Budget 2025: Key Financial Impacts for GPs and GP practices

The leadup to Autumn Budget 2025 was a rollercoaster, with large speculation around potential changes that could have had a significant impact on the healthcare sector. What followed was not as bad as what had been feared, however some of the measures have significant longer-term implications, i.e. the further freezing of income tax bands until 2031.

We will now look more deeply at some of the key areas that came up, and how this relates to Primary Care:

Partnership vs Limited Company Structures

Although there was some speculation in the run up to the budget that partnership profits could become subject to employers National Insurance Contributions (NIC) this did not materialise in the Budget. For those with Limited Companies, dividend tax rates have increased by 2 percentage points from April 2026, albeit the dividend tax rate will not be changing for additional rate taxpayers. Corporation tax rates remain unchanged, with the main rate at 25% and the small-profits rate at 19%. This additional tax on dividends reinforces the position that the partnership model continues to offer the most favourable outcome for GP Partners from a tax perspective where the goal most often is to have full distribution of profits. For practices considering a Limited Company for ancillary services or non-NHS income, the unchanged corporation tax and rising dividend tax highlight the need for careful structuring to balance income and tax liabilities.

National Living Wage (NLW) Increases

The Budget confirms further increases to the National Living Wage from April 2026. While the final figures may still be subject to confirmation, current projections suggest an uplift consistent with the Low Pay Commission’s recommended path. For example, an increase from £12.21 to £12.71 per hour represents an uplift of approximately 4.1%. For a full time member of staff working 37.5 hours per week, this equates to an annual pay rise of just under £1,000 before the impact of employment on-costs. GP practices should review their wage structure such to understand how this rise will impact them from April 2026. Of course, for many this increase has a knock-on effect, as if you give one group of staff a pay rise, it narrows the pay gap with other employees who can then expect an increase at their level too.

Freezing of income tax limits

Perhaps the most controversial item in the Budget was the decision to freeze personal tax thresholds further until 2031, three years beyond the date originally announced at the previous Budget. This creates additional ‘fiscal drag’ with taxpayers dragged into higher rates of tax as wages increase whilst tax bands remain static. Many GP Partners are impacted by the loss of personal allowance in the £100k to £125k bracket of earnings with a notional rate of 60% tax applying to earnings that fall between this range. With no change to these tax bands until 2031 this will continue to impact many doctors, with more set to trip over into the next tax band during this time with the impact of inflationary increases to GP pay that could follow.

Pension contributions and salary sacrifice

The Budget introduces a £2,000 cap on tax-free pension salary-sacrifice contributions, above which employer and employee NICs become payable. For NHS GP practices contributing to the NHS Pension Scheme, contributions are not made via salary-sacrifice. As a result, this new NIC measure will not impact GP practices, either at employer level or for individual salaried staff.

NHS Pensions were not impacted by the Budget. No restriction has been placed on the amount of tax relief available on pension contributions, and the annual allowance remains at £60,000 for those that do not suffer a reduction through the tapering rules.

VAT registration thresholds

There were rumours that the VAT registration threshold could reduce significantly. Budget 2025 confirmed that the threshold remains at £90,000. Most non-dispensing GP practices fall below this threshold due to the VAT medical exemption. However, practices must remain vigilant. Sharing staff with Primary Care Networks (PCNs) or engaging in certain non-NHS services that do not fall under the medical exemption could push turnover above the threshold, triggering VAT registration and compliance obligations.

Personal tax on savings and property income

The Budget confirmed increases to personal tax rates on savings and property income. Doctors should review their personal financial plans to understand how these changes could affect after-tax income, particularly for those with significant investment or rental income streams. From April 2026, dividend tax rates will increase by 2 percentage points for basic rate taxpayers (from 8.75% to 10.75%) and higher rate taxpayers (from 33.75% to 35.75%). The additional rate dividend tax remains unchanged at 39.35%. Savings and property income tax rates will also rise by 2 percentage point, increasing the tax burden on those with investment and rental income streams.

Other taxes and future considerations

Owners of properties valued at more than £2m are set to face the new ‘mansion tax’ surcharge to be introduced from 2028. Properties valued between £2m and £2.5m will face an annual surcharge of £2,500 per year. The highest charge of £7,500 will fall on homes valued at £5m or more.

Electric vehicle owners will also face Electric Vehicle Excise Dury (e-VED) of 3pence per mile from April 2028, whilst plug-in hybrid drivers will pay 1.5pence per mile. Details of how e-VED will be administered are still to be released.

Conclusion

For GP practices and for Doctors, Budget 2025 offers a mix of reassurance and caution. Key takeaways include:

Partnerships remain tax-efficient as compared to Limited Companies, particularly when considering the increase in dividend tax rates.
NHS Pension contributions will not trigger additional NIC costs as NHS Pension is not paid under a salary sacrifice arrangement.
VAT registration limits remain stable, but practices should monitor staff sharing within PCNs and their non-NHS income such to ensure they do not breach the £90,000 registration limit.
Personal tax on dividends, savings and property income has increased, reducing net income after tax from these sources.

Overall, the Budget maintains the existing structures that underpin GP practices. Individual partner finances will come under further pressure with the freezing of tax bands and the additional tax due on certain income streams. The Budget didn’t give us any new information on the future spending plans for the NHS but GP partners in particular will eagerly await further details on NHS 10 Year Plan, and the 2028 contract review. Both items may have a more significant impact on GP Practices and its Partners as compared to this Budget.