The uk budget – the ‘hidden’ changes that sme owners should not ignore

The Budget Summary 

After the months of media speculation and commentary ahead of the 2025 UK Budget, and the suggestion of ‘exit taxes’, ‘LLPs NI taxes and reductions in the VAT threshold etc., it turned out that there were no dramatic increases in tax rates, or the sudden abolition of long-standing reliefs. 

Instead, this Budget, (much like the one before it), continued a pattern of incremental, less visible changes to the tax system over the next 3 or 4 tax years – that will reshape both the scope and the amount of taxes being collected by HMRC over that period!

In my view, it is the “hidden” measures from the Budget that are the ones that will affect SME business owners the most, considering these taxpayers sit at the intersection of a variety of taxes, whether involving their 

• ongoing business income
• growth in personal wealth and/or
• long-term retirement and succession planning.

So why do I say that?

Well rather than raising headline tax rates, the Government’s policy with the Budget was more focused over the coming years on trying to

1. tax more income earlier
2. extend the scope of various taxes to make more forms of wealth taxable
3. reducing how long tax can be deferred or reducing reliefs

What that means for SME business owners in particular, is that the impacts of the changes don’t hit as an obvious ‘one off’ tax event, but more slowly across pensions, dividends, property, large capital events (business sale/exit), and even student loan repayments.

Ultimately this is a Budget that requires early understanding of the ‘hidden’ changes, and will definitely penalise business owners that haven’t spotted these gradual, but longer term changes in the UK tax environment!

I have tried to look past the key headlines and actually focus on what this Budget really means in practice over time for the UK’s business owners or wealth creators . . .

The ‘Hidden’ Story – Extending Scope and catching new Income 

Instead of discussing the more obvious elements of the Budget, such as rates, thresholds or allowances I want to highlight what is changing under the surface  . . . .

1. Pensions –  No Longer “Tax Free”

For years, pensions have been actively encouraged as a cornerstone of responsible long-term retirement and financial planning. 

HMRC have offered generous income tax relief, tax deductible employer contributions and salary sacrifice arrangements, all of which has reinforced the message that pensions were both sensible and protected from tax in the future.

In the recent Budgets, this position will now change i.e.

• From April 2027, unused pension scheme monies and death benefits will be brought within the scope of inheritance tax. 

This is a fundamental change (and potentially a very EXPENSIVE change too – think a £1.0m pension fund) in how pensions are treated in estate or succession planning.

• From April 2029, the cap on National Insurance relief for salary sacrifice pension contributions at £2,000 per year further signals a change in tone. 

Even though making contributions into pension schemes largely remains tax efficient, they will no longer be ring-fenced in the way many business owners have historically assumed.

The impact here will be for (savvy) SME business owners, should be a change in decision making on the use of their pension pots, as well as on estate or succession planning – to avoid a 40% rate on an additional £1.0m pension within their estate.

2. Fiscal Drag It’s a Tax Rise in any other name!

The continued freeze on income tax thresholds until 2030/31 remains one of the most effective tools for HMRC, and least obvious, tax revenue raisers.

As earnings rise with inflation, more income is pulled into higher tax bands without any formal increase in rates. 

For SME owners whose remuneration grows slowly and steadily, this can materially change take-home pay over a few years without ever triggering a “tax rise” headline.

• From April 2026, there will also be an increase in tax charged on dividend income

• From April 2027, there will then be higher rates of tax on savings and property income 

Again, none of these measures is dramatic in isolation, however altogether, they require the reshaping of existing personal remuneration policies or plans for business owners – with a likely outcome being higher taxes and reduce take home pay!

3. Student Loans: More repayments for more people 

Although not always discussed alongside Budget measures, changes to student loan repayment thresholds and extended repayment periods increasingly affect middle-income earners — a group that includes many SME directors and senior employees.

For those on newer repayment plans, repayments continue for longer and at higher repayment values over a broader income range. 

This is another example of policy operating quietly in the background, BUT impacting incomes without changing headline tax rates.

4. Making Tax Digital (MTD) – It’s here in April!

The expansion of Making Tax Digital for Income Tax (MTD ITSA) to sole traders and landlords with income thresholds as low as £20,000 from 2027 is not a tax rise – but is a significant change in approach, resulting in much earlier payment of tax to HMRC – 

along with additional administrative costs for sole traders such as accountant or software fees!

By moving reporting for these taxpayers onto a quarterly basis, requiring more frequent interaction with HMRC and regular payments of tax, this also aligns with other future measures, such as proposals to collect more self-assessment liabilities through PAYE from April 2029. 

5. Property, Personal Wealth and Business Assets 

The introduction of a High Value Council Tax Surcharge on properties over £2m from April 2028 affects relatively few households directly. 

However its importance lies in both the introduction of a NEW tax onto the statute books, (that can be expended in future Budgets to more households), while the fixed valuation threshold also threatens SME business owners in London and the South east much more than others in the UK !

Additionally with immediate effect from the date of the Budget, changes to the Business Asset Disposal Relief (essentially Entrepreneurs relief) meant CGT is payable at an increased rate of 14% (from 10%) – with further rises in April 2026 to 18%. 

It should also be noted that the BADR relief limits had already been reduced from £10.0m to £1.0m for qualifying business sales/disposals made on or after 30 October 2024.

This change has meant that business owners main asset (their own business), which typically they have spent many years building up in value is now caught in CGT where previously it wasn’t (90% reduction in the BADR relief from £10.0m) – and the rates of tax will have almost doubled at the same time !

Finally the previously CGT ‘tax free’ disposals of a business into employee ownership trusts (EOT) will be reduced from 100% to 50% for disposals on or after 26 November 2025 e.g. 50% of gains will be treated as chargeable gains and subject to CGT. 

So What Does this Means for SME Business Owners?

For most SME owners, the impact of this Budget will not arrive as a single BIG change.

Instead, over the next few years, it will increasingly show up as:

• slightly higher employment costs
• marginally lower net personal income
• less flexibility around when tax is paid to HMRC
• more complexity around long-term planning decisions such as pensions, property, and exit routes, and
• a much more expensive and less tax efficient route to a Sale or Exit for a business owner

For SME business owners, the challenge now is to react appropriately by recognising the significant change in direction on tax in the UK.

The only positive remains that most of these changes are only due to come in from 2027 onwards – so there is the possibility that an improved economic situation could see some of these delayed or never actually introduced at all.

A Final Thought

Business owners who periodically step back, review how their personal and business finances interact, and take the necessary steps ahead of time, may find that they can navigate their way around many of the changes – without falling into any of the obvious potholes accidentally.

For those that do NOT take the opportunity to revisit existing tax planning approaches, then they will find that the sums no longer work in quite the way they expected.

So what are you planning to do over the next 12 months or so? 

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