Autumn Budget 2025: Chancellor announces tax changes on dividends and disposals to EOTs, and new funding for SME apprenticeships  

On 26th November, Chancellor of the Exchequer Rachel Reeves outlined the government’s economic plans in the 2025 Autumn Budget. 

Despite rumours of the government’s intentions to introduce a new tax on limited liability partnerships (LLPs), law firms were relieved to hear that this was not a change put forward in this budget.  

During the speech, the Chancellor announced changes to the rates of income tax applicable to dividends. 

From 6th April 2026, both the ordinary and the upper rates will be increased by two percentage points to 10.75% and 35.75% respectively, while the additional rate will remain unchanged at 39.35%.   

The government has also announced it will be restricting capital gains tax (CGT) relief for qualifying disposals to employee ownership trusts (EOTs) from 100% to 50%.  

New plans to expand funding for apprenticeships were also revealed — with SME apprenticeships for eligible people under 25 set to be fully funded by the government.  

In addition, the Chancellor outlined plans to introduce new reforms to simplify the apprenticeship system. 

Other key announcements from the 2025 Autumn Budget include: 

• An increase to the economic crime (AML) levy rates to 0.1% of revenue for businesses at the bottom of each bank — the former ‘large’ band which covered businesses with revenues between £36m and £1bn will also be split into two  

• Maintaining the personal income tax and equivalent National Insurance thresholds at current levels for a further three years until April 2031 

• Maintaining the secondary threshold for employer contributions at current level for a further three years until April 2031 

• The introduction of a new first-year allowance of 40% for main-rate assets from January 2026

• A decrease to the main rate of writing down allowances by four percentage points to 14% 

Law firm leaders react to the 2025 Autumn Budget announcements 

Alison Broadberry, managing partner and head of private client at Edwin Coe, says that while the Budget avoided major shocks for SME law firms, the underlying picture is one of steady cost pressure and tighter margins. 

“Wage inflation is expected to remain higher for longer — with nominal weekly earnings growing around 5% in 2025 before easing — and this continues to feed into rising operating costs for firms already balancing recruitment challenges and increasing salary expectations. 

“For many SME practices, the quiet risk sits in the detail: frozen personal tax thresholds and a growing tax take mean that take-home pay for fee earners will fall in real terms, placing renewed pressure on firms to review compensation structures and retain talent competitively. The OBR forecasts that threshold freezes alone will pull around 1.7 million more people into higher tax bands by 2029–30, and that has a direct effect on salary negotiations. 

“The Budget’s broader economic signals are equally important. Business investment growth is forecast to remain subdued, and confidence among SMEs — many of whom are our clients — is likely to reflect that caution. For law firms, this may translate into more unpredictable workflows and a need for greater resilience in pricing, pipeline management and client engagement. 

“In short, the Budget reinforces what many SME firms are already feeling: a period of steady but persistent cost pressure, combined with the need to adapt quickly to clients’ changing commercial realities.  

“The firms that plan early, retain talent through more than pay alone, and stay close to their clients’ needs will navigate the months ahead with confidence.” 

Tammy Evans, partner at Ignition Law, believes the increase of income tax applicable to dividends is a direct hit to law firm partners and directors who take profits through limited companies. 

“This will mean looking harder at how and when profits are extracted, and whether keeping cash in the business, paying into pensions, or rebalancing salary/dividends now makes more sense for sustainable growth. 

“If you’re changing how profits come out of the company, you need to keep it lawful and defensible: backed by proper board decisions and paperwork, and aligned with shareholder arrangements.” 

Nevertheless, Alex McPherson, founder and partner at Ignition Law, expects to see a continued rise in flexible legal services models. 

“Many law firms which were already considering alternative business structures and/or converting into a private limited company are likely to continue to weigh up these options, especially with growing pressures around investment in AI and technology, and opportunities in the legal sector mid-term.” 

On a positive note, Evans says the additional funding for apprenticeships will be a useful level for innovative and progressive law firms — as this will reduce costs for building early-career pipelines in the world of paralegals, legal operations, compliance, IT and finance teams. 

“For smaller and mid-sized practices, this is a chance for the progression of home grown, trusted talent with lower upfront cost — so long as firms put proper training plans and supervision in place to ensure supported, happy juniors, and implement robust training to meet the compliance and audit levels that are likely to follow,” she adds.  

Christian Carr, partner at Spencer West, states the changes to the CGT to EOTs may likely cool momentum in the short term.  

“It raises founder tax costs, squeezes headroom for deferred consideration and is likely to bring seller price expectations closer to independent valuations. That said, EOTs remain a robust succession route for good businesses because they preserve culture, jobs and independence; it’s not just about the tax. The added advantage of creating your own buyer and softer due diligence remain unaffected,” he adds.  

What do you think of the 2025 Autumn Budget announcements? Share your views with other law firm leaders on our LPM Community platform.