Mansion Tax (The High Value Council Tax Surcharge)
Rumours of a general wealth tax proved to be very wide of the mark, but a “mansion tax” of sorts will be introduced from 1 April 2028 in the form of the High Value Council Tax Surcharge on residential property.
This will apply to properties worth £2 million or more and will be on a sliding scale:
| Value | Annual HVCTS |
| £2m or more but less than £2.5m | £2,500 |
| £2.5m or more but less than £3.5m | £3,500 |
| £3.5m or more but less than £5m | £5,000 |
| £5m or more | £7,500 |
It is likely that affected properties will be identified by revaluing all properties currently in Council Tax bands F, G and H. The HVCTS will be collected by Local Authorities in addition to the usual Council Tax charge but will be passed on to central government.
Income Tax and National Insurance
Increased tax rates on dividends, property income and savings income
Although the government did not proceed with its widely leaked proposal to increase income tax rates by 2p in the pound across the board, it did not abandon the idea altogether; it has instead targeted the increase at savers, investors and landlords.
From 6 April 2026, dividend tax rates will increase as follows:
| Current rate | Rate from 6 April 2026 | |
| Dividend ordinary rate | 8.75% | 10.75% |
| Dividend higher rate | 33.75% | 35.75% |
| Dividend additional rate | 39.35% | 39.35% (no change) |
From 6 April 2027, income tax rates on property and savings income will increase as follows:
| Current rate | Rate from 6 April 2027 | |
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
Income tax thresholds frozen again
In the 2024 Budget, the Chancellor announced that she would not extend the freeze on income tax thresholds (which had already been frozen until 2028 by the previous government). We made the comment then that she had plenty of time before 2028 to change her mind and she has done so sooner rather than later, extending the freeze to 5 April 2031. This is single biggest revenue raiser in this year’s Budget.
| Threshold | |
| Basic rate | to £37,700* |
| Higher rate | to £124,140 |
| Additional rate | over £125,140 |
*Plus personal allowance of £12,570 if available (reduced by £1 for every £2 of income over £100,000)
National Insurance Contributions
Last year’s Budget hiked the rate of employer NICs to 15% and substantially lowered the threshold at which NICs are levied. There are no changes to NIC rates this year (and both employer and employee NIC thresholds are also being frozen until April 2031).
However, employer and employee NICs will be affected by a new cap on employee pension contributions using salary sacrifice arrangements. At present, any salary sacrificed into a pension scheme is free of both employer and employee NICs. From 6 April 2029, this will be capped at £2,000 per annum, with any amount contributed over that amount being subject to employer and employee NICs in the usual way.
The government was actively considering a proposal to charge employer NICs on the profits of limited liability partnerships but that did not proceed.
Inheritance Tax
Lifetime gifts
There were widespread rumours ahead of the Budget that the government was considering ways to restrict IHT planning using lifetime gifts, including:
- imposing an overall cap on lifetime gifts (with gifts in excess of the cap attracting an immediate charge to IHT);
- extending the 7 year potentially exempt transfer period to 10 or more years; and
- abolishing the current rules altogether and charging IHT on all lifetime gifts.
In the event, no changes have been made.
Agricultural Property Relief (APR) and Business Property Relief (BPR)
Last year’s Budget introduced sweeping changes to the APR and BPR regimes by imposing a £1 million cap on the availability of 100% IHT relief (with any excess value above the cap being restricted to 50% relief only). This cap will apply with effect from 6 April 2026 (although lifetime gifts made on or after 30 October 2024 will be affected if the donor dies on or after 6 April 2026 but within seven years of making the gift).
An anomaly of the new rules as originally drafted was that, unlike the IHT nil rate band and residence nil rate band, any unused portion of this £1m allowance would not be transferable to a surviving spouse or civil partner. This appeared to be the result of an oversight, although when representations were made to the government to correct this, the initial response was that this was intentional and would not be changed.
Happily, the government has now relented and the £1m allowance will now be transferable to a surviving spouse or civil partner once the new regime takes effect on 6 April 2026.
Pension Funds
It was announced in last year’s Budget that from 6 April 2027, unused funds held within a registered pension scheme will be treated as being part of the member’s estate and will generally be charged to inheritance tax on the member’s death (subject to the spouse exemption if the unused funds pass to the surviving spouse or civil partner on death).
The full details of this measure were set out in a consultation document published after last year’s Budget. It was proposed that the liability both for reporting the IHT due on the pension fund or death benefit and for paying the resulting tax charge would fall on the personal representatives of the deceased’s estate (i.e. executors or administrators) rather than the trustees or administrators of the pension scheme, even though the assets in the pension scheme do not actually form part of the estate and are not therefore under the control of the deceased’s personal representatives.
