Budget 2025 – why this feels like one of the worst Budgets for business owners and higher earners

Headline changes business owners should care about

• Dividend tax goes up by 2% from April 2026, making it more expensive to take money out of your company as dividends. 

• Separate higher tax rates for property and savings income from April 2027 – 22% / 42% / 47% – closing the gap between “money from assets” and “money from work”.

• Tax reliefs and allowances will be used on other income first and only then applied to property, savings and dividend income, from April 2027 – a classic stealth tax. 

• Income tax and National Insurance thresholds are frozen into the next decade, dragging more business owners into higher bands without any headline rate rise.

• Salary sacrifice for pensions is capped – employer and employee NICs will apply to salary-sacrificed pension contributions above £2,000 from April 2029.

• Employee Ownership Trust (EOT) CGT relief is cut from 100% to 50%, so the tax-free headline for EOT exits is gone, although good EOTs will still make sense. 

• A new per-mile tax on electric cars (eVED) from April 2028, with EV drivers paying about half the fuel duty equivalent – average around £300 a year.

• A new High Value Council Tax Surcharge on homes over £2m from 2028 – an issue for owner-managers with high-value personal or company-owned homes.

• Business rates are being revalued again from 2026, with lower multipliers and reliefs for some sectors but big uncertainty and complexity for everyone. 

• The Office for Budget Responsibility (OBR) quietly tells us growth will be about 1.5% a year, productivity is still weak, inflation stays higher for longer and UK gilts have the highest yields in the G7.

Put bluntly, this feels like a Budget for “Benefit Street” rather than for working people and business owners. One of the worst Budgets I can remember for anyone who builds a business, takes risk and actually employs people.

What the Chancellor says versus what the OBR actually shows

The Treasury press release says this is about “fairness”, “long-term sustainability” and “everyone contributing”. In practice, most of the heavy lifting is done by higher taxes on:

• income from assets (dividends, property, savings)

• higher earners

• frozen thresholds quietly dragging more people into higher tax bands

The OBR forecasts average real GDP growth of about 1.5% a year and trend productivity growth of just 1.0% by 2030, which is lower than they assumed even in March 2025.

Inflation is expected to be 3.5% in 2025 and 2.5% in 2026, only getting back to 2% in 2027. Real household disposable income growth is forecast at around a quarter of a percent per year over the next few years – well below the old “normal” of about 1% a year.

So while the political message is “long term fairness”, the economic story is: sluggish growth, sticky inflation, high borrowing costs, and a tax system increasingly bearing down on people with businesses, assets and above-average earnings.

Dividends – 2% tax rise that hits owner-managed businesses

This is the one most business owners will be hit with straight away.

From 6 April 2026, dividend tax rates go up by 2 percentage points: 

• Ordinary (basic rate) dividend tax goes from 8.75% to 10.75%

• Upper (higher rate) dividend tax goes from 33.75% to 35.75%

• Additional rate stays at 39.35%

So if you are a typical owner-manager taking a modest salary and the rest as dividends, your tax bill on those dividends simply goes up.

This, of course, is on top of higher corporation tax that has come in over the last few years, and higher costs and staff costs etc.

At the same time, the higher rate threshold is frozen, and reliefs and allowances will increasingly be steered away from dividends and onto other income first, which means more of your dividends will be taxed at those higher rates.

This is not just a “rich person” problem. Many owner-managed companies use dividends as the standard way of paying the people who started, risked and built the business. You now pay more for the privilege.

I’ve certainly seen the debate on whether low salaries and the rest of the dividends are being questioned again. For many, they’ll be looking at this again come April – should I take a higher salary? Should we put certain things through and pay tax as P11D benefits in kind etc.

Here’s one post I’ve already seen:

Property and savings income – 22% / 42% / 47% is the new normal

Next, we get a series of aligned changes which are clearly designed to close the gap between tax on working income and tax on income from assets.

From 6 April 2027:

• Property income (for landlords etc) gets its own tax rates:

  • 22% basic rate

  • 42% higher rate

  • 47% additional rate

   

• Savings income will be taxed at the same 22% / 42% / 47% rates for basic, higher and additional rate taxpayers.

On top of that, the rules governing the application of tax reliefs and allowances are changing. From 2027, reliefs that are deductible at “step 2 and 3” of the income tax calculation will be used up first against your other income – salary or trading profits – and only then against property, savings and dividend income. 

Translated into English: it becomes much harder to shelter property, savings and dividend income using allowances and reliefs. The government has basically put a big “tax me first” sign on those income streams.

For business owners who have built up investment portfolios, property, or group structures with rental companies or treasury companies, this all adds up to a slow, grinding increase in tax on the asset side of your life.

Frozen thresholds – fiscal drag on steroids

There is no dramatic headline increase in income tax or NIC rates for earned income. Instead, the Budget relies heavily on freezing thresholds and letting inflation and pay rises do the work.

The key freezes are:

• Personal Allowance stuck at £12,570 until April 2031

• Higher rate threshold stuck at £50,270 for non-savings, property and dividend income until April 2031

• NIC thresholds (Primary Threshold and Lower Profits Limit) fixed at £12,570 from April 2028 to April 2031

• The employer NIC secondary threshold fixed at £5,000 from April 2028 to April 2031

The OBR confirms that cumulative growth in labour income is expected to be higher than in their March forecast, but with thresholds frozen, more of that wage growth is simply dragged into higher tax bands. 

For business owners, this means:

• your staff become more expensive in tax terms

• you personally get pushed further into higher and additional rates even without changing your headline salary or drawings much

No big speech line, but a very real effect on your take-home pay and staff costs over time.

