This article was published in the Association of Independent Specialist Medical Accountants’s AISMA Doctor Newsline.
Nasty surprises were anticipated in the 2025 Autumn Budget, with every potential UK taxpayer bracing themselves for what they felt would only be bad news.
There were no major changes to any area of tax, just small ones, meaning that the tax impact per individual and employer was lower, but the reach of those impacted far greater. The devil is in the details!
Fiscal drag continues
From April 2026 onwards, individuals will see several key changes – and also a ‘lack of’ – which will impact how they are taxed. The Chancellor extended the freeze on National Insurance and income tax bands by another three years, meaning the current thresholds, which have been frozen since 2021, will now remain in place until 2031. This will result in medical practitioners across all categories - employees, those who are self-employed, and partners - paying more tax and National Insurance as their income increases over the coming years with inflation.
Higher tax rates on dividends, savings and property income
Those with dividend income, savings income and rental income will feel an extra pinch, with tax on these types of income increasing by 2% for basic rate and higher rate taxpayers (the additional rate remains unchanged). These rates will kick in from April 2026 for dividend income, and from April 2027 for savings and rental income.
The new dividend rate may prompt practice owners to consider their remuneration strategy from the company, but care should be taken when reviewing how funds are to be extracted from a business for a director/shareholder; there must be a commercial justification when swapping salary for dividends, or vice-versa. Without this, HMRC may argue that any change in remuneration strategy is not allowable, and consequently determine tax liabilities on drawings in their original form.
Higher tax rates on property income will impact those receiving rental income from their medical practices, whether they own the premises in the partnership or a sole name. One solution that property-owning individuals may look to, is whether to move the property into a limited company. Whilst this may save an element of income tax, consideration should be given to the impact of Capital Gains Tax and Stamp Duty Land Tax on any transfers. Rental income received by a company will be subject to corporation tax, the rate of which is dependent upon the level of taxable income within the period.
Making Tax Digital
All these tax changes are in addition to the complexities and costs that certain individuals (sole traders and landlords) are to face with the introduction of ‘Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), which will apply from 6 April 2026. This is applicable where income from self-employment and property exceeds £50,000 (within the 2024/25 tax year). From 6 April 2027, the threshold will fall to £30,000 and then to £20,000 from 6 April 2028. The Government has said it is committed to introducing MTD for Partnerships, however, implementation has been stalled with no date assigned to the rollout.
Vehicle taxation and capital allowances
Owners of electric and plug-in hybrid vehicles were targeted in the Budget with the introduction of a new Electric Vehicle Excise Duty. From April 2028, a charge will be imposed on both plug-in hybrid and fully electric vehicles, based on mileage: 3p for electric cars and 1.5p for plug-in hybrid cars. On a positive note, the expensive car supplement will increase from £40,000 to £50,000 for 100% electric vehicles only. Whilst referring to vehicles, there are slight adjustments to ‘company van’ benefit in kind rates, and an easement on benefit in kind charges for plug-in hybrid vehicles.
Small changes to capital allowances will see an increase in first-year allowances for certain types of expenditure not covered by the Annual Investment Allowance, however, there is a reduction to the standard writing down allowance from 18% to 14% for general pool items.
A new ‘mansion tax’
Set to be introduced from April 2028 is a new ‘mansion tax’. This will be an annual surcharge on properties valued over £2,000,000, with rates ranging from £2,500 to £7,500. Properties will be valued by the Valuation Office Agency, reflecting market conditions based on the year 2026.
The ‘working from home’ allowance is set to be withdrawn from employees [salaried doctors] from April 2026.
Pension and savings
With regards to pensions, there have been no changes made to the annual allowance limit or the threshold and adjusted income levels used in the determination of tapered annual allowance. Earlier in November, it was also confirmed that there will be no reduction in the tax-free pension Lump Sum Allowance which remains at £268,275.
The main pension announcement to affect both employers and employees is the capping of National Insurance Contribution (NIC) relief on pension contributions, via salary sacrifice arrangements, to £2,000 per employee per tax year. From April 2029, contributions above this, will be subject to both employee and employer NICs, costing the employer an additional 15% in NICs. The NIC rate attributable to the employee will depend upon their level of income. These arrangements could give rise to a significant cost burden to many employers who have been used to not paying NICs on these payments for many years.
The annual ISA allowance for individuals remains at £20,000, but from April 2027, there will be a new layer of complexity for savers to navigate. This is a throwback to the old ISA system. In simple terms, you can put £20,000 into an ISA, but only £12,000 of that can be deposited into a cash ISA each year, and the remaining £8,000 of the allowance must be invested in stocks and shares. Over-65s can still invest the full £20,000 into a cash ISA.
Inheritance Tax
When it comes to Inheritance Tax (IHT) relief, the £1million Business Property Relief and Agricultural Property Relief combined allowance remains, but this can now be transferred between spouses and civil partners, meaning unused relief will not be lost on the first death.
The main IHT allowances remain frozen, with the Nil Rate Band at £325,000 and the additional Residence Nil Rate Band at £175,000 (an allowance that can be claimed against your main home if it is gifted to your children and your total estate is worth less than £2 million). From April 2027, when non-NHS pensions come back within the scope of an individual’s assessable estate, many more may see this £175,000 of relief disappear.
Capital gains rates have remained the same as those announced in last year's budget, at 18% and 24% determined by an individual’s income tax band.
Employment costs and rising NMW
GP practices will face a further financial burden following the announced increases to the National Living and Minimum Wage rates from 1 April 2026. The above-inflation increases of 6% and 8.5% to the respective rates for 16-17 and 18-20-year-olds will add considerable cost to employing younger workers from next year. The rate for 21-year-olds and over is increasing by a lower 4.1%, but this will undoubtedly put pressure on employers to increase wages across the board to maintain the pay differential between starter roles and more experienced workers.
The Government insists the uplift to these rates is to support workers and to help with the cost of living; however, higher wages and salaries inevitably lead to an increase in tax and NIC revenues, with the additional cost being borne by GP partners, not the Government.
Further tax compliance activity on the horizon
HMRC is committed to eliminating tax evasion and avoidance, and will pursue those deemed to owe tax. As part of the Government’s quest to narrow the tax gap, several new tax compliance initiatives are anticipated, including changes to behavioural tax penalties and tax errors.
Overall, it was a mixed budget. Whilst there will be relief to many that the numerous tax-hiking rumours did not materialise, the impact on what may initially be seen as small changes will still be felt by employers and individuals alike in the years to come.
If you would like advice and support following the announcements made in the Budget, please contact Armstrong Watson’s Specialist Medical Team on 0808 144 5575 or email help@armstrongwatson.co.uk.
