On 26 November 2025, the UK’s Chancellor of the Exchequer, Rachel Reeves, delivered her second Budget. 

Having announced the largest package of tax rises in decades at last year’s Budget, the Chancellor promised that this had been a “once in a parliament” event and that she would not “be coming back with more tax increases”. However, it has been apparent for some time that further tax rises at this year’s Budget were inevitable, with the Chancellor delivering a speech earlier this month in which she laid the groundwork for a tax-raising Budget, highlighting global economic turbulence and emphasising that “each of us must do our bit” to restore economic stability.

Yesterday, the Chancellor confirmed that she would be asking “everyone to make a contribution”, announcing a number of tax-raising measures affecting individuals, including a further three-year freeze to income tax and National Insurance thresholds, a 2% increase to dividend, savings and property income tax rates, and the introduction of a Council Tax surcharge on homes worth over £2m. However, contrary to recent media speculation, increases to the main income tax rates, exit or wealth taxes, changes to the taxation of LLPs, changes to the inheritance tax rules on lifetime giving or restrictions to the capital gains tax relief on main residences did not materialise.

We comment below on the key announcements of relevance for private clients.

Income tax

Rates

The Labour Party’s 2024 election manifesto pledged not to increase “the basic, higher or additional rates of income tax”. However, there had been rumours in recent weeks that the Chancellor was preparing to abandon this commitment, swiftly followed by reports of a U-turn after official forecasts suggested that the shortfall in the country’s finances might be lower than previously anticipated.

Yesterday’s Budget left the main rates of income tax unchanged, meaning that rates for the 2026/27 tax year will remain at 20% (basic rate), 40% (higher rate) and 45% (additional rate). 

However, a 2% rate increase is to be introduced in respect of dividend, property and savings income, reflecting “the fact that income from those sources faces no equivalent of National Insurance that employees pay”. This increase will take effect from 6 April 2027 in respect of property and savings income (meaning that the top rate for such income will rise to 47%). The increase in dividend rates will come into force on 6 April 2026; however, although the basic and higher dividend rates are set to increase by 2%, the additional rate for dividends will remain unchanged at 39.35%. 

Thresholds

In the 2022 Autumn Statement, the then-Chancellor, Jeremy Hunt, announced the freezing of certain income tax thresholds and allowances, with such measures to remain in place until April 2028. At the 2024 Budget, the Chancellor decided against extending these freezes beyond 2028, stating that such a measure “would hurt working people”. However, whilst acknowledging that this decision would affect working people, the Chancellor announced yesterday that income tax thresholds would be frozen for a further three years until April 2031 as a way of raising significant extra tax revenue.

Dividend tax credit for non-UK residents

Non-UK residents are currently able to claim a tax credit in respect of their UK dividend income; however, this will be abolished from 6 April 2026, bringing the position of non-UK residents in line with UK residents (whose entitlement to a dividend tax credit was abolished in April 2016).

National Insurance

After signs in recent weeks that the Government was preparing to break their Party’s manifesto pledge not to increase headline tax rates, including National Insurance, the Chancellor confirmed in the Budget that she would instead be freezing current National Insurance thresholds (which, for the most part, align with income tax thresholds) for the next three years, until April 2031. This move follows increases to employers’ class 1 National Insurance rates to 15% from 6 April 2025 (announced at last year’s Budget) and echoes steps taken by previous Conservative administrations, side-stepping tweaking the headline tax rates themselves but still increasing overall tax take, as the thresholds are unlikely to keep pace with inflation. 

Notably absent from the Budget were any changes to the tax treatment of limited liability partnerships, including levying an employer’s National Insurance-style contribution on such arrangements, which had been trailed pre-Budget.

Additionally, the Chancellor announced that the amount that is exempt from National Insurance contributions (NICs) when employees contribute to pension schemes via salary sacrifice will be capped at £2,000 a year per employee from April 2029. Employee pension contributions above this cap will be treated as ordinary pension contributions and therefore be subject to both employee and employer NICs. However, there is still some time to plan in preparation for this change.

