UK Tax Changes in 2025

Major UK tax changes for the 2025-2026 tax year include the abolition of the non-domicile tax status, an increase in employer National Insurance Contributions (NICs), and an increase in certain Capital Gains Tax (CGT) rates. Many personal tax thresholds remain frozen, which can effectively increase tax burdens as wages rise

UK Tax Return PRS

Key Tax Changes Effective from April 2025:

• Abolition of the Non-Domicile (Non-Dom) Regime: The former non-domicile tax status has been replaced by a new residence-based regime. New arrivals to the UK who have not been UK tax residents in the previous 10 years receive 100% relief on foreign income and gains for their first four years of UK residency.

• National Insurance Contributions (NICs):

  • The employer's Class 1 NICs rate has increased from 13.8% to 15%.

  • The employer's secondary threshold (the point at which employers start paying NICs on an employee's earnings) has decreased from £9,100 to £5,000 per year.

  • To mitigate the impact on small businesses, the Employment Allowance (which reduces an employer's NICs bill) has increased from £5,000 to £10,500, and the previous £100,000 eligibility cap has been removed.

• Capital Gains Tax (CGT) Rates:

  • The CGT rates on gains qualifying for Business Asset Disposal Relief (BADR) and Investors' Relief have increased from 10% to 14% (set to rise again to 18% in April 2026).

  • The CGT rate on carried interest (for fund managers) has increased to a flat rate of 32%.

  • For other assets (not residential property), the basic and higher CGT rates increased to 18% and 24% respectively in October 2024.

• Frozen Tax Thresholds: The personal income tax allowance (£12,570) and higher rate threshold (£50,270 in England, Wales, and Northern Ireland) remain frozen until April 2028. This means more individuals are drawn into paying income tax or higher rates as their income increases (known as fiscal drag).

• Furnished Holiday Lettings (FHL): The preferential tax treatment for FHL properties was abolished from 6 April 2025, bringing them in line with other standard property businesses.

• Making Tax Digital (MTD) for Income Tax: MTD for Income Tax Self Assessment (ITSA) will become mandatory in phases.

  • From April 2026, for those with a qualifying income over £50,000.

  • From April 2027, for those with a qualifying income over £30,000. 

Upcoming and Potential Future Changes:

• Mandatory Payrolling of Benefits-in-Kind: This has been deferred and will now be introduced from April 2027.

• Potential Tax Rises: The Chancellor of the Exchequer has indicated that the Autumn 2025 Budget might include further tax rises to manage public finances. Potential areas being considered include a potential extension of the income tax threshold freeze, changes to pension tax relief, and a potential new tax on electric vehicles.

• Inheritance Tax Reforms: From April 2027, unused pension savings may be counted towards an individual's estate for inheritance tax purposes.

• Apprenticeship Levy Replacement: The Apprenticeship Levy is set to be replaced by the "Growth and Skills Levy", allowing businesses to use funds for a wider range of training courses. 

• Income Tax Personal Allowance and the basic rate limit,