From April 2027, however, £8,000 will be designated exclusively for stocks and shares ISAs, limiting the cash ISA allowance to £12,000. These restrictions will not apply to those over the age of 65.

KPMG insights – our view

Income Tax – a stealth tax rise

As income tax and national insurance thresholds remain frozen until April 2031 and incomes continue to rise with inflation, more individuals will be pulled into higher tax bands.

The Office for Budget Responsibility estimates that by 2030–31, 5.2 million more people will pay income tax, and nearly 4.8 million will move into the higher-rate band. For many, this represents a significant erosion of disposable income without any formal rate increase.

Income Tax – tax rises on dividends and property income

While headline income tax rates remain untouched, these increases represent a strategic shift towards taxing “unearned” income.

The increase in dividend rates will particularly affect:

Private company owners who extract profits via dividends
Investors holding shares outside tax efficient structures such as ISAs or pensions
Portfolio investors relying on dividend income

For property landlords, the increase compounds existing pressures from:

Loss of mortgage interest relief
Stamp duty surcharges
Regulatory changes under the Renters’ Rights Act

The Chancellor framed these measures as a fairness initiative, noting that a landlord earning £25,000 pays nearly £1,200 less in tax than a tenant with the same salary because property and dividend income escapes national insurance. While national insurance was not extended to these income streams, the rate rises aim to close that gap.

Pension Planning – Salary sacrifice restrictions

While core pension tax relief remains intact, this change will:

Increase the cost of large bonus-linked contributions
Require employers to revisit reward strategies
Require a review for high earners to balance current income and long-term retirement planning

No relaxation to planned IHT agricultural property relief and business property relief restrictions from 6 April 2026

There was some speculation that this Budget may include a relaxation of the proposed restrictions announced in October 2024 given their likely impact for the business and farming communities. The only small concession which the Chancellor introduced was to enable the £1 million agricultural property relief/business property relief allowance to be transferrable between spouses. Welcome though this change will be, for many today’s Budget will be viewed as a lost opportunity.

With effect from 6 April 2026, farmers and business owners may face substantial inheritance tax costs in passing wealth to the next generation. In many instances, farms and family companies may need to be sold in order to fund inheritance tax costs but even where the business can survive, the new provisions will have a significantly adverse impact on cash flow.

Given the impending agricultural property relief/business property relief changes, a review of existing inheritance tax exposures is to be recommended. Planning that may be worth considering includes lifetime gifts, family trusts and appropriate forms of life cover.

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Kevin Bell

Partner

KPMG in Ireland

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Susan Smyth

Director

KPMG in Ireland

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Business taxes

Key measures

Transfer pricing: international controlled transactions schedule

Following a previous consultation, the Government will require in scope multinationals to file an annual International Controlled Transactions Schedule reporting cross-border related party transactions, starting for periods on or after 1 January 2027. Full details will follow in future regulations.

Reform of UK law in relation to transfer pricing, permanent establishment and diverted profits tax

The Government is making changes to the following rules after recent consultations:

Transfer Pricing: Rules will be simplified, including exempting UK-to-UK transactions where there’s no tax loss risk
Permanent Establishment: The UK definition will be updated to match the 2017 OECD Model Tax Convention
Diverted Profits Tax: Current rules will be repealed. A new corporation tax provision will cover unassessed transfer pricing profits, expected to be a simpler system

Late filing penalties

Late filing penalties for corporation tax returns are to be doubled for returns for which the filing date is on or after 1 April 2026 as follows.

Corporation tax returns
Penalty	Current rate	New Rate
Return late	£100	£200
Return is more than 3 months late	£200	£400
Three successive failures, return late	£500	£1,000
Three successive failures, return is more than 3 months late	£1,000	£2,000

Tax advisor registration requirements

To improve standards in tax advice, the Government will require tax advisors who deal with HMRC on behalf of clients to register with HMRC and meet minimum standards.

This follows an October 2024 consultation with registration from May 2026. Further details are expected to be communicated in advance.

Corporate interest restriction – reporting company

Legislation will be introduced to remove the time limit to appoint a reporting company and the requirement for the appointment to be made ‘by notice’ to HMRC. Instead, businesses will be responsible for ensuring the reporting company has been appointed for each period, with details of the appointment disclosed in the annual interest restriction return.

KPMG insights – our view

The Chancellor was keen throughout her speech to reference the goal of making the tax system fairer and ensuring that everyone contributes and pays their fair share.

While in the early run up to the Budget it felt like nothing was off the table, the 2024 Corporate Tax Roadmap had previously reaffirmed the Government’s commitment to preserving the core features of the UK corporation tax system, including a competitive 25% main rate, the generous full expensing provision for plant and machinery, and a flexible competitive regime for intangible assets.

As a result, the Government was not expected to announce any significant changes to the corporation tax system and indeed the majority of documents released following the Chancellor’s speech make reference to the implementation of matters announced through previous consultations.

International tax continues to be a hot topic with a focus to simplify transfer pricing regulations where there is no risk of tax loss (such as UK – UK transactions) while expanding international tax reporting requirements with the aim of using such information collected for automated risk profiling by compliance teams prior to the opening of enquiries.

Overall, the Chancellor is not raising corporation tax rates and has chosen to focus on investment incentives, regional growth and fairness while modernising the tax system to prevent avoidance and support innovation, citing the Government’s overall object to help firms innovate, expand and thrive in a fairer, more competitive economy.

Many businesses will feel the impact of other tax measures announced, such as increases to the national living wage, but they will welcome the certainty on corporation tax rates as well as enhanced allowances and reliefs to drive growth.

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Marie Farrell

Partner

KPMG in Ireland

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Roger Campbell

Director

KPMG in Ireland

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Employment taxes

Key measures

Income tax and National Insurance threshold freeze

The current freeze on income tax and employer national insurance thresholds will be extended for a further three years from 2028, with the result that, as salaries rise over time, the continued fiscal drag means more people will reach the threshold at which they have to start paying higher taxes.

National Living Wage and National Minimum Wage

From April 2026 the National Living Wage will increase by 4.1%, to £12.71 per hour, for employees aged 21 and over. This represents an annual pay rise of almost £1,000 for a full-time worker on the minimum wage. For employees aged 18-20 years old, the National Minimum Wage will increase to £10.85 per hour and for 16–17-year-olds and apprentices, it will increase to £8 per hour.

Enterprise Management Incentive (EMI) scheme

The Government confirmed today that the company eligibility limits for the EMI scheme will be increased. This measure will enable larger companies, and companies which are growing, to incentivise and reward their employees by way of tax-advantaged EMI schemes. The limits will be increased as follows:

Company options will be increased from £3 million to £6 million
Gross assets will be increased from £30 million to £120 million
The number of employees will be increased from 250 employees to 500 employees

These changes will apply to EMI contracts granted on or after 6 April 2026 and will also apply retrospectively to existing EMI contracts which have not yet expired or been exercised.

The limit on the exercise period will also be increased from 10 years to 15 years.

Employee Ownership Trusts

Effective immediately, today’s Budget announced that capital gains tax relief on disposals to employee ownership trusts will be reduced from 100% to 50%. When the CGT relief on disposals to Employee Ownership Trusts was first introduced, it offered business owners the opportunity to transition control of their company to employees in a tax-efficient manner, effectively eliminating any immediate capital gains tax liability.

Today’s decision by the Chancellor to reduce that relief to 50% represents a major recalibration of Employer Ownership Trust's attractiveness—especially for business owners whose proceeds depend on earnings generated by the business in the future.

Umbrella companies

As expected, the Government will introduce legislation in the 2025-26 Finance Bill to make recruitment agencies jointly and severally liable for accounting for PAYE on payments made to workers that are supplied using umbrella companies. If there is no agency involved in the supply of the umbrella company worker, this responsibility will fall to the end client business. This change will take effect from April 2026.

Removal of tax relief on non-reimbursed homeworking expenses

The Government has removed the income tax deduction for non-reimbursed home working expenses. This measure will not impact the ability for employers to reimburse employees for eligible costs relating to homeworking without deducting income tax and NI contributions, it relates only to non-reimbursed costs. This change will take effect from 6 April 2026.