Property taxes

Another area of much speculation pre-Budget related to property taxes, with rumours ranging from a complete abolition of stamp duty land tax (SDLT) to the introduction of a “mansion tax”. Whilst conjecture on SDLT reforms proved to be unfounded (including a conspicuous absence of any mention of the Government’s manifesto commitment to increase SDLT on purchases of residential property by non-UK residents by 1%), the Chancellor has introduced a High Value Council Tax Surcharge (HVCTS). The HVCTS will apply to homes worth over £2m, with effect from April 2028 (although initially based on 2026 values). Properties worth £2m or above will be placed into bands based on their value, with the surcharge starting at £2,500 per annum, rising to £7,500 per year for properties worth £5m or more (and with the surcharge increasing in line with the CPI each year). The HVCTS will be collected alongside existing Council Tax liabilities and liability will fall on property owners rather than occupiers. Property revaluations will be conducted every five years.

The guidance published alongside the Budget announcements refers to a need to “improve fairness within England’s property tax system”, citing that “the average B and D family home pays more in Council Tax than a £10 million property in Westminster”. The Government will consult on details relating to the HVCTS, including reliefs and exemptions, in early 2026, so the full extent of the reforms remains to be seen. Nothing specific has been said yet on how the HVCTS will apply to homeowners with more than one property exceeding the relevant threshold, but any targeted relief for people in this situation seems unlikely. 

Capital gains tax

Rates

In the 2024 Budget, the Government announced an increase to capital gains tax rates, with disposals now taxed at 18% (standard rate) or 24% (higher rate). Although there had been some speculation that further increases might be announced in yesterday’s Budget, this did not materialise.

Reliefs

The 100% relief that was previously available on qualifying disposals of shares to the trustees of an Employee Ownership Trust (EOT) will be reduced to 50%, effective from Budget Day (i.e. 26 November 2025). As a result, half of the gain realised on qualifying disposals of shares to EOTs that were previously not subject to capital gains tax, will now be subject to capital gains tax at a rate of 24% for higher rate taxpayers or 18% for basic rate taxpayers. EOTs are a Government initiative aimed at promoting employee ownership of businesses; however, this measure may reduce their popularity.

In addition, the rate of capital gains tax where Business Asset Disposal Relief (which reduces the capital gains tax rate on disposals of certain business assets) or Investors’ Relief (a similar relief applying to unlisted shares in an unquoted trading company) applies will increase from 14% to 18% with effect from 6 April 2026.

Inheritance tax

Significant changes to the UK’s inheritance tax regime were announced in last year’s Budget, including reforms to Business Property Relief (BPR) and Agricultural Property Relief (APR) (which, in their current form, provide up to 100% relief from inheritance tax in respect of trading assets and agricultural property but which, from 6 April 2026, will be limited so that 100% relief is capped at £1m of qualifying assets with a reduced rate of 20% inheritance tax applying to value above that threshold) and the introduction of inheritance tax on unused pension pots on death.

There had been recent speculation of further reforms, in particular the possibility of changes to the current inheritance tax rules on lifetime giving. However, these did not materialise in yesterday’s Budget.

The Chancellor did, however, freeze the inheritance tax nil rate band (currently £325,000), the residence nil rate band (currently £175,000) and the forthcoming allowance for the 100% rate of APR and BPR (£1m from 6 April 2026, the date of introduction of the reforms to APR and BPR) until April 2031. The nil rate band and residence nil rate band thresholds had already been frozen until April 2030, so this represents a one-year extension.

In a piece of welcome news, it was also announced that the forthcoming £1m allowance for the 100% rate of APR and BPR will be transferable between spouses and civil partners. The Government had previously stated that it had no plans to permit the allowance to be transferred between spouses and civil partners, despite much lobbying from professional bodies on this aspect of the proposals and the fact that it would have been at odds with the position for an individual’s nil rate band (the unused portion of which can be transferred to the individual’s surviving spouse or civil partner), commenting in its response to the technical consultation on the reforms that allowing this “would carry an Exchequer cost”. This change of approach therefore represents an unexpected improvement on the position.

Non-dom reforms

Technical amendments to the April 2025 reforms

With effect from 6 April 2025, the UK’s “non-dom” regime was abolished and replaced by a new four-year residence-based foreign income and gains (FIG) regime. Further details on these reforms can be found on our non-dom hub. 

In the months leading up to and following the implementation of these reforms, advisers and professional bodies had been engaging with the Government to highlight various technical issues in the relevant legislation and, at “Legislation Day” in July 2025, the Government confirmed that it intended to make a number of “technical fixes” to the FIG regime to ensure that it “works as intended”. 

