On Wednesday 26^th November, the Chancellor of the Exchequer delivered this Labour government’s second budget. But what changes have been laid out? And how will they affect you and your business?

National Minimum Wage Increase

Much like the announcement in last year’s budget, the National Living Wage will be increasing from April 2026 for those over 21 years of age. The rate will be raised from £12.21 to £12.71 – a 4.1% increase.

For 18–20-year-olds, an increase of 8.5% will bring their minimum wage to £10.85 an hour. This larger increase is an effort to bring earnings closer to that of older workers.

The minimum wage for under 18s and apprentices is also increasing. A 5.6% increase sees this rate rise from £7.55 to £8.00.

Income Tax and National Insurance Freezes

The freeze of Income Tax and National Insurance thresholds has been extended to April 2031. By this date, the thresholds will have remained the same for 10 years.

As the National Minimum Wage is increasing whilst the tax thresholds stay the same, more individuals will be pushed into higher tax bands, resulting in them paying more tax.

Taxing Salary Sacrifice Pensions

A salary sacrifice pension is where an employee accepts a lower salary with a contractual agreement that their employer pays the difference directly into their pension tax-free. As their salary is lower, they in turn pay less Income Tax and National Insurance on their wages.

This budget has announced that an annual cap of £2,000 will be applied to salary sacrifice pensions from April 2029. This means that any amount over this cap will be taxed in the same way as other employee pension contributions.

Increases to Non-Employment Tax Rates

Basic and higher tax rates for dividend income will increase by 2% from April 2026. The additional rate will remain at 39.35%

Tax on savings and property income will also increase by 2% across all bands (including the additional rate) from April 2027.

Changes to ISAs

April 2027 will see reforms to the current ISA Allowances. Currently, investors can put up to £20,000 each tax year into an ISA (or split the amount over several ISAs). The new changes stipulate that only £12,000 of the original allowance will be allowed into cash ISAs. The remaining £8,000 can still be invested, but only into an investment ISA (i.e., a stocks and shares ISA).

Those aged over 65 are exempt from this change and may continue to put the full £20,000 into a cash ISA if they would prefer.

Electric Vehicle Duty

A new excise duty will apply to electric and hybrid vehicles from April 2028. This will be charged at £0.03 per mile for fully electric cars, and £0.015 per mile for plug-in hybrids. These rates will be subject to increases with inflation.

This measure could be seen as disincentivising electric vehicles, but increased funding for EV charging and business rate relief being applied for charging points is hoped to encourage drivers to still make the switch.

Introduction of Mansion Tax

The budget has announced a high-value surcharge, known as Mansion Tax, will be introduced in 2028. This will see an additional £2,500 charge on properties valued over £2 million, or £7,500 for properties valued over £5 million. The surcharge will be collected alongside council tax. It is expected to raise over £400 million by 2031 whilst only affecting the top 1% of properties in the country.

Two-Child Benefit Cap Scrapped

Since 2017 parents have only been able to claim universal credit and other benefits for their first two children. The 2025 Budget has declared that this cap will be scrapped from April 2026. This hopes to reduce the number of children currently living in poverty in the UK.

Additional Changes

• Increases in funding should ensure that apprenticeships for under 25s will be free for small and medium sized businesses
• A 40% allowance will be given to allow businesses to write of more of their initial investment costs
• Higher business rates will be imposed on properties worth over £500,000 (i.e., warehouses owed by online retail giants) to allow rates to be lowered for an estimated 750,000 hospitality, leisure, and retail businesses
• Customs duty will apply to all parcels – should be implemented by March 2029 at the latest
• Gambling duty reform will take place from April 2026. The highest increase will be on remote gaming (online casinos), which will be applied at 40%
• Fuel duty will remain frozen until September 2026
• Tobacco and alcohol duties will increase again in the next tax year
• The sugar tax will now include dairy-based drinks (such as milkshakes)

 

If you require any advice regarding changes announced in the budget, or you require help with accounting, tax preparation, or payroll, please do not hesitate to contact us.