Chancellor Rachel Reeves delivered her Budget on Wednesday 30 October 2024. She pledged to ‘invest, invest, invest’ to drive growth and ‘restore economic stability’.
Ms Reeves said the Budget will raise £40 billion in taxes. From next April, the government will increase employers’ National Insurance contributions (NICs) and raise Capital Gains Tax rates. Starting April 2027, inherited pensions will be subject to Inheritance Tax, and reliefs on passing down agricultural and business assets will be reformed. The Chancellor also confirmed the introduction of VAT on private school fees and the abolishment of the tax regime for non-UK domiciled individuals.
Ms Reeves said she would protect living standards by unfreezing the thresholds on Income Tax and employee NICs from 2028 while she extended the cut in Fuel Duty for another year. The Chancellor also pledged a decade of ‘national renewal’ with increased funding for schools and the NHS. Further spending announcements included housing, transport and the aerospace and automotive sectors.
The basic rate of tax is 20%. For 2025/26 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% rate applies is £50,270 for those who are entitled to the full personal allowance.
The basic rate band is frozen at £37,700 until April 2028. The NICs Upper Earnings Limit and Upper Profits Limit will remain aligned to the higher rate threshold at £50,270 for these tax years as well. The government has suggested that, from April 2028, these limits will then be uprated in line with inflation.
For 2025/26 the point at which individuals pay the additional rate of 45% is £125,140.
The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.
The tax on income (other than savings and dividend income) is different for taxpayers who are resident in Scotland from that paid by taxpayers resident elsewhere in the UK. The Scottish Income Tax rates and bands apply to income such as employment income, self-employed trade profits and property income.
In 2024/25, the government introduced a new 45% Income Tax rate, bringing the total number of rates to six, ranging from 19% to 48%. The Scottish Budget, due on 4 December 2024, will set the rates and bands for 2025/26. Scottish taxpayers receive the same personal allowance as individuals elsewhere in the UK.
Since April 2019 the Welsh Government has had the right to vary the rates of income tax payable by Welsh taxpayers (other than tax on savings and dividend income). For 2024/25 the tax payable by Welsh taxpayers is the same as that payable by English and Northern Irish taxpayers. The Welsh rates for 2025/26 will be announced in the Welsh Budget on 10 December 2024.
The Income Tax personal allowance is fixed at the current level of £12,570 until April 2028. The government has suggested that, from April 2028, it will then be uprated in line with inflation.
There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. This means that there is no personal allowance where adjusted net income exceeds £125,140.
The government will uprate the married couple’s allowance and blind person’s allowance for 2025/26.
The marriage allowance permits certain couples to transfer £1,260 of their personal allowance to their spouse or civil partner.
Savings income is income such as bank and building society interest.
The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.
Savings income within the allowance still counts towards an individual’s basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.
Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.
Currently, the first £500 of dividends is chargeable to tax at 0% (the Dividend Allowance). This £500 is retained for 2025/26.
These rules apply to the whole of the UK.
For the 2025/26 tax year, dividends received above the allowance are taxed at different rates depending on your income band:
• Basic rate taxpayers are charged 8.75%
• Higher rate taxpayers pay 33.75%
• Additional rate taxpayers face a 39.35% charge.
The Corporation Tax due on directors’ overdrawn loan accounts is paid at 33.75% and remains unchanged.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
For 2025/26:
Individual Savings Accounts
For 2025/26, the contribution limits for tax-efficient savings accounts are:
• Individual Savings Accounts (ISAs): £20,000
• Junior ISAs: £9,000
• Lifetime ISAs: £4,000 (excluding government bonus)
• Child Trust Funds: £9,000
The High Income Child Benefit Charge (HICBC) is a tax charge that applies to higher earners who receive Child Benefit or whose partner receives it.
For 2025/26, the High Income Child Benefit Charge (HICBC) begins when income exceeds £60,000. The charge increases by 1% of the Child Benefit payment for every £200 earned above this threshold. Child Benefit won’t be fully withdrawn until adjusted net income reaches £80,000 or more.
The government will not proceed with the reform to base HICBC on household incomes as proposed by the previous government.
Significant changes are being made to the tax regime for non-UK domiciled individuals. From 6 April 2025, the remittance basis of taxation—previously based on domicile status—will be replaced by a new regime based on residence. Under this, new UK arrivals who haven’t been UK tax resident in any of the previous ten consecutive years will receive 100% relief on foreign income and gains (FIG) for their first four years of UK tax residence.
Protection from UK tax on FIG arising within settlor-interested trusts will no longer apply to non-domiciled or deemed domiciled individuals who do not qualify for the new four-year FIG regime.
For Capital Gains Tax (CGT), transitional relief allows current and former remittance basis users to rebase foreign assets held on 5 April 2017 to their value at that date upon disposal.
Foreign income and gains that arose on or before 5 April 2025—while an individual was taxed under the remittance basis—will still be taxed on remittance to the UK. This includes individuals eligible for the new four-year regime.
A Temporary Repatriation Facility (the Facility) will be introduced for those who previously claimed the remittance basis. It will allow them to remit pre-6 April 2025 FIG at reduced tax rates—12% for the first two years and 15% in the final year. The Facility will be available for three tax years starting in 2025/26.
The current domicile-based Inheritance Tax (IHT) system will be replaced with a residence-based system. This change will bring more non-UK property held by individuals and trusts into the UK IHT net.
The government will extend Overseas Workday Relief to four years to align with the new FIG regime, capping it at the lower of £300,000 or 30% of total employment income.
From 6 April 2024 the main rate of Class 1 employee NICs is 8%. The employer rate is 13.8%.
The government announced that it will increase the employer rate from 13.8% to 15% from 6 April 2025.
The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings, and is currently set at £9,100 a year. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.
The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. From 6 April 2025 the government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills.
From 6 April 2024 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same from 6 April 2025.
For Class 2 NICs from 6 April 2024:
• Self-employed people with profits of £6,725 and above get access to contributory benefits, including the State Pension, through a National Insurance credit, without paying Class 2 NICs.
• Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension will continue to be able to do so.
Other changes for 2025/26
The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2024 CPI rate of 1.7% from 2025/26. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs by 1.7% in 2025/26.
The LEL will be £6,500 per annum (£125 per week) and the SPT will be £6,845 per annum. The main Class 2 rate will be £3.50 per week and the Class 3 rate will be £17.75 per week.
The government is extending the employer NICs relief for employers hiring qualifying veterans for a further year from 6 April 2025 until 5 April 2026.
This means that businesses will continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran’s employment in a civilian role.
The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2025.
Zero-emission cars will see their charge rise from 2% to 3%.
Other cars will face a 1% increase.
The maximum benefit will remain capped at 37%.
The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30.
The government will uprate the car fuel benefit charge by CPI from 6 April 2025.
The government will treat double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes.
From 1 April 2025 for Corporation Tax and 6 April 2025 for Income Tax, the government will treat double cab pick-up vehicles (DCPUs) as cars for capital allowances, benefits in kind, and certain business profit deductions.
The existing capital allowances treatment will apply to those who purchase DCPUs before April 2025. Transitional benefit in kind arrangements will apply for employers that have purchased, leased, or ordered a DCPU before 6 April 2025. They will be able to use the previous treatment, until the earlier of disposal, lease expiry, or 5 April 2029.
The government will uprate the Van Benefit Charge and the Van Fuel Benefit Charges by CPI from 6 April 2025.
The government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2026. This will apply to income tax and Class 1A NICs.
To tackle widespread tax avoidance and fraud in the umbrella company market, the government plans to make recruitment agencies responsible for applying PAYE to payments made to workers supplied through umbrella companies.
Where there is no agency, the responsibility will fall to the end client business.
This will take effect from April 2026. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.
The government will publish draft legislation relating to loopholes in car ownership arrangements, through which an employer or a third party sells a car to an employee, often via a loan with no repayment terms and negligible interest, then buys it back after a short period.
This arrangement means those benefiting don’t pay company car tax, which other employees pay, and so this measure will seek to level the playing field.
The changes will take effect from 6 April 2026.
The government is introducing a package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts.
These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees.
The changes will take effect from 30 October 2024.
The government will legislate to clarify the Income Tax treatment of Statutory Neonatal Care Pay. This will ensure the payment is liable to Income Tax and ensure consistency with the tax treatment of other statutory maternity and paternity pay schemes.
The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2025, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long life assets at a rate of 50%. The government will explore extending Full Expensing to assets bought for leasing or hiring, when fiscal conditions allow.
The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.
The government has extended the 100% First Year Allowances (FYA) for zero-emission cars and electric vehicle chargepoint equipment to 31 March 2026 for Corporation Tax and 5 April 2026 for Income Tax.
The government will abolish the Furnished Holiday Lettings (FHL) tax regime from April 2025. After abolition, the government will treat FHL properties as part of a person’s UK or overseas property business, applying the same rules as non-furnished holiday let property businesses. This change will affect individuals, corporates, and trusts that operate or sell FHL accommodation.
Several implications will arise from 2025/26, including:
Pensions: Individuals can no longer include FHL income within relevant UK earnings when calculating maximum pension relief.
Dwelling-related loans: Landlords’ income tax relief on residential property finance costs will be limited to the basic rate of 20%.
Replacement of domestic items: Capital allowances will no longer apply to expenditure on new plant and machinery (subject to transitional rules). Instead, businesses may claim relief on replacing certain items.