Yesterday, draft legislation was published, setting out a series of technical amendments which will largely have retrospective effect from 6 April 2025. There will be considerable further scrutiny of these amendments to ensure that they do deal with the previously identified issues. 

Excluded property trusts

Before 6 April 2025, non-UK trust assets could fall outside the scope of UK inheritance tax (classed as “excluded property”) indefinitely, provided that the settlor of the trust was non-UK domiciled (and not “deemed domiciled” in the UK by virtue of being UK resident for at least 15 out of the previous 20 tax years) at the date on which the assets became comprised in the trust. 

However, since 6 April 2025, domicile is no longer a relevant factor for inheritance tax purposes and has been replaced by the concept of long-term residence, with an individual becoming a long-term resident once they have been UK tax resident for 10 years out of the last 20 years, and continuing to be classed as a long-term resident for a certain period (between three and 10 years) following their departure from the UK. 

The inheritance tax status of trust assets now depends on the settlor’s long-term residence position at the date of the relevant tax charge, meaning that non-UK trust assets can move in and out of the scope of inheritance tax by reference to the settlor’s inheritance tax status. As a result of these changes, many trust assets which were previously classed as “excluded property” and so outside the scope of inheritance tax under the pre-6 April 2025 rules now fall within the inheritance tax “relevant property” regime. The relevant property regime imposes a tax charge at a maximum rate of 6% on each 10-year anniversary of the trust and a corresponding proportionate “exit” charge where assets cease to be comprised in the trust between 10-year anniversaries or where the assets cease to be “relevant property” as a result of the settlor ceasing to be within the scope of worldwide inheritance tax. 

In an attempt to mitigate the impact for affected non-UK domiciled individuals, certain transitional provisions were introduced for trusts which were established prior to 30 October 2024. Although these provisions protected non-UK trust assets from an inheritance tax charge on the settlor’s death, they did not provide any protection from inheritance tax charges under the relevant property regime, so the trusts are subject to 10-year charges and exit charges.

The Government announced yesterday that a cap of £5m will be introduced in respect of relevant property charges over each 10-year cycle of a trust, where the trust in question was an excluded property trust established before 30 October 2024. This move further limits the impact of the inheritance tax reforms on formerly non-UK domiciled individuals with historic trust structures (established relying on the more generous pre-6 April 2025 rules) and was presumably introduced due to concerns regarding a migratory response to the reforms. However, for the cap to be of any relevance, a trust structure would need to hold assets valued at over £83m, so it is likely that the impact of this measure will be limited.

Linked to this, the Government has also announced the introduction of a specific anti-avoidance rule relating to inheritance tax exit charges which arise when a settlor of a trust ceases to be a long-term UK resident. Before Budget Day, it would have been possible for the trustees of a non-UK trust to avoid such an exit charge by temporarily bringing trust assets to the UK before moving them offshore again after the settlor ceases to be a long-term resident. However, draft legislation has been published (taking effect from 26 November 2025) which prevent the trustees from avoiding exit charges in this manner.

Enhanced offer for high-talent new arrivals

The main Budget document includes a short paragraph, announcing that the Government intends to explore how to further develop its tax offer for high-talent new arrivals “to build on the success of the existing regime”. Views will be sought on this “in due course to inform the design and scope of any potential enhanced offer”. It remains to be seen what is envisaged by this, but many will be hopeful that it indicates a willingness by the Government to consider amendments to the FIG regime which encourage more internationally mobile individuals to consider a move to the UK.

Anti-avoidance measures

A number of measures described as targeting tax avoidance were announced.

Temporary non-residence rules and “post departure profits”

The “temporary non-residence rules” are designed to prevent individuals from becoming non-UK resident for a relatively brief period to reduce their UK tax exposure by imposing UK tax on certain income and gains when an individual returns to the UK. 

These rules currently do not apply to distributions or dividends received by an individual which relate to “post departure trade profits” (i.e. profits that accrue to a company after the individual left the UK). However, with effect from 6 April 2026, the exemption for “post departure trade profits” is to be removed from the temporary non-residence rules, meaning that all distributions or dividends received from a company controlled by the individual whilst temporarily non-UK resident will be charged to UK income tax upon the individual’s return to the UK.