Aligning PAYE notifications with the Overseas Workday Relief limit

Employers can currently notify HMRC that they are claiming in-year overseas workday relief via the payroll for employees who are qualifying new residents. From April 2026, employers will be required to limit the in-year relief provided to these employees, to no more than 30% of their employment income.

Expanding workplace benefits relief

The income tax and national insurance exemption for employers providing eye tests, home working equipment and flu vaccination benefits currently only applies when an employer provides these benefits directly. This relief will now be extended to cover reimbursements by employers for these benefits. This change will take effect from 6 April 2026.

KPMG insights – our view

The employment tax measures announced in today's Budget deliver a mixed outcome for UK businesses and their workforce.

The increase in EMI thresholds is a welcome development, significantly expanding access to tax-advantaged share option schemes for growing and larger companies. This measure strengthens the ability of employers to attract and retain talent through equity participation.

However, other changes announced today present notable challenges. Proposals such as the cap on salary-sacrifice pension contributions, the removal of tax relief on non-reimbursed homeworking expenses, and the tightening of PAYE rules for overseas workday relief will increase administrative complexity and reduce flexibility for employers.

Meanwhile, the rise in the National Living Wage and corresponding increases in the National Minimum Wage, while positive for low-paid workers struggling to keep pace with the cost of living, may be eroded by the continued income tax and national insurance threshold freezes whilst adding significant cost pressures for businesses.

Combined, these measures risk reducing employees’ take-home pay and increasing employer costs, as well as reducing workers’ pension contributions and their ability to save for retirement. Against this backdrop, businesses will need to carefully assess the financial and operational impact of these changes to maintain competitiveness while meeting evolving compliance requirements.

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Eunan Ferguson

Director

KPMG in Ireland

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Emma McCrudden

Associate Director

KPMG in Ireland

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Indirect taxes

Key measures

New Excise Duty for electric cars

This new duty is aimed at having a ‘fairer system for all drivers’ by ensuring that EV drivers will be contributing to the upkeep of the road network. This new duty will be payable each year alongside vehicle excise duty at 3p per mile for electric cars and 1.5p for plug-in hybrids. These changes will take effect from 1 April 2028.

Gambling Taxes increased

Changes have been announced to remote gambling duty, which is being raised from 21% to 40% from 1 April 2026. A new remote betting rate of 25% will be introduced from 1 April 2027 within the General Betting Duty, with remote bets on horse racing being excluded from these changes. No changes have been made to in-person gambling and bingo duty is also being abolished from April 2026.

Consultation on customs treatment of low value imports

The Government has announced a consultation on low value imports – goods with a value of £135 or less being imported into the UK. Currently, customs duty relief applies to these imports. This relief will be removed by March 2029 at the latest, and the consultation covers the design of new arrangements.

E-invoicing – to be introduced in 2029

Following the consultation on electronic invoicing which concluded in May 2025, the Government plans to introduce mandatory e-invoicing for businesses from April 2029. Throughout 2026, HMRC policy teams will work closely with stakeholders, including businesses, representative bodies, software providers, and internal teams, to co-create the policy and delivery approach. It is expected that a detailed roadmap will be published next year.

Changes to cross-border VAT grouping

HMRC have updated their position on the UK VAT treatment of intra-entity services involving UK VAT group members which have establishments located in an EU member state. This changes HMRC’s position following the ECJ decision in the Skandia case, as previously established in 2015. Previously, businesses with branches or head offices in countries that applied Skandia were required to treat certain intra-entity supplies as taxable for VAT purposes.

From 26 November 2025, HMRC now considers that an overseas establishment of a business VAT grouped in the UK should be treated as part of that VAT group, even when located in an EU member state that does not operate whole entity VAT grouping. Some VAT groups may have accounted for VAT in line with the previous guidance and may now be eligible to reclaim overpaid VAT through the error correction procedure.

