Key takeaways

• Freezing the personal allowance and basic rate limit until 5 April 2031, which will lead to further significant increases in the real tax burden of employees, especially for lower-paid employees
• Restrictions on salary sacrifice for pensions from April 2029

On the positive side, certain limits restricting the use of tax advantaged Enterprise Management Incentive options are being relaxed, including in particular that (a) the 'gross assets' requirement of the company/group will be increased from GBP 30 million to GBP 120 million and (b) the maximum number of employees requirement of a company/group will be increased from 250 to 500. These amendments should mean that a lot more companies can use Enterprise Management Incentives (EMI) options.

Disappointingly, the Chancellor is cutting back on the tax advantages for company owners selling their majority stakes to Employee Ownership Trusts (EOTs). For sales to EOTs made on or after 26 November 2026, 50% of the gain on the qualifying disposal of shares to the trustees of an EOT will be subject to capital gains (rather than being capital gains tax-free).

Further details of the announcement affecting employee tax and employee share plans are set out below.

In more detail

Freezing personal allowance and basic rate limit until 5 April 2031

The Government has announced that the personal allowance for income tax and national insurance contributions liabilities of GBP 12,570 and the basic rate limit of GBP 37,700 will remain unchanged until 5 April 2031.

Changes to salary sacrifice for pensions from April 2029

The Government has announced that from April 2029, only the first GBP 2,000 of employee contributions to pensions through salary sacrifice will qualify for exemption from national insurance contributions liabilities. An employee may contribute larger sums through salary sacrifice (up to the maximum contribution limit of GBP 60,000 per year), and while income tax relief will continue to be available on such larger contributed sums, there would be national insurance contributions liabilities on such contributions in excess of GBP 2,000 per annum. Click here to read further details.

Enterprise Management Incentives options – increase in certain limits

From 6 April 2026, certain medium to large companies, who otherwise meet the requirements to qualify for the grant of tax-advantaged EMI options to its eligible employees but cannot do so for failing the 'gross assets' test and/or the size of their workforce, may be able to meet the qualifying requirements.

The government has announced that from 6 April 2026, legislation will be introduced to increase the following limits relating to the 'qualifying conditions' that a company is required to meet in order to grant EMI options:

• The 'gross assets' requirement of the company/group will be increased from GBP 30 million to GBP 120 million.
• The maximum number of employees requirement of a company/group will be increased from 250 to 500.

In addition:

• The maximum value of shares over which companies may now grant EMI options will be increased from GBP 3 million to GBP 6 million; and
• The period during which an EMI option may be exercised and benefit from the tax advantages have been increased from 10 years to 15 years.

Sale of shares to an Employee Ownership Trust – increase in the rate of tax

Legislation will be introduced in the Finance Bill 2025, effective for disposals by individuals made on or after 26 November 2026 that 50% of the gain (previously tax-free) on the qualifying disposal of shares to the trustees of an employee ownership trust will be subject to capital gains in the normal way.

Reduction in cash Individual Savings Account (ISA) from 6 April 2027

From 6 April 2027, individuals below the age of 65 may invest up to a maximum of GBP 12,000 per annum in cash ISA. Individuals aged 65 or over may continue to invest up to GBP 20,000 in cash ISA.

However, the overall limit in investment in ISA remains at GBP 20,000. Therefore, an individual below the age of 65 may invest up to GBP 20,000 per annum in ISA, of which a maximum of GBP 12,000 may be invested in cash ISA and the remaining GBP 8,000 in stocks and shares ISA.

Changes to Employee Car Ownership Scheme delayed until 6 April 2030

In the 2024 Autumn Budget, the Chancellor had announced that legislation would be introduced to the employee car ownership scheme taxation rules to tax contrived schemes under the normal principles of taxation of company cars for private use. 

The government has announced that:

• The new rules would not be applied until 6 April 2030 which would give businesses and employees time to adjust to the new rules.
• Existing employee car ownership schemes may continue under the old rules for a further two years until 6 April 2032.
• Vehicles provided on arm's length terms within the motor industry will receive exemption from the benefit in kind charges.

Closing in on promoters of marketed tax avoidance schemes

The government has announced that:

• Legislation would be introduced in the Disclosure of Tax Avoidance Scheme rules so that the civil penalty regime that applies to promoters of marketed tax avoidance schemes can be directly applied by HM Revenue & Customs (HMRC) without first seeking the approval of the tribunals.
• Similarly, legislation will be introduced so that civil penalties may be charged to promoters of marketed VAT avoidance schemes without approval of the tribunals.
• Universal stop regulations will be introduced to prohibit promoters of marketed tax avoidance schemes promotion of avoidance schemes that have no realistic prospect of success and the power to allow HMRC commissioners to specify further arrangements which may not be promoted.
• Promoter action notices may be issued to financial institutions, insurance companies and social media companies (but not to the provision of legal or audit services), which require businesses to stop providing goods and services to promoters of tax avoidance schemes.
• Anti-avoidance notices may be issued to persons who HMRC suspects are connected to the promotion of marketed tax avoidance schemes and failure to comply would include a range of civil penalties and potential criminal prosecutions.

Loan charge review – new settlement opportunity

The loan charge was put in place by the Finance (No.2) Act 2017 to tackle the historical use of contrived tax avoidance schemes to avoid employment income tax and national Insurance contributions liabilities by disguising income as allegedly non-taxable loans. At the Autumn Budget 2024, the government committed to a new independent review of the loan charge to help bring the matter to a close for those affected whilst ensuring fairness for all taxpayers. The review has now been completed and a report has been published together with the government's response.

Legislation will be introduced in the Finance Bill 2025-26 for a new settlement opportunity to be given to those with outstanding loan charge liabilities. HMRC estimates that this settlement opportunity will be open to approximately 23,000 individuals and 4,000 employers, subject to the loan charge, who have not yet resolved their cases with HMRC and to approximately 10,000 individuals and 1,000 employers who have not fully paid their outstanding liabilities to HMRC.