Disposals of UK land by non-UK residents – application to PCCs

Non-UK residents are subject to UK tax in respect of gains realised on the disposal of interests in UK land and holdings in “property rich” entities (i.e. companies that derive at least 75% of their value from UK land, with the non-UK resident having a “substantial indirect interest” in that land). 

The Government has published draft legislation, to take effect from Budget Day (i.e. 26 November 2025), which amends the definition of a UK property rich entity in the context of protected cell companies (PCC, a type of company which is divided into distinct portions (cells), with the income, assets and liabilities of each cell kept separate from the other cells). 

From now on, when determining whether a company derives at least 75% of its value from UK land, each individual cell of a PCC is to be treated as a separate company so the value of the cell, rather than the PCC itself, will be used. This change means that the “property rich” test is more likely to be met where UK land is held through PCCs.

Capital gains tax - share exchanges and reorganisations

With effect from 26 November 2025, the capital gains tax anti-avoidance rules relating to share exchanges and company reconstructions will be amended so the tax relief will not be available for people who enter into arrangements where the main purpose, or one of the main purposes, of the arrangement is to reduce or avoid a liability to tax.

Inheritance tax – holding UK agricultural property through non-UK companies

Under existing rules, all UK residential property is subject to inheritance tax, even where it is held (by a non-long-term UK resident) indirectly through a non-UK entity. 

The Government has announced that, from 6 April 2026, these rules will be extended so that UK agricultural land will always fall within the scope of inheritance tax, even where it is held through a non-UK entity. This is a significant change and will affect non-UK structures holding UK agricultural property and estates. 

Importantly, there is no current suggestion that these rules will be extended further to cover UK commercial property (meaning that such property can still be sheltered from inheritance tax if it is held through a non-UK entity which is owned by an individual who is not a long-term resident for inheritance tax purposes).

Inheritance tax exit charges – changing situs of assets

As mentioned in the “non-dom reforms” section above, draft legislation has been published which is intended to prevent the trustees of a non-UK trust from manipulating situs rules to avoid inheritance tax exit charges in respect of the settlor ceasing to be a long-term resident.

Inheritance tax – charity exemptions

The inheritance tax exemption applying to gifts to charities will be limited to gifts made directly to UK charities. With effect from 26 November 2025 (in respect of lifetime gifts) or 6 April 2026 (in respect of charitable gifts made on death), gifts to trusts for charitable purposes (which do not meet a wider definition of charity, with certain jurisdiction, registration and management requirements) will not qualify for the exemption. However, it appears that this change does not affect the inheritance tax “relevant property” regime for trusts, meaning that the exemption from charges under this regime for trust property “held for charitable purposes only” (for example, a non-UK trust for English charitable purposes which is not registered with the Charity Commission) will still apply.

Personal tax offshore anti-avoidance legislation

At last year’s Budget, the Government published a “call for evidence”, seeking views on possible reforms to the UK’s offshore anti-avoidance legislation (including in particular the rules dealing with non-UK trust and corporate structures) in order to “modernise the rules and ensure they are fit for purpose”. Since then, it was confirmed at “Legislation Day” in July 2025 that, although the Government remains committed to reforming this area, any changes are not expected to take effect before 6 April 2027 at the earliest, and an update was promised at the 2025 Budget.

The update yesterday confirmed the Government’s commitment to “ambitious reform and substantial simplification” of personal tax offshore anti-avoidance legislation, and noted that a small group of representative bodies will be invited to collaborate with HMRC “in designing potential new policy and modernised legislation in this area of law”. However, the Government did not provide any indication as to timing on this.

Tax management and compliance

As has been seen before, the Chancellor intends to raise additional revenue (£2.3bn by 2029–30) through closing the tax gap (the difference between the tax due and tax paid). Measures to achieve this include launching a strengthened reward scheme for informants of high-value tax fraud (with immediate effect), steps to further close in on promoters of tax avoidance (with a consultation forthcoming in early 2026), and further investment in HMRC’s debt management capabilities (with greater digitalisation and better use of third-party information).

Additionally, the UK intends to participate in a new international exchange agreement aimed to tackle tax evasion by providing for the automatic exchange of readily available information on real estate from 2029/30 (no further details are given but this aligns more broadly with the UK’s ever-increasing focus on transparency over UK land ownership).