Budget 2025 introduces some changes to Income Tax, in particular, the extended freezing until 2031 of the income tax personal allowance at £12,570, the higher rate tax threshold at £50,270 and the additional rate tax threshold at £125,140.

The £12,570 and £50,270 allowances were introduced in April 2021, with successive chancellors electing to keep them frozen since then.

The measure will steadily draw more people into the tax net – even people who receive only a state pension will probably become taxpayers before 2031. Those already paying tax will be drawn into the higher and additional rates of tax sooner when they receive pay rises or their investment income increases.

From April 2026, there will be a 2% point increase to the basic and higher rates of tax on dividends, raising the basic rate from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate is to remain 39.35%.

So, what does this mean for you? If you run a profitable company, how should you draw out the income?

We have run calculations for two scenarios, one for a company making £50,000 a year and another for a company making £300,000 a year.

In both cases we are assuming the national insurance employer allowance is not available – if it is, there will be further tax savings.

As you can see from the figures, the dividend options cost approaching £600 more in tax from April 2026.

Here, the figures show the dividend options cost between £1,400 and £2,500 more in tax from April 2026.

From April 2027, increases to the tax paid on other forms of investment income are to be brought in on savings and property income.

This could prove quite a blow for landlords who have seen their rental returns reduced, following restrictions to the relief for mortgage and loan interest to the basic rate and, more recently, changes to ‘renters rights’.

From April 2027, we will see a 2% point increase to the basic, higher and additional rates of tax on savings income, increasing them to 22%, 42% and 47%, respectively.

Again, we have made some calculations to give an idea how this might affect your after-tax income.

We understand Government plan to bring in legislation to dictate the order in which tax reliefs such as the tax-free personal allowance can be applied. Whilst this is likely to be challenged because it will not give the best result for the taxpayer, our calculations assume the personal allowance must first be used against non-savings, then savings income, and then dividend income.

From April 2027, we will also see a 2% point increase to the basic, higher and additional rates of tax on property income, increasing them to 22%, 42% and 47%, respectively.

This should have an upside; when the basic tax rate increases to 22% for property income, presumably mortgage and loan interest relief will also increase to 22%.

Those with large property portfolios might look at incorporating their investment business into a Family Investment Company. There are some pretty strict qualifying conditions to meet so incorporation is definitely not a quick or easy fix! However, for the right family property business, this could be worth looking into.

The above article is based on legislation in force as at 27 November 2025 and interpretation of announcements made at the Budget 2025. Tax legislation may change in the future and therefore the above does not constitute advice. Please contact Penny White, or your usual Shaw Gibbs contact to discuss your personal situation.