A budget for investors?

1. Introduction

At first glance, it seems surprising to christen the Chancellor’s 2025 Budget as a ‘Budget for Investors’. After all, in a move recalling memories of the investment income surcharge, last seen in the 1980’s, the Chancellor introduced increased tax rates on dividends, savings income and rent.

On closer examination, however, the nomenclature seems correct and can certainly be justified for investors who proceed with care and the right combination of investment and tax advice.

In this note, we summarise the main personal tax changes announced on 26 November 2025, and the challenges and opportunities they present for investors.

2. Maxims revived

The Budget will encourage investment advisers and tax experts alike to dust off some old, but increasingly valued maxims.

The first is the importance of stability and of taking a longer-term view. Long a key component in an investment strategy, this is becoming equally critical in the world of personal tax planning. Families should plan for the long term – the days of ever-changing trust structures or offshore companies are largely gone. Investments and related matters should, from the tax perspective, be reviewed regularly, but Budget speculation – and this year it was the loudest ever – should be treated as largely irrelevant to a settled strategy.

As detailed below, little or none of the Budget rumours materialised: acting on rumours may only trigger unnecessary tax charges.

The second maxim is that, from the tax perspective, capital returns are better than returns in the form of income. The CGT rate (24%) is to be nearly half the top rate of the proposed income tax on savings (47%). We consider the impact of this below.

The third maxim is ‘don’t let the tax tail wag the dog’. Following the Budget, adjustments may be appropriate – but only make them if they are right for you and in line with your objectives and wider investment strategy.

3. The increased tax rates

The Chancellor has proposed changes to tax rates for property, savings and dividend income – with different starting dates, just to add to the complexity. (These rises are in addition to the freezing of the personal tax thresholds until 5 April 2031).

The rationale, we are told, is ‘to ensure income from assets is taxed more fairly’ and ‘to narrow (the) gap between tax paid on work and tax paid on income from assets’.

The tax rate on dividends will increase from 6 April next year. The new ordinary rate will be 10.75%, the new upper rate 35.75% and the additional rate will be 39.35%. These increased tax rates will also apply to shareholders who borrow funds from their companies. The dividend allowance will remain unchanged at £500.

The tax rates on savings income (see below for the definition of this) will increase from April 2027 and the rates will range from 22% to 47%.

April 2027 will also mark the start of the increased income tax rates on rental income, with the rates again being 22% for the basic rate, 42% for the property higher rate and 47% for the property additional rate.

There are to be no adjustments to the capital gains tax (CGT) rates. Indeed, little changes in the CGT world. Rumours of the abolition of the CGT free uplift to market value on death, or of a CGT ‘exit charge’ for those leaving the UK did not materialise.

4. Reacting to the increased rates

The rate rises will obviously have an impact on investment returns and, as stated above, make CGT based returns more attractive than income receipts (although remember maxim number 3 above).

This line of thinking could, without care, lead to knee jerk reactions, whereas a more considered approach will inevitably produce better results. Investors should therefore take time to review their position with both their tax and investment advisers. Everything will depend on the facts, but there are lots of aspects to consider.

There may be an increase in the number of rental properties being held via corporate structures rather than in personal names to avoid the increased rates on property income.

Many shareholders may choose to take dividends before next April, to avoid the tax increase on dividends. However, the position should be reviewed in advance – might it be more beneficial to invest spare cash within the company or possibly introduce a personal holding company (to which dividends can be paid tax free) above the existing company? These suggestions will not fit all situations, but illustrate the importance of investors bringing tax and investment considerations together to find the optimal outcome.

The area which is likely to repay the closest attention is the change to ‘savings income’. The first need is to address what qualifies as ‘savings income’ for these purposes. The new rates will not only attach to interest, but also include profits on offshore bonds and deeply discounted securities.

There is likely to be an increased focus on the use of ‘tax wrappers’ to defer the income tax charges.

‘Wrappers’ are tax efficient structures which shelter the return on investments from tax (or in come cases the higher rates of tax) until value is extracted from the wrapper.

Family Investment Companies (or FICs) are already very popular for families wishing to optimise their tax position and undertake estate planning while retaining control over their wealth and the new rates are likely to add to their popularity. FICs are discussed in our note here.

One might also expect a growth in wrappers which enable the profit on realisation to be subject to CGT. The use of private unit trusts or OEICs are likely to grow in popularity. Our Rothschild & Co client advisers can provide fuller detail and also explain the advantages of investing via our New Court Fund and other similar vehicles.

Offshore bonds, which can also be an effective wrapper, will be less attractive under the new regime as profits on realisation of these would be subject to the new 47% rate. However, with careful planning – such as gifts to family members – this level of taxation can be reduced.

5. Inheritance tax (IHT) changes

After all the pre-Budget concern, the changes to IHT were minimal and in most cases more positive than negative.

Disappointingly, the Chancellor showed no indication to row back from the changes to the IHT business property and agricultural property reliefs which she introduced last year (when she effectively halved the reliefs from April 2026).

She did, however, enable the £1m tax free allowance which is to apply to these reliefs to be transferred between spouses.

There was also a positive change to the IHT treatment of trusts created by those who were non-domiciled in the UK at the time they created the trust and who remain UK resident. The Government is to cap the IHT 10 anniversary charges on such trusts and if you think you are in this position you should speak to your tax adviser.

There were no changes to the ‘7 year rule’ in relation to gifts to individuals.

6. Wider changes

There are changes too to other elements which may be in an investor’s portfolio and these are discussed in this section.

a) Individual savings accounts (ISA) reforms

There are to be changes to the ISA rules from 6 April 2027, with the amount that can be invested in a cash ISA restricted to £12,000 annually. The remaining £8,000 of ISA allowance will have to be invested in non-cash ISAs (e.g. stocks and shares). The Government also announced a consultation on reforming the lifetime ISA, to be published in early 2026.

b) The enterprise investment scheme and venture capital trusts

The Chancellor is to adjust these reliefs with the intention of supporting companies as they grow and not just in their formative years.

From 6 April 2026, the VCT and EIS annual investment limit rises to £10m and £20m for knowledge intensive companies. The gross asset test for companies increases to £30 million.

c) Mansion tax

Property is always an easy target for Chancellors – it is immobile and visible – and so it proved again in this Budget. From April 2028, homeowners (not occupiers) of residential property worth £2 million or more will be liable to the High Value Council Tax Surcharge.

Properties in the band of £2m to £2.5m will have an annual tax of £2,500 rising to £7,500 for properties over £5 million.

d) Pensions

The pre-Budget fears did not materialise although there was an announcement that from 6 April 2029 there will be a cap on the amount employees can sacrifice from salary at £2,000 pa without paying national insurance contributions.

7. Conclusion

Investors should digest the Budget changes – there is time to do so – and review the position with their advisers. Properly structured and carefully planned, their investments can grow tax-efficiently in robust structures for the long-term benefit of their families and themselves. The 2025 Budget can indeed be a Budget for Investors.

Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.