TAX PLANNING

Autumn Budget 2025: What SME Directors Need to Know About the New 'Wealth & Asset' Rules

A comprehensive breakdown of the structural shifts in Dividend Tax, BADR, and IHT that redefine your profit extraction and exit strategies.

⊛ 4 min read | By Brent Morrison | November 2025

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Based on our analysis of the Autumn Budget 2025 documents released today (26 November 2025), we are seeing a structural shift in how income from assets is taxed compared to income from work. This is effectively the “Wealth & Asset” Budget.

While headline rates for Income Tax and VAT remain frozen, the Chancellor has targeted dividends, property income, and business assets to raise revenue. For SME directors and family business owners, the “do nothing” approach is no longer viable.

Executive Summary: Top 3 Impacts

1. Dividend Tax Hike: A 2% increase across the basic and the higher rate bands from April 2026 effectively squeezes the traditional “low salary / high dividend” extraction strategy.

2. Property Tax Shock: The introduction of separate, higher tax rates for property income (22%/42%/47%) from April 2027, decoupling it from standard income bands.

3. BADR & IHT Tightening: Business Asset Disposal Relief (BADR) rate rises to 18% from April 2026, and 100% IHT relief on business assets is now capped at £1m.

1. Corporation Tax (CT) & Business Taxation

While the main rate remains at 25%, capital allowance incentives are being restructured. The reduction in Writing Down Allowances makes the timing of asset purchases crucial.

Strategic Analysis: Upcoming Budgetary Changes

The Compliance & Relief Shift: The new budget rules present a mixed landscape for asset management. While the reduction in Writing Down Allowances to 14% slows relief, the introduction of a 40% First Year Allowance (FYA) specifically expands relief for leasing, offering a strategic pivot point for capital expenditure planning. Note the doubled penalties, signaling a stricter compliance environment.

Measure New Rule & Date Strategic Impact
Writing Down Allowances (Main Pool) Reduced from 18% to 14%
Effective: 1 April 2026		 Negative: Slower relief on assets.
First Year Allowance (FYA) New 40% FYA (inc. leasing)
Effective: 1 Jan 2026		 Positive: Expands relief to leased assets.
Late Filing Penalties Penalties Doubled
Effective: 1 April 2026		 Risk: Stricter compliance required.
Shadow ACT Abolished
Effective: 1 April 2026		 Neutral: Administrative simplification.

Client Action: Review planned capital expenditure timelines. The reduction in Writing Down Allowances (WDA) makes timing crucial for assets that do not qualify for full expensing.

2. Income Tax (Personal)

Strategic Analysis: Personal Tax & Asset Reforms

The Decoupling of Income Streams: The Budget explicitly separates "earned income" from "passive income" taxation. While the freezing of thresholds extends fiscal drag on standard earnings, the rising specific rates on dividends, property, and savings signal a targeted approach to asset-based wealth. Note the removal of Homeworking Relief, which tightens deductions for employees.

Measure New Budget Rule Effective Date
Thresholds Frozen until April 2031 Immediate
Property Income Separate Rates: 22% / 42% / 47% 6 April 2027
Dividends Increased by 2% to 10.75% / 35.75% / AR remains at 39.35% 6 April 2026
Savings Income Increased by 2% to 22% / 42% / 47% 6 April 2027
Homeworking Relief Relief Removed 6 April 2026

How does this affect my extraction strategy?

SME Directors should review their dividend strategy before April 2026. The window to extract profits at 8.75%/33.75% is closing. Additionally, the removal of Homeworking relief and the rise in tax on savings interest (Savings Income) creates a compounding cost for personal wealth.

3. Capital Gains Tax (CGT)

Rates are aligning closer to income tax, specifically reducing the benefit of business reliefs. This is arguably the most significant change for business owners planning an exit.

  • Business Asset Disposal Relief (BADR): Rate increases from 14% to 18% on 6 April 2026.
  • Investors’ Relief: Rate increases from 14% to 18% on 6 April 2026.
  • Employee Ownership Trusts (EOTs): Relief is restricted from 100% to 50% immediately (26 Nov 2025).
  • Share Exchanges: Modernised anti-avoidance rules effective immediately (26 Nov 2025).

Client Action: Any planned business sales targeted for the next 4 months should ideally complete before April 2026 to lock in the 14% BADR rate. EOT sales are impacted immediately.

4. National Insurance (NICs)

Strategic Analysis: Employment & Pension Shifts

The Future of Benefits: While headline rates remain stable in the short term, the freeze on Employer Thresholds creates an immediate "fiscal drag" effect. The most significant strategic signal is the future cap on Salary Sacrifice (2029), which will fundamentally alter the viability of aggressive pension planning strategies for high earners.

Measure New Budget Rule Effective Date
Salary Sacrifice Capped at £2,000 contribution p.a. 6 April 2029
Employer Threshold Frozen until April 2031 Immediate
Employment Allowance Maintained at £10,500 N/A
Voluntary Class 2 Abolished for overseas contributors (Must pay Class 3) 6 April 2026

 What action should I take?

