Introduction
The Autumn Budget 2025 doesn’t shout about big income tax rate rises – but it still raises more tax.
Most of the extra tax comes from:
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Freezing income tax and National Insurance thresholds for several more years
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Increasing tax on dividends, savings interest and property income over time
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Bringing more sole traders and landlords into Making Tax Digital (MTD)
The result? Many employees, pensioners, sole traders and landlords will pay more tax gradually, even if their income only rises with inflation.
For full official details, please see the Budget 2025 information on GOV.UK:
https://www.gov.uk/government/collections/budget-2025
1. Who Is Affected?
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Employees and pensioners – more people will be dragged into paying basic and higher-rate tax because thresholds are frozen.
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Sole traders and partners – taxed on their profits using the same frozen bands, plus National Insurance.
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Landlords – rental income will be taxed at higher “property income” rates from April 2027.
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Anyone with investments – dividend and savings tax are both going up over the next few years.
If you live in Scotland, remember that Scottish income tax bands are different, but the UK-wide rules on thresholds, dividends, savings and property still apply.
2. Key Changes for Individuals
2.1 Income tax thresholds frozen
The personal allowance (£12,570) and the higher-rate threshold (£50,270) are being kept at their current levels for several more years.
What this means in practice:
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As wages and pensions go up, more of your income becomes taxable.
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People who previously paid no tax may now pay basic-rate tax.
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More middle-income earners will drift into the 40% higher-rate band.
2.2 Dividend tax – from April 2026
From 6 April 2026, tax on dividends increases by 2 percentage points for basic and higher-rate taxpayers:
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Basic-rate band: 10.75%
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Higher-rate band: 35.75%
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Additional-rate band: 39.35%
This affects:
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Investors with share portfolios held outside ISAs and pensions
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Company owners/directors who take income as dividends
2.3 Savings interest – from April 2027
From 6 April 2027, tax on savings interest (outside ISAs and pensions) increases:
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Basic rate: 22%
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Higher rate: 42%
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Additional rate: 47%
Alongside this, the cash ISA allowance for under-65s is expected to reduce from £20,000 to £12,000 per year from 2027 (over-65s keep £20,000).
This makes it more important to:
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Use your ISA allowance each tax year while it’s higher
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Make good use of the personal savings allowance
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Think about which spouse/partner should hold which savings
2.4 Property income for landlords – from April 2027
From April 2027, rental profits will be taxed at separate “property income” rates, which are higher than the normal income tax rates:
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22% for income in the basic-rate band
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42% for income in the higher-rate band
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47% for income in the additional-rate band
This is on top of previous changes (such as mortgage interest restrictions), so landlords will feel a noticeable squeeze.
3. What Changes for Sole Traders?
Sole traders are affected by all of the above, plus some extra rules.
3.1 Income tax and National Insurance on profits
Sole traders:
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Pay income tax using the same frozen thresholds as employees
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Pay Class 4 National Insurance on their trading profits
Because thresholds are frozen while profits rise, more of your income will:
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Move into higher tax bands
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Attract more National Insurance
3.2 Making Tax Digital for Income Tax (MTD ITSA)
The Budget confirms the roll-out of Making Tax Digital for Income Tax Self Assessment (MTD ITSA).
From 6 April 2026:
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If your total income from self-employment and property is over £50,000, you will need to:
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Keep digital records, and
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Submit quarterly updates plus an end-of-year final declaration using MTD-compatible software.
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Thresholds are expected to extend to more taxpayers in later years.
This means:
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More admin if you try to do it alone
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A real need for proper bookkeeping systems rather than bags of receipts once a year
3.3 Capital allowances for business assets
From 2026, there will be changes to how quickly you can claim tax relief on things like vans, equipment and fixtures.
The direction of travel is:
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A larger chunk of relief up front for new qualifying assets
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Slower relief on the remaining balance in later years
Getting the timing right on bigger purchases can make a difference to your cash tax bill.
4. What This Means for a Typical Sole Trader or Landlord
In simple terms:
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Same work, more tax over time because thresholds are frozen
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More admin because of quarterly MTD submissions
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More planning needed if you also have rental properties or investments
5. How BB Accounting Solutions Can Help
We can support you with:
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Personal tax reviews – showing how Budget 2025 affects your take-home pay or drawings over the next few years
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MTD ITSA setup and support – choosing software, setting up digital records and handling quarterly submissions
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Sole trader + landlord planning – if you trade and have rental income, we’ll model both together so there are no surprises
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Cashflow and investment planning – helping you time equipment purchases and set aside money for tax
Next step:
If you’re a sole trader, freelancer or landlord and want to understand how Budget 2025 affects you, get in touch and we’ll talk you through it in plain English.