Autumn Budget 2025 and partial softening of IHT Reform
28th Jan 2026
After the announcements in the October 2024 Budget, the general populus was hoping for some positive news from the November 2025 Budget, but none more so than those in the agricultural industry. So, what were the main elements:
Income Tax
The freeze on tax bands has been extended to April 2031; the basic rate band remains at £37,700, the higher rate threshold at £50,270, and the additional rate threshold at £125,140. The personal allowance will also remain at £12,570 until April 2031, with no change to the tapering reduction where adjusted net income exceeds £100,000 (personal allowance is reduced by £1 for every £2 that income exceeds £100,000, such that personal allowance is removed completely, where adjusted net income exceeds £125,140). The extension to the freeze on the bands and personal allowance will mean more people will either be brought into tax or be paying tax at a higher rate than before.
From April 2026, the basic and higher tax rates for dividend income will increase by 2%; basic to 10.75% and higher to 35.75%. The additional rate will remain at 39.35%.
From April 2027, the tax rates for income from savings and from rental will increase by 2%; basic rate to 22%, higher rate to 42% and additional rate to 47%.
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA)
This was not something announced in this Budget, however, it is worth highlighting that sole traders with annual turnover over £50,000, or individuals with gross rental income greater than £50,000 per annum, will be required to report results to HMRC on a quarterly basis from April 2026.
However, there has been a one-year deferral for farmers and other select groups. The NFU highlighted that the new system for MTD had not been tested for those looking to apply averaging and therefore, may prevent farmers from being able to average farming profits over 2 or 5 years as they are entitled to do.
HMRC will be issuing further guidance in due course about whether it will be necessary to apply for the deferment, or whether it will be applied automatically. However,it seems that the deferment will apply even if an individual has other trading or rental income that would have brought them into MTD from April 2026.
Savings
From April 2027, the annual ISA (Individual Savings Account) cash limit will reduce to £12,000, the total annual limit will remain at £20,000, but the residual £8,000 will be designated to stocks and shares ISA investment.
Employment
Salary sacrifice has often been used by employees to make pension contributions; salary sacrifice for pensions is when the employee agrees to reduce salary or potentially sacrifice a bonus. That reduction is then paid by the employer into the pension scheme. The benefit of this being, the pension contribution has not been subject to NIC either on the employee or employer side.
From April 2029, only the first £2,000 of pension contributions made via salary sacrifice will be exempt from NICs. All contributions will still be exempt from income tax (subject to usual annual limits), but this reduction in the portion exempt from NICs, may reduce the appetite for paying into pensions.
Further increases to the National Living Wage and National Minimum Wage from 1 April 2026, will continue to put pressure on diversified rural businesses, particularly those involved in hospitality that are more likely to employ people on lower salaries. The increased hourly rates from April 2026 are £12.71 for those over 21, £10.85 for people aged 18 to 20 and £8.00 for 16- or 17-year-olds.
Capital allowances
Currently, plant and machinery classified as main pool capital expenditure gets tax relief under writing down allowances at a rate of 18% per annum, this is set to reduce to 14% from April 2026.
The Annual Investment Allowance will remain at £1m per annum, giving full tax relief on expenditure on qualifying plant and machinery in the year of acquisition. As always, assets acquired under hire purchase need to be brought into use for the full relief to apply.
Currently, only companies are able to benefit from full expensing, which is a first year allowance (FYA) in addition to the Annual Investment Allowance, where 100% relief can be claimed on the acquisition of new, unused qualifying plant and machinery. From 1 January 2026, a new FYA will be introduced, allowing all businesses to claim tax relief of 40% on the cost of the acquisition of new, unused qualifying plant and machinery, meaning that partnerships spending more than £1m on plant and machinery now may be able to claim more capital allowances than before, potentially a useful measure.
High Value Council Tax Surcharge
From April 2028, residential properties valued at more than £2m will be liable to a new charge, the High Value Council Tax Surcharge (HVCTS). This annual “mansion tax” will be staggered based on the value of the property in question. For values between £2m and £2.5m, the charge will be £2,500, £3,500 for properties valued between £2.5m and £3.5m, £5,000 for values between £3.5m and £5m and £7,500 for properties valued at over £5m. The surcharge will be collected alongside the existing Council Tax due on the property.
Inheritance Tax
Always better to finish on a positive note. On 23 December 2025, the treasury announced that the £1m limit for 100% relief under APR/BPR (Agricultural Property Relief/Business Property Relief) would be increased to £2.5m. This news, combined with the announcement included in the November Budget that the limit could be transferable between married couples, or those in civil partnerships, means that a couple could get 100% relief on qualifying assets of up to £5m. This will also apply if the first death occurred before 6 April 2026.
Overall, this has not been seen as a positive Budget, many groups have cited that the measures do little to encourage economic growth and investment. However, the announcements around IHT are certainly helpful; some smaller family farms that would have been affected by the October 2024 announcement, may now fall outside the scope of IHT, but there will still be a significant number of farms that will be affected, more to do, but promising nonetheless.
There are measures that could be introduced to address some of the changes, but each situation will be different, so please seek professional advice to establish the direct implications on you and what could be actioned to potentially mitigate the changes.