Capital gains: The rules allowing FHL to qualify as a trade for various capital gains tax reliefs will be withdrawn for disposals made on or after 6 April 2025 (1 April 2025 for Corporation Tax). Roll-over relief on replacement business assets will no longer apply for acquisitions on or after these dates. However, detailed transitional rules will preserve some reliefs, such as Business Asset Disposal Relief, in specific cases.
Losses: Generally, unused losses can be carried forward to offset future profits of the UK or overseas property business, as appropriate.
The government will implement the Undertaxed Profits Rule—the final element of the G20-OECD Global Minimum Tax agreed by over 135 countries. It will apply to accounting periods starting on or after 31 December 2024. Starting on the same date, the government will abolish the Offshore Receipts in Respect of Intangible Property rules. It will also introduce additional changes to the Multinational Top-up Tax and Domestic Top-up Tax legislation.
From 1 November 2024, the government will increase the Energy Profits Levy (EPL) on upstream oil and gas profits from 35% to 38% and extend its end date to 31 March 2030. It will remove the Investment Allowance and reduce the Decarbonisation Investment Allowance to 66%. The government will launch a consultation in early 2025 to address how to manage future price shocks after the EPL ends.
For 2025/26, eligible retail, hospitality and leisure (RHL) properties in England will receive 40% relief on their business rates liability. RHL properties will be eligible to receive support up to a cash cap of £110,000 per business.
For 2025/26, the government will freeze the small business multiplier in England at 49.9p while increasing the standard multiplier to 55.5p.
From 1 April 2025, film and high-end TV productions will be able to claim an enhanced 39% rate of Audio-Visual Expenditure Credit (AVEC) on their UK visual effects (VFX) costs. UK VFX costs will be exempt from the AVEC’s 80% cap on qualifying expenditure. Costs incurred from 1 January 2025 will be eligible.
UK films with budgets under £15 million and a UK lead writer or director will be able to claim an enhanced 53% rate of AVEC from 1 April 2025. This is known as the Independent Film Tax Credit.
From 1 April 2025, Theatre Tax Relief, Orchestra Tax Relief, and Museums and Galleries Exhibitions Tax Relief will apply at 40% for non-touring productions and 45% for touring productions and all orchestra productions throughout the UK.
The government will ensure shareholders cannot extract funds untaxed from close companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change will apply from 30 October 2024.
The government will legislate to prevent abuse of charity tax rules, ensuring only intended tax relief reaches charities. These changes take effect from April 2026, allowing charities time to adapt.
From 30 October 2024, the government will update alternative finance tax rules to align the tax treatment of alternative and conventional financing arrangements.
The Capital Gains Tax rates will increase for disposals, other than of residential property and carried interest, made on or after 30 October 2024. The basic rate of 10% will increase to 18% and the 20% rate will increase to 24%.
The government will keep the rates for disposing of residential properties at 18% and 24%, with no changes planned.
The rate applying to trustees and personal representatives will increase from 20% to 24% from the same date.
The annual exempt amount will remain at £3,000 for 2025/26.
The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025. The rate will increase again to 18% for disposals made on or after 6 April 2026.
From 30 October 2024, the lifetime limit for Investors’ Relief will drop from £10 million to £1 million for qualifying disposals. This limit includes any previous qualifying gains where relief was claimed.
The rates that apply to carried interest of 18% and 28% will increase to a flat rate of 32%. This will apply to carried interest arising to an individual on or after 6 April 2025.
Starting April 2026, all carried interest will be taxed under the income tax system. A 72.5% multiplier will apply to any qualifying interest included in the charge.
When a member contributes assets to a Limited Liability Partnership (LLP), they must pay tax on any chargeable gains accrued up to that point once the LLP is liquidated and the assets transfer to them or a connected person. This tax charge applies to liquidations starting on or after 30 October 2024.
The Overseas Transfer Charge (OTC) imposes a 25% tax on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS), unless an exclusion applies. The government will end the exemption for transfers to QROPS established in the EEA and Gibraltar, applying this change to transfers made on or after 30 October 2024.
The nil rate band has stayed frozen at £325,000 since 2009 and will remain frozen until 5 April 2030. The additional ‘residence nil rate band’ is also frozen at £175,000. The taper for the residence nil rate band, which starts at £2 million, will stay frozen until the same date.
The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027.
From 6 April 2026, agricultural and business property will continue to benefit from the 100% Inheritance Tax relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Property in excess of the limit will benefit from a 50% relief, as will, in all circumstances, quoted shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.
Starting 6 April 2025, Agricultural Property Relief will also apply to land managed under environmental agreements with the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
From 1 April 2025 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.
Private school fees for education and vocational training will no longer benefit from VAT exemption and will be subject to VAT at the standard rate (20%). This change takes effect for terms starting on or after 1 January 2025, and will also cover certain prepayments