The 2029 Salary Sacrifice cap gives a 4-year window. Directors using max salary sacrifice for pensions should maximize contributions in the intervening years before the £2,000 cap restricts this relief. For expats, the abolition of Voluntary Class 2 means a higher cost to maintain the state pension.

5. Inheritance Tax (IHT)

This represents a paradigm shift for family businesses. The “Pension as IHT shelter” strategy is effectively ending.

  • Business Property Relief (BPR/APR): 100% relief is now capped at £1m. Value in excess of £1m receives 50% relief (Effective 6 April 2026).
  • Pensions: Unspent pension pots are brought into IHT scope (Effective 6 April 2027).
  • Thresholds: Nil Rate Band frozen until April 2031 (Immediate effect).

Client Action: Every family business client valued over £1m needs an immediate IHT review. The “Pension as IHT shelter” strategy is effectively ending in 2027.

6. VAT & Indirect Taxes

Strategic Analysis: Targeted Sector & Trade Adjustments

Sector-Specific Tightening: The Budget introduces targeted measures that disrupt specific business models. Private Hire Vehicles face an immediate pricing crisis with the removal of TOMS eligibility (forcing VAT charges), while the removal of low-value import relief directly impacts the margins of dropshipping and e-commerce import businesses. Conversely, corporate social responsibility is incentivised via new Charity Relief.

Sector/Area New Budget Rule & Date Strategic Impact
Private Hire Vehicles Excluded from TOMS (Must charge VAT)
Effective: 2 Jan 2026		 Negative: 20% price hike/margin squeeze for taxi firms.
Low Value Imports Relief for goods <£135 Removed
Effective: March 2029		 Negative: Cost increase for dropshippers.
Charity Relief New Relief for donated goods
Effective: 1 April 2026		 Positive: Encourages corporate donations.

 7. Stamp Duty & Property Taxes

Finally, a new wealth tax on high-value residential property has been introduced.

High Value Council Tax Surcharge (HVCTS): A new surcharge on residential properties worth >£2m in England starts from 1 April 2028. This will result in an additional annual charge for owners (not just occupiers) of high-value homes.

Summary of Immediate “Action Alerts”

Based on the data above, here are the critical alerts for your business planning:

  • EOT Clients: Immediate review required for any Employee Ownership Trust transactions in progress, relief has been halved overnight.
  • Pre-April 2026 Planning: You have a roughly 4-month window to execute BADR disposals at 14% and Dividend extraction at current rates.
  • Family Business Succession: The £1m cap on BPR fundamentally changes succession planning. “Do nothing” is no longer a viable strategy for businesses worth >£1m.

Common Questions About the Autumn Budget 2025

When do the new Dividend Tax rates start?
The 2% increase across basic and higher rate dividend bands takes effect on 6 April 2026. This provides a roughly 4-month window to review your profit extraction strategy and potentially declare dividends at the current lower rates (8.75% basic / 33.75% higher) before the hike.
I am planning to sell my business. How does this affect me?
The rate for Business Asset Disposal Relief (BADR) is increasing from 14% to 18% on 6 April 2026. If you are planning an exit, completing the transaction before this date could save you 4% in Capital Gains Tax.
What is the new £1m cap on Business Property Relief?
From April 2026, you will only receive 100% Inheritance Tax relief on the first £1m of qualifying business assets. Any value above £1m will only receive 50% relief, meaning larger family businesses will now face a significant IHT liability upon succession.
Are pensions still tax-free for inheritance?
No. From 6 April 2027, unspent pension pots will be brought into the scope of Inheritance Tax. This effectively ends the strategy of using pensions as a tax-free vehicle to pass wealth to the next generation.
What changes are happening to Employee Ownership Trusts (EOTs)?
Effective immediately (26 Nov 2025), the Capital Gains Tax relief on sales to an EOT is restricted to 50% of the gain, rather than the previous 100%. If you are currently in the process of an EOT transaction, you need to review your tax position immediately.

Is Your Current Exit Strategy Now Outdated?

The 2025 Budget has fundamentally shifted the timeline for profit extraction and business exits. The “wait and see” approach could now cost you an additional 4% in tax.

  • ✓ Beat the Dividend Hike with Pre-April 2026 Extraction Planning
  • ✓ Secure 14% BADR with Accelerated Disposal Strategies
  • ✓ Protect Family Wealth with Updated IHT & Trust Structures

You have a roughly 4-month window to execute these changes. We can help you model the impact today.

Don't Let Fiscal Drag Catch You Off Guard

The window for efficient planning is closing. With changes to BADR and Dividends arriving in 2026, acting now is critical to protect your business’s value.

Get a clear picture of your exposure with our rapid assessment.

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Brent Morrison. Strategic accountancy partner at OutRise

ABOUT THE AUTHOR

Brent Morrison ACA CTA

Chartered Accountant and Chartered Tax Adviser

Member of the Institute of Chartered Accountants (ICAEW) and Taxation (CIOT) | Director at OutRise | He has over 12 years of experience advising high and fast growth companies across the UK. His approach combines a deep understanding of structuring data and systems, coupled with practical, real-world business experiences.

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