Incidentally, if the higher-rate tax threshold hadn’t been frozen, it should be around £70k. (Side note, I do think higher rate tax these days shuold be £100k)

Salary sacrifice for pensions – the £2,000 cap

From 6 April 2029, salary-sacrificed pension contributions above £2,000 per person per year will be subject to both employer and employee NICs.

Ordinary employer contributions (paid without salary sacrifice) stay NIC-free, but the clever “sacrifice” structures that have been used particularly by higher earners to reduce NICs on bigger pension contributions will now be capped.

The OBR estimates this brings in around £4.7bn in 2029-30 alone. 

If you run a business that uses salary sacrifice for pensions widely, this will mean:

• revisiting schemes, especially for senior staff

• higher NIC bills unless you restructure compensation

• potentially awkward conversations if staff have come to expect the tax-efficient package

It is another example of the Budget specifically targeting arrangements that mainly benefit higher earners.

Employee Ownership Trusts – less tax, still a good model (if you actually want employee ownership)

The Employee Ownership Trust CGT relief is being cut from 100% to 50%. In other words, you will no longer be able to sell your trading company to an EOT and pay zero capital gains tax on the sale. 50% relief now means CGT at 14%, of course. 

My honest view is that this is probably fair.

There have definitely been some sales to an EOT deals done primarily because of the tax break, not because the owners genuinely wanted a long-term employee-owned model. Those deals will now look much less attractive.

But for owners who genuinely like the idea of employees ultimately running and owning the business – and who value the succession and culture benefits – an EOT will still be worth looking at. It just will not be the no-brainer tax play it once appeared to be.

So I would file this one in the “tightens abuse, keeps the genuine model alive” category, rather than with the rest of the anti-business stuff.

Electric Vehicle duty – a new per-mile tax

From April 2028, there will be a new Electric Vehicle Excise Duty (eVED) for electric and plug-in hybrid cars.

Key points:

• It is a per-mile charge on top of normal VED

• EV drivers will pay about half the fuel duty equivalent of petrol / diesel drivers

• A typical EV driver is expected to pay around £240 per year, about £20 per month

If you run a fleet, or use EVs for your business, this is effectively the start of road pricing for electric vehicles. Not ruinous in year one, but once the machinery is in place it is very easy for future Chancellors to turn the dial – a la Gordon Brown’s fuel duty escalator.

I think lots of business owners will feel misled on EV’s – for the last few years the tax advantages of buying or leasing have been fantastic, and on top of that there is the ‘green’ aspect of it too. But now it just feels like we’re getting taxed for having an EV, and that doesn’t feel fair.

Business rates, high value homes and other property-related changes

Property owners get a double hit.

On the business side, from 1 April 2026, business rates in England are being reset to reflect a 2023 revaluation. The small business multiplier drops from 49.9p to 43.2p and the standard multiplier from 55.5p to 48p, with reliefs and a £4.3bn support package plus a redesigned transitional relief scheme. 

In theory this is good news for some sectors – especially retail, hospitality and leisure – because there will be permanently lower multipliers for those. In practice, revaluations always create winners and losers, and the devil will be in your individual rateable value and how the transitional caps apply to you.

On the personal side, there is a new High Value Council Tax Surcharge for homes worth £2m or more in England, starting in 2028-29. Revenue is being collected centrally and then used to support local services.

If you are a business owner with a £2m+ home, this is one more recurring cost on the asset side. It also interacts with the earlier changes to Capital Gains Tax, inheritance tax and the freezing of the nil-rate bands and business property relief caps until 2031. 

Add those together and the direction of travel is clear – large personal and business-connected assets are being taxed more heavily and more often.

The macro backdrop – slow growth, sticky inflation, higher borrowing costs

The OBR’s numbers matter here, because they tell you what kind of environment you are trying to grow a business in.

A few highlights:

• Real GDP grows at about 1.5% a year on average

• Trend productivity growth is revised down to 1.0% in the medium term

• CPI inflation is 3.5% in 2025, 2.5% in 2026 and only gets back to 2% in 2027

• Real earnings growth for workers is weak over the medium term

• UK government bond yields are now the highest in the G7

• Business investment growth averages only about 0.75% a year between 2026 and 2030

So you are being asked to pay more tax on dividends, property and savings, in an economy that is barely growing in per-capita terms, with still-elevated inflation and higher borrowing costs.

If this was a business, you would say: costs up, revenue flat, productivity weak. You certainly would not pat yourself on the back and call it a “growth plan”.

So what should business owners actually do?

I cannot turn this into a happy-clappy Budget for entrepreneurs. It is not. But there are some practical angles:

• Review your dividend strategy – build the 2% higher rates from April 2026 into your personal tax planning now. Look at the timing of major extractions.

• Map your property and savings income – from April 2027, those new 22% / 42% / 47% rates apply. Work with your accountant on structure, ownership and whether some income should sit in the company, in pensions, or elsewhere.

• Revisit pension and salary sacrifice design – especially from 2029 onwards, when the £2,000 NIC-free cap bites.

• If you were thinking EOT, treat it as a business model question, not a pure tax play. If genuine employee ownership appeals, it still has real advantages. If you only liked it as “no CGT”, the numbers have changed.

• If you own or plan to own a £2m+ home, factor in the council tax surcharge alongside CGT and IHT planning – especially where properties sit in company or trust structures.

Above all, recognise the direction of travel. This is one of the worst Budgets I can remember for business owners and higher earners, not because of one big “clobber the rich” announcement, but because of a long list of carefully targeted measures that collectively make it less rewarding to own assets, take risk and build a business.

It may be a Budget for Benefit Street. It is certainly not a Budget for people who sign the front of payslips.

None of the above represents tax advice or legal advice. You should speak wit your accountant or a tax advisor to get bespoke advice on your specific position.