UK Autumn Budget – November 2025

Mansion Tax

Paul Beausang, Head of Real Estate Tax, said:

“Whilst this was obviously widely flagged in advance, it’s now looking clear that there will be a material increase in the annual tax cost of owning a house worth £2m+. Disappointing that after c. 200 years of cliff-edge stamp duty thresholds distorting the property market, we’ve decided to recreate the effect with this change. Also worth noting that once the tax is introduced, the track record of raising thresholds with inflation is particularly weak in the real estate tax space.”

Income Tax on Rents

Paul Beausang, Head of Real Estate Tax, said:

“Whilst the possibility of extending national insurance to rental income had been mooted, most commentators believed that given the political pressures, the Chancellor would not want to raise the rates of income tax. However, she has apparently increased tax on passive income (such as rent, dividends and savings interest) by 2% on each band (so generally 22%, 42% and 47%). In fairness, it does mean that the additional tax will fall on unearned income and hence avoids the accusations the Government faced after increasing employers NICs last year.”

Employee Ownership Trusts

Danny Blum, Head of Employee Incentives, said:

“With the level of EOT transactions increasing rapidly over the last few years and possibly in response to creeping avoidance, it is not surprising to see the tax benefits of EOTs for founders cut. The retention of this structure is though welcome and will remain a useful exit route for entrepreneurs and business owners.

The relatively modest indicated tax impact to the Treasury suggests that the Treasury is expecting the level of transactions to reduce as a consequence of the cut in relief, notwithstanding their suggestion that this will not be the case."

Enterprise Management Incentive share options

Danny Blum, Head of Employee Incentives, said:

“As trailed over the last few months and (possibly) in response to my comments in key media earlier this year, it’s very pleasing to see the significant expansion of tax-advantaged Enterprise Management Incentive (EMI) share options. While we had anticipated some increases, the scale of these changes is both unexpected and extremely welcome. The maximum number of employees at a company that wants to grant EMI options will double to 500, and the gross assets limit will rise fourfold to £120 million. This substantial increase means larger private companies and many AIM-listed and smaller public companies can once again consider EMI as a viable option.

If implemented effectively, these reforms have the potential to broaden access to this highly valuable benefit for both employers and employees. This is particularly important given the confirmed freeze on income tax and NIC thresholds for the next three years, which will otherwise increase costs for businesses and individuals.”

Pension Salary Sacrifice

Richard Johnson, Partner, said:

“From April 2029, employee pension contributions through salary sacrifice, above an annual threshold of £2,000, will no longer be exempt from NIC. These changes were widely anticipated but will still come as a disappointment to many employees, who use the salary sacrifice route to boost overall contributions to their pension pots.

Through salary sacrifice, employees agree to reduce their gross earnings, which would otherwise be subject to income tax and NIC, in return for an employer pension contribution paid into their pension, which would not be subject to income or NIC.

The benefit to employees primarily comes from the fact employee NIC is not paid on the employer contribution so, in effect, the amount going into the pension pot was bolstered by the employee NIC saving. Often employers would agree to supplement the employer contribution by the amount of employer NIC saved, so the pension pot was further increased.

Other than timing, there is no material difference from an income tax perspective between employee contributions and employer contributions through salary sacrifice – either income tax relief is available (in respect of employee contributions) or income tax is not payable (in respect of employer contributions). For higher and additional rate employees, salary sacrifice does mean that full income tax relief was achieved without the need for additional claims through self-assessment.

Post April 2029, many employees (especially higher and additional rate employees) will want to continue through the salary sacrifice route, accepting an additional employee NIC cost, as it delivers immediate, full, income tax relief. However the change may also result in employees cutting back the amounts they would otherwise choose to pay into their pensions. For those employers who were not paying on employer NIC savings to employees using salary sacrifice, a reversion to full gross salary will represent an increased cost.”

Landfill Tax

Charlotte Stodell, Partner, said:

“The Chancellor glossed over what is an effective c.134% increase in the lower rate of Landfill tax from 1 April 2026, as merely ‘maintaining the differential between the lower and standard rates’.

Construction projects generally have a much higher share of lower-rate material given the landfill tax can apply even when levelling development sites.

It is therefore particularly difficult to reconcile this increase with a Government so committed to development, especially in the living sector.”

Real Estate Transparency

Charlotte Stodell, Partner, said:

"Is a new tax transparency measure in UK real estate really required?

In addition to the Overseas Entities Register and Trust Registration Service the Government announced today yet another international agreement to tackle tax evasion by providing an automatic exchange of information on real estate from 2029 or 2030.

Further details awaited, but is this red tape bundled in yet more red tape?”

Capital Allowances

Paul Beausang, Head of Real Estate Tax, said:

“In another unheralded blow, the Chancellor is to reduce the rate of capital allowances of standard pool assets from 18% to 14%, whilst also introducing a new 40% first year allowance for leased assets. The measure will generate c. £1.5bn per annum, but at the cost again of any semblance of consistency of tax policy. The UK has committed to growth and encouraging business investment in capital infrastructure, with the full expensing and 50% initial allowances. Businesses which have already invested, expecting to claim 18% allowances on the balance of their spend will be distressed at yet another change to an expected relief.”

VAT and Social Housing

Leila Wallace, Associate, said:

“VAT reform is on the horizon, with the government set to consult on measures to incentivise land development for social housing. Any VAT incentives would be welcome, given the pressing need for affordable housing. It will be interesting to see what changes emerge, particularly as the construction supplies in relation to social housing is already zero-rated for VAT purposes.”

Share Exchanges and Company Reorganisations

Colin Askew, Partner, said:

"It was announced in today’s budget that the “government will modernise the anti-avoidance provisions that apply to share exchanges and company reorganisation with immediate effect”. These rules are particularly relevant in private equity buy-out transactions where management often “roll up” gains into shares in the acquiring structure, deferring an immediate tax charge because they reinvest.

Under the previous rules, the tax neutral roll over provisions only applied if the transaction was for bona fide reasons and not for the avoidance of tax. There was the prospect of obtaining an HMRC clearance but (often given deal timetable) advisors and tax payers often got comfortable the roll over transaction (as part of a larger commercial transaction) was for bona fide commercial reasons and not for the avoidance of tax such that clearance was not sought.

It appears that from today’s date, the scope of the anti-avoidance test has been varied to re-focus from the purpose of the overall transaction to considering the rationale for transactions where as part of a wider commercial exchange (or company re-organisation) additional arrangements have been put in place to obtain a tax advantage. Further, the previous exemption from the anti-avoidance rules not applying to holdings of holding of 5% or lower has been removed.

This will create uncertainty and (at least initially) may make the clearance process a critical component of many PE transactions again, with the consequently timing and cost implications. For transactions on a “fast burn”, this may make clearance alternatives such as insurance attractive."

Tax Disputes

Robert Waterson, UK Head of Tax Disputes, said:

“The Budget, once again, offers little to nothing for the justice system – the words “courts” and “Tribunals” being entirely absent from the Budget document. Focus is elsewhere.

For HMRC:

• Its Fraud Investigation Service (FIS) is promised more resources to undertake Criminal Investigations;
• Increases in payments of up to 30% for informants on recovery of taxes above £1.5m;
• An extra £64m over 5 years for “partnerships with private sector debt collectors”;
• £89m to increase HMRC debt management staff; and
• Updates to the penalty regime are promised in order to “modernise” the
  system - we will have to see what that means in practice.
• HMRC is desperate for more dedicated specialist and technical staff – this is leading to real world problems for businesses and individuals. Disappointingly, the focus here is main on enforcement, not analysis and policy.

On specifics:

“I - will shortly be unable to - get no”: Customs relief on low value imports (£135 or less) to be removed from March 2029. Administering the new system will require some careful thought and likely a significant amount of resource.

Altered Image: legislation is promised to “clarify” the treatment of image rights to mean that those “related to an employment” are treated as employment income. This has been an area of multiple disputes for years and is one to watch as it progresses from Bill to Act.

Blood from a Stone: further legislation is expected on the Loan Charge, following the independent review, to enable people subject to the charge to “resolve their affairs with HMRC”.

Slippery-cliff-edge: High Value Council Tax Surcharge to be introduced on owners of homes in England worth over £2m in 2028/29. Consultations will follow. There is significant scope for disputes in this area, most obviously around valuations.

Promises of “simplification” to the tax system have been left over from the template for the last 30+ budget statements: we would miss them if they were not there."

Business Rates

Anisha Polson, Principal Associate, said:

“Business rates are expected to raise £37bn this year, so, it’s no surprise that the Chancellor has taken another swipe at this pie!

From 1 April 2026, the government is introducing a high-value business rates multiplier (50.8p) for properties with rateable values of over £500k. In the spirit of taking with one hand and giving with the other, some good news for those in the retail, hospitality and leisure sectors, they will see two lower business rates multipliers for eligible properties with rateable values below £500k (38.2p or 43p).”

For further details or tailored advice, please contact the Eversheds Sutherland UK tax team.