The 2025/26 UK tax year began on April 6, 2025. Many changes from the previous Autumn Budget are now in effect, with further significant shifts anticipated in the Autumn 2025 budget.
Tax Changes Effective in the 2025/26 Tax Year (from April 6, 2025)
- Income Tax:
- The Personal Allowance remains frozen at £12,570 until April 2028.
- Income tax thresholds and rates for England, Wales, and Northern Ireland are unchanged:
- Basic rate: 20% (up to £37,700)
- Higher rate: 40% (£37,701 – £125,140)
- Additional rate: 45% (over £125,140)
- The personal allowance is tapered by £1 for every £2 of income above £100,000, until it is reduced to nil.
- For Scottish taxpayers, some changes have been made to starter, basic, and intermediate income tax bands, generally resulting in lower tax for those with income below around £30,300, and higher tax for higher earners compared to the rest of the UK.
- National Insurance Contributions (NICs):
- Employer NICs: The rate for employers increased from 13.8% to 15% from April 6, 2025. The annual threshold at which employers start to pay NICs has been reduced from £9,100 to £5,000.
- Employee NICs: The main rate for employees remains at 8%.
- The Employment Allowance increased from £5,000 to £10,500, and the £100,000 threshold for eligibility was removed, meaning more small employers may not pay NICs.
- Capital Gains Tax (CGT):
- The main rates of CGT increased from 10% to 18% (for basic-rate taxpayers) and from 20% to 24% (for higher-rate taxpayers) with effect from October 30, 2024. These rates now align with those on residential property.
- The CGT annual exempt amount was cut from £12,300 (in 2022/23) to £3,000 from April 2024.
- For assets qualifying for Business Asset Disposal Relief and Investors’ Relief, the CGT rate increased from 10% to 14% on April 6, 2025, and will further increase to 18% from April 2026.
- The CGT rate on carried interest increased to 32% from April 6, 2025.
- Stamp Duty Land Tax (SDLT):
- The stamp duty nil rate band for residential purchases reverted from £250,000 to £125,000 from April 1, 2025.
- For first-time buyers, the nil rate band dropped from £425,000 to £300,000 (on properties worth £625,000 or less).
- For those buying a second property or a property that is not their main home, the SDLT rate increased from 3% to 5%.
- Non-Domicile Tax Regime:
- The existing non-dom tax regime was abolished from April 6, 2025. It has been replaced by a new scheme based on residence, where long-term UK residents (resident for 10 out of the last 20 years) pay tax on worldwide income and gains. New arrivals who have been non-UK tax resident for the 10 previous years will benefit from a 100% relief on most overseas income and gains for their first four tax years of residence.
- National Living Wage & National Minimum Wage:
- From April 2025, the National Living Wage for those aged 21 or older increased by 6.7% from £11.44 to £12.21 per hour.
- National Minimum Wage for 18-20 year-olds rose from £8.60 to £10 per hour.
- Apprentice hourly pay increased from £6.40 to £7.55.
- State Pension:
- Both types of State Pension rose by 4.1% in 2025/2026, in line with the ‘triple lock’. The full new State Pension increased to £230.25 a week, and the full basic State Pension to £176.45 per week.
- Inheritance Tax (IHT):
- Rates and allowances remain unchanged (nil rate band £325,000, residence nil rate band £175,000). The freeze on these bands was extended to 2030.
- From April 6, 2026, the combined agricultural property relief and business property relief will be restricted to the first £1 million on qualifying assets, with relief at 50% instead of 100% for anything over £1 million. IHT relief on AIM shares will also be restricted to 50% from April 2026.
- Other Changes:
- Furnished Holiday Lets (FHL): Income from FHLs will be treated the same as long-term lets from April 1 (companies) or April 6 (individuals, trusts, partnerships) 2025, losing beneficial capital allowances treatment.
- Double Cab Pick-ups (DCPUs): From April 6, 2025, DCPUs will generally be treated as cars for tax purposes, impacting their eligibility for Annual Investment Allowance.
- VAT on Private School Fees: Education services and vocational training provided by private schools became subject to 20% VAT from January 2025. From April 2025, private schools no longer qualify for business rates charitable rate relief.
- HMRC Late Payment Interest: Interest charged by HMRC on late tax payments increased by 1.5% to the Bank of England base rate plus 4% from April 6, 2025.
- Enhanced Tax Return Requirements: From April 6, 2025, it became mandatory to report commencement/cessation dates for trade and for directors of close companies to provide dividend details and shareholding percentages.
Projected Changes for the Autumn 2025 Budget
The Chancellor, Rachel Reeves, is expected to face pressure to raise revenue due to reduced growth forecasts and increased borrowing costs. While headline tax rate increases might be avoided, less visible measures are likely:
- Continued Fiscal Drag: A further extension of the freeze on Income Tax thresholds is highly probable. This “fiscal drag” effectively increases the tax burden as earnings rise, pushing more people into higher tax bands without explicitly raising rates.
- Capital Gains Tax (CGT) Review: Given that CGT receipts have fallen short of forecasts, a review of CGT rates and allowances, particularly for higher earners, is anticipated. Further increases in rates or reductions to the annual exemption allowance (already at £3,000) are possibilities.
- Inheritance Tax (IHT) Reforms: Following protests, especially from the agricultural sector, proposals such as tightening asset reliefs (like Agricultural Property Relief and Business Property Relief) or reforming lifetime gifting rules could be considered.
- ISA and Pension Tax Relief Adjustments: There is speculation that the Chancellor will examine tax reliefs linked to ISAs and pensions, potentially restricting tax-free allowances for high earners or capping the 25% tax-free lump sum from pensions.
- Employer National Insurance/Sector-Specific Tax Reliefs: While a general rise in corporation tax has been played down, smaller adjustments to employer National Insurance or targeted tax reliefs for specific sectors might be considered.
- Fuel Duty: The temporary fuel duty cut of 5p per litre is due to end in March 2026, and its removal would raise significant revenue.
- Wealth Tax: While generally considered unlikely due to implementation challenges and potential capital flight, discussions around a wealth tax (e.g., revising council tax bands, replacing council tax with property tax, or bringing CGT in line with income tax) have occurred.
- Consumption Taxes: Minor increases in consumption taxes (e.g., on beer, wine, tobacco, airline duties, insurance premiums) could be used to raise some revenue, though these are typically less substantial.
- Spending Review: The Autumn Budget will be set against the backdrop of a Spending Review, which will confirm government departmental budgets and may necessitate further revenue-raising measures or spending cuts.