Thankfully, the government has now realised the obvious flaws with this approach and although it will still fall to the deceased’s personal representatives to do the IHT reporting, they will have the power to require the pension scheme administrators to withhold up to 50% of the pension funds and to pay the IHT due on the funds directly to HMRC.
IHT nil rate bands
The freeze on the current IHT nil rate band of £325,000 (which has been at that level since 6 April 2009) was extended to 5 April 2030 in last year’s Budget and has been extended again to 5 April 2031.
The residence nil rate band of £175,000 will also be frozen until 5 April 2031.
Capital Gains Tax
CGT rates
In contrast to last year’s Budget, there have been no changes to CGT rates, so the standard rate of CGT remains at 18% and the higher rate remains at 24%. Carried interest will continue to be taxed at 28%.
CGT annual exempt amount
The CGT annual exempt amount was pared back to £3,000 for individuals (and £1,500 for trusts) on 6 April 2024 and has remained at that level since then. Unsurprising, this is also being frozen until 5 April 2031.
CGT incorporation relief
Roll-over relief is available where an unincorporated business is transferred as a going concern to a company in exchange for shares in the company. At present, this relief applies automatically (unless the taxpayer elects otherwise). From 6 April 2026, a formal claim will have to be made to HMRC for the relief to apply.
CGT reorganisation and share-for-share exchange relief
In broad terms, CGT relief applies where a company’s share capital is reorganised, or where shares in one company are issued to a person in exchange for shares in another company; for CGT purposes, there is no disposal of the original shareholding instead the original shares and the new shares are treated as though they were the same asset, acquired at the same time as the original shares.
Prior to the Budget, there was an anti-avoidance rule which disapplied the relief unless reorganisation or exchange was made for bona fide commercial reasons and the avoidance of CGT or corporation tax was not one of the main purposes behind the transaction.
From 26 November 2025, this anti-avoidance rule has been amended. It is now engaged if “the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid liability to capital gains tax or corporation tax”. If the rule is engaged, CGT relief is not denied altogether but instead HMRC will impose a charge to counteract the tax that has been reduced or avoided.
Offshore matters
Technical amendments to the FIG regime, the Temporary Repatriation Regime and remittances
As a result of last year’s Budget, the remittance basis of income tax and CGT for UK resident non-domiciled individuals was replaced from 6 April 2025 by the new 4-year FIG regime for new UK tax residents (or former UK residents returning after being non-resident for at least 10 continuous years). Alongside this, the Temporary Repatriation Facility was introduced to give former remittance basis users a three year opportunity to remit previously untaxed funds to the UK at a reduced rate of tax (12% for the tax years 2025/26 and 2026/27, rising to 15% for the final tax year of 2027/28).
This year’s Budget has introduced 19 pages of draft legislation described as “minor technical amendments” to the new regime. Explanatory notes to accompany the draft legislation have been promised but have not yet been published. We will be reviewing these closely over the coming weeks and will produce a separate briefing note if any of the “minor” amendments have a significant impact.
Capping Inheritance Tax charges on former excluded property trusts
Last year’s Budget also abolished the IHT regime for non-domiciled individuals from 6 April 2025, replacing domicile with “long term UK residence” as the connecting factor to determine whether non-UK assets held by an individual or a trust are “excluded property” and therefore outside the scope of UK IHT.
One of the consequences of this change is that the non-UK assets of certain types of trust (which had previously been excluded property because the trust was settled by a non-domiciled individual) ceased to be excluded property became subject to the IHT “relevant property regime” of 10 years and exit charges from 6 April 2025 (but only if the settlor was alive and met the definition of “long term UK resident” on that date).
In a rather belated attempt to soften the impact of this, the government has introduced a £5 million cap on the amount of IHT charges under the relevant property regime in any 10 year period between 10 year anniversaries of affected trusts (with the cap being pro-rated for the period between 6 April 2025 and the first 10 year anniversary of the trust which falls after that date).
Given that the maximum rate of tax under the relevant property regime is 6% every 10 years, this cap will only benefit former excluded property trusts with taxable assets in excess of c£83.3 million. This concession will therefore have very limited impact.
Related to this, the government has also amended a rule which prevents an IHT exit charge from applying where trust assets cease to be relevant property because they are taken outside the UK and the excluded property rules apply to the trust. If the settlor ceases to be a long term UK resident and assets are then taken outside the UK so that they become excluded property going forward, an IHT exit charge will be triggered at that point.
To print a PDF copy of this summary, click here: https://www.phb.co.uk/wp-content/uploads/2025/11/AUTUMN-BUDGET-2025-PRIVATE-CLIENT-HIGHLIGHTS.pdf