Motability – VAT on top-up payments

VAT is being introduced at the standard rate to top-up payments on leases of motor vehicles through Motability or equivalent schemes. Insurance Premium Tax at the standard rate (12%) on insurance related to vehicle leases is also being introduced. Both of these changes will take effect from 1 July 2026.

Tour Operators’ Margin scheme

Following a number of court cases in recent years in relation to supplies by private hire vehicles or taxi operators, the Government has announced that it will introduce legislation to exclude suppliers of private hire and taxi journeys from the VAT Tour Operators’ Margin scheme. As such, taxpayers affected will have to increase VAT charges on their services. This is aimed at bringing certainty to this area.

KPMG insights – our view

On the indirect taxes front this was a budget of small changes, and there were many of them, but some will have a significant impact for businesses.

Buried in the documents was the announcement on e-invoicing. Next year will see a roadmap published, and there is a commitment to engage with stakeholders, but introducing e-invoicing for all VAT invoices by 2029 is a huge change. This announcement came sooner than had been expected following the consultation earlier in the year.

This change will have a significant impact for all businesses trading in the UK and will require software changes to ensure all invoicing is delivered (both sent and received) in the necessary electronic format in just over three years’ time.

In addition, the VAT grouping changes announced, which had not been predicted, could have a significant impact on certain sectors, such as the financial services sector, in many cases resulting in an improved VAT recovery position.

Also, due to the operation of the Windsor Framework, the removal of the threshold for low value imports will be an area of particular interest for local businesses, given the changes at EU level in this area.

As the dust settles on the Budget, the focus on small changes means another Budget has passed without a simplification of VAT. In the run up to this Budget, one of the main calls on the Chancellor was to simplify VAT, a tax which has grown more and more complex as additional rules and exceptions have been introduced over the years. For now, this call for simplification has been ignored, which many may see as a missed opportunity.

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David Reaney

Partner, Indirect Tax – VAT & Customs

KPMG in Ireland

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Jennifer Upton

Director

KPMG in Ireland

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Tax incentives

Key measures

New 40% first year allowance

Taking effect from 1 January 2026, a new 40% first year allowance has been announced in respect of assets that are currently outside the scope of full expensing, including assets purchased by unincorporated businesses and assets acquired with the intention of being leased.

Reduction in writing down allowance in main rate capital allowances pool

A reduction in the writing down allowance rate for the main rate capital allowance pool from 18% to 14%, taking effect from 1 April 2026 for Corporation Tax and 6 April 2026 for income tax.

Research and Development

No significant changes to the Research & Development scheme, however measures to refine the advance clearance process are being considered from Spring 2026.

KPMG insights – our view

Capital Allowances

New 40% first year allowance on assets previously excluded from full expensing

This measure extends the scope of first year allowances and aims to encourage investment by businesses in plant and machinery that has previously been excluded from full expensing.

Many small businesses will be unaffected as the £1 million Annual Investment Allowance already allows full relief when the expenditure is incurred. Where unincorporated businesses or leasing companies incur expenditure above this amount, they should see a benefit from the new relief.

The changes will be particularly welcomed by companies in the leasing sector. Under the existing full expensing relief, the ability to claim 100% first year allowances on leased assets is very limited.

Going forward, the new allowance will ensure that all assets intended to be leased within the UK should be entitled to avail of first year allowances to some extent. It should be noted that the new allowance does not provide accelerated relief for assets leased overseas.

Reduction in the writing down allowance rate in the main rate capital allowances pool

Apart from those assets that are now covered by the 40% first year allowance, since Covid there have been generous capital allowances available on plant and machinery.

The reduction in the writing down allowance is therefore only expected to affect businesses with historic expenditure on plant and machinery on which upfront reliefs weren’t available (e.g. cars or second hand assets) or where first year allowances were not claimed.

In addition, the reduction in writing down allowance will affect businesses with future expenditure in excess of £1 million per annum that is not fully covered by the available first year allowances.

Research and Development

After significant changes in recent years to the research and development schemes in terms of administrative changes, changes to the rates of relief and wholesale changes to the schemes, the schemes have been relatively untouched in the Budget, offering some welcome stability to the scheme.

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