UK AUTUMN BUDGET 2025: SAVINGS & CAPITAL ALLOWANCE UPDATES

ASESA Solutions Ltd - UK AUTUMN BUDGET 2025: SAVINGS & CAPITAL ALLOWANCE UPDATES

The UK Government’s Autumn Budget 2025 includes further changes that businesses and individuals (including company directors) should note — not only for dividends or salary income, but also for savings, asset income and business investments. The following two updates may affect many of you starting in the coming years.

1. Higher Tax on Savings Income from April 2027

The Budget raises the tax on savings income (interest or similar returns) by 2 percentage points across the board, effective 6 April 2027. After the change, savings income will be taxed at:

• 22% (basic),

• 42% (higher),

• 47% (additional) rate.

  
  

Example: If you earn interest of £5,000 on savings (outside a tax-free wrapper like an ISA), under the current 20% basic-rate savings tax you’d pay £1,000 tax. After April 2027, at 22% the tax becomes £1,100 — meaning £100 more tax on the same return.

2. New Capital Allowance Rules — 40% First-Year Allowance + Lower Writing-Down Rate

To encourage business investment, the Budget introduces a new 40% first-year allowance (FYA) for qualifying capital expenditure incurred on or after 1 January 2026 by companies or unincorporated businesses. At the same time, the standard “writing-down allowance” rate for plant and machinery will be reduced from 18% to 14%, effective 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax.

Example:

If your business buys new machinery worth £100,000 in early 2026: with the new FYA you could immediately deduct 40% — i.e. £40,000 — from taxable profits in year 1. Alternatively (for different asset types), under the old writing-down method you would deduct 18% (i.e. £18,000) per year over time; under the new rule, this will drop to 14% (i.e. £14,000), slowing the deduction — so the FYA may offer a more attractive upfront benefit for many companies.

Conclusion

These two changes — savings income tax and capital allowance rules — are important updates from the Autumn Budget 2025 that could affect both your personal finances and business planning. In our next newsletter, we will cover two additional major changes, offering clarity and practical guidance for you and your business.