Yesterday’s Budget, presented to Parliament on 26 November 2025, stayed within the government’s commitment not to raise the headline rates of income tax, National Insurance or VAT. But for anyone who draws income from assets, property, dividends or cash savings, the reality is clear: the government is shifting the tax burden decisively towards wealth and passive income rather than labour.
For many Ai Law clients – entrepreneurs, business owners, landlords and high net worth individuals – this Budget changes the strategic landscape over the coming years. Below we outline the measures most likely to affect our clients and set out their practical implications.
Property income: a new, higher tax regime for personal landlords
From April 2027, property income will be taxed under a separate schedule with higher rates than standard earned income. The new rates will be 22 per cent, 42 per cent and 47 per cent (basic, higher and additional), each sitting two percentage points above the equivalent income tax bands.
This means that holding rental property in personal names becomes materially less efficient. By contrast, property owned within a company remains subject to corporation tax rather than the new property income bands, widening an already meaningful gap between personal and corporate structures.
The high value council tax surcharge (the “mansion tax” )
From April 2028, owners of residential properties worth £2 million or more will face a High Value Council Tax Surcharge. This is charged per property and sits on top of existing council tax bands. The annual amounts start at £2,500 for properties worth £2 million and rise to £7,500 for those above £5 million.
It applies to any qualifying property you own – main residence or otherwise – which may spur early planning around valuations, ownership structures and family wealth transfers.
Dividends: the traditional owner-managed model is squeezed
From April 2026, dividend tax rates rise by two percentage points across the basic and higher bands. The basic rate becomes 10.75 per cent, the higher rate becomes 35.75 per cent, and the additional rate remains unchanged at 39.35 per cent.
While this erodes the classic “low salary, high dividend” approach, company structures still offer planning opportunities: retaining profits, building investment portfolios within companies or deploying holding company structures to shelter and defer tax.
Cash savers hit: new isa rules and higher savings tax
Two major changes here:
- From April 2027, savers under 65 can only place £12,000 of the £20,000 ISA allowance into cash. The remaining £8,000 must be invested.
- Savers aged 65 and over retain the full £20,000 cash allowance, a key exception that softens the impact on older clients.
- Also from 2027, tax on savings income outside an ISA rises by two percentage points, giving effective rates of 22 per cent, 42 per cent and 47 per cent.
The combined effect is to make holding large cash balances less attractive and to push capital towards investment markets and tax-efficient wrappers.
The extended threshold freeze: fiscal drag continues
Income tax thresholds, including the higher rate and the £125,140 additional-rate boundary, are frozen until April 2031. As nominal incomes rise over time, more individuals will be pulled into higher bands and into the personal-allowance taper zone – a long-standing pain point for clients with earnings around £100,000 to £125,140.
Our view
Taken together, these measures send an unambiguous signal: the system increasingly favours professionalised, structured ownership over personal holding of assets. Personal landlords, cash-heavy savers and owner-managers relying on dividend extraction all see their efficiencies narrowing.
For Ai Law clients, some may want to contemplate restructuring before the new rules take effect in 2026, 2027 and 2028. That may mean:
- moving buy-to-let assets into corporate vehicles,
- revisiting extraction strategies for trading companies,
- using family investment companies,
- or rebalancing portfolios to keep more wealth inside efficient structures.
With over 70 pages of fine print in yesterday’s announcement, understanding the nuance is key. We urge all clients to discuss the financial specifics with their accountants and tax advisors first, to understand the specific implications for you and your interests. If you would like to review your legal position and protection strategies, please get in touch.