After months of leaks and briefings and press speculation, Chancellor Rachel Reeves delivered her second Budget on 26 November 2025. Walking a tightrope between conflicting economic and political pressures – financial markets, Labour backbenchers, the ever-ravenous NHS, other Labour spending priorities – the Chancellor has reiterated the need to grow the economy but has massively increased the taxation burden once more.
In the end (and despite earlier briefings to the contrary) there have been no increases to the rates of income tax, NICs or VAT. Some of the other predicted tax increases have also not materialised – there is no change to the limit on tax-free lump sums from pension schemes; the pension triple lock will also be maintained for the lifetime of this Parliament; the 25% corporation tax rate remains unchanged.
There are a few capital allowances changes, but before coming on to those it will be helpful to take a broader view.
Losers (and a few winners)
In a complex Budget, so many detailed tax changes are being made that there will be a different outcome for each individual or family unit.
However, the Chancellor has specifically acknowledged that the Budget does have a cost for working people. There is a substantial increase in the cost of government expenditure (“no return to austerity”) and this is inevitably being funded by huge overall tax increases (“asking everyone to make a contribution”).
A large, low-income family will benefit from additional child benefit but all working families will ultimately pay more in income tax as the thresholds are frozen for three additional years. The net benefit or loss for the family will depend on whether the parents are earning around the national living wage threshold or whether salary increases over the coming years will push them into the bands for paying higher or additional rates of income tax. Their tax bill will rise more significantly if they have an electric car, or participate in a salary sacrifice scheme so as to make higher pension contributions, or use their annual cash ISA allowances, or live in a house valued at £2 million or more.
There are also significant changes to the taxation of property income, savings income and dividends, broadly speaking with an increase of two percentage points in the tax rates (though no change to the additional rate for dividend income). For dividends, the changes apply from April 2026 but for savings and property income the increased tax rates come in a year later.
Capital taxes
There are some complex changes here. Inheritance tax (IHT) thresholds are to be frozen for one more year, and there are quite a few technical IHT changes.
In relation to capital gains tax (CGT), there are changes for disposals to employee-ownership trusts, for share exchanges and reorganisations, for business incorporation and for non-residents.
National minimum wage
The national minimum/living wages increased significantly this year (alongside increases in employer NIC) and are doing so again from April 2026, when there will be an uplift of between 4.1% (for the national living wage) and a massive 8.5% (the national minimum wage for 18-to-20 year olds).
Other business changes relate to business rates, to fraud in the construction industry scheme, to penalties for late filing of corporation tax returns, and to capital allowances.
Capital allowances
Less than a week before the Budget, a Treasury spokesman gave a written answer to Parliament, stating that “the UK has one of the most generous and competitive capital allowances regimes in the world and is top of the rankings of OECD countries for plant and machinery capital allowances”.
The spokesman went on to remind Parliament that the annual investment allowance (AIA) “allows both incorporated and unincorporated businesses to deduct the entire cost of investment in both main and special rate assets in one go, up to £1 million per year”.
No changes have been made in the Budget to AIAs.
Given the green agenda, and the urgent need for additional facilities to charge electric cars, there is no great surprise that the existing first-year allowances for zero-emission cars and for electric charge-points are to be extended for one more year, so to April 2027.
More unexpectedly, the main rate of plant and machinery writing-down allowance (WDA) is to be reduced from 18% to just 14% from April 2026 (with no change to the 6% “special” rate). Adding a degree of complexity, a hybrid rate will apply for businesses with chargeable periods spanning 1 or 6 April 2026.
Most businesses (with qualifying capital expenditure below £1 million in the year) will not be troubled by this reduction, but it will hit larger infrastructure projects, for example. Also, as AIAs are not given for cars, businesses buying cars that do not qualify for the FYAs mentioned above will see the tax relief lagging even further behind the true rate of commercial depreciation.
Also unexpectedly, and in part mitigation of the WDA reduction, a permanent new 40% first-year allowance (FYA) is to be introduced for plant and machinery claims, applying from 1 January 2026. It will be available both for companies and for unincorporated businesses. Again, this requires care as some of the usual “general exclusions” from claiming FYAs (e.g. for leased assets) will not restrict these new allowances. However, the new FYAs will not be given for cars, for second-hand assets (important in the context of buying a used commercial property) or for assets used for overseas leasing.
For businesses and property investors, these capital allowances developments add layers of new complexity and reinforce the need for correct advice to maximise claims. The UK’s capital allowances regime is indeed generous and – as long as claims are properly formulated – it offers a wholly legitimate (and therefore secure) form of tax relief.
Finding the right balance between AIAs, FYAs and WDAs, and indeed between plant and machinery allowances on the one hand and structures and buildings or other allowances on the other, will maximise the value of capital allowances claims.
But there is always an important preliminary step. At Six Forward, we routinely check the complexities of the capital allowances legislation as a first step in any capital allowances exercise, ensuring that there is entitlement to claim in the first place. (This should be standard industry practice, of course – protecting against penalties and future “discovery” assessments – but we see plenty of evidence that it is not.)
As long as underlying entitlement is checked, a correctly formulated claim will withstand any HMRC enquiries, whether immediately or way into the future. In this way, it will provide valuable and secure tax savings, bringing the certainty that all businesses and investors require.
