Budget – what taxpayers need to know

QUESTION: Now that the dust has settled, what are the key tax changes that a business owner like me should be aware of from the UK Budget on November 26?

ANSWER: Chancellor Rachel Reeves introduced a series of measures that will reshape the tax landscape for individuals and businesses in Northern Ireland.

While headline rates of income tax, VAT and national insurance remain unchanged, the Budget relies heavily on what economists call “stealth taxes” – policies that increase the tax take without altering the main rates.

One of the most significant announcements is the extension of the freeze on income tax thresholds for an additional three years, taking it through to April 2031.

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This means the personal allowance stays at £12,570, the higher-rate threshold remains at £50,270, and the additional rate threshold continues at £125,140.

Inheritance tax nil-rate bands are also frozen. This policy, known as fiscal drag, will gradually pull more people into higher tax brackets as wages rise with inflation.

The Office for Budget Responsibility estimates that by 2030–31, nearly a million new taxpayers and 750,000 additional higher-rate taxpayers will emerge.

For households in Northern Ireland, where wage growth has been modest but inflationary pressures persist, this freeze will feel like a tax rise without any formal increase in rates.

From April 2026, dividend tax rates will rise by two percentage points. The basic rate will increase to 10.75%, and the higher rate will jump to 35.75%.

Then, from April 2027, income tax on savings and rental income will also increase by two points, with the basic rate moving to 22% and the higher rate to 42%.

These changes will hit landlords and investors hardest. Combined with existing restrictions on mortgage interest relief, property investment in personal names is becoming less attractive.

Many advisers expect a further shift toward incorporating property portfolios to mitigate these tax hikes.

From April 2029, the national insurance advantage on salary-sacrifice pension contributions will be capped at £2,000 per year. This change reduces the tax efficiency of large pension funding strategies for higher earners, making it important to review retirement planning sooner rather than later.

Corporation tax remains at 25%, but there are notable changes to capital allowances. The writing down allowance on plant and machinery will fall from 18% to 14% from April 2026.

However, a new 40% first-year allowance will apply from January 2026 for qualifying expenditure, particularly benefitting businesses investing in equipment.

Compliance penalties for late corporation tax returns will double from April 2026, and anti-avoidance rules for share exchanges and reorganisations have been tightened. Businesses should review their compliance processes to avoid costly mistakes.

The rise in the National Living Wage to £12.71 per hour from April 2026 will benefit around 170,000 workers in Northern Ireland, but employers will need to plan for increased payroll costs.

For individuals, the combination of frozen thresholds and higher taxes on investment income means careful planning is essential. Using tax-efficient wrappers such as ISAs and pensions (within the new limits) can help shelter savings. Landlords should review whether incorporation makes sense given the property income tax hikes.

For businesses, timing capital expenditure to maximise the new 40% allowance will be key. Employers should also prepare for higher wage costs and stricter compliance rules.

With fiscal drag and targeted levies set to raise £26 billion by 2030, the message from Westminster is clear - the tax burden is rising, and planning ahead has never been more important.

Malachy McLernon (malachy.mclernon@aabgroup.com) is partner at AAB Group Accountants Ltd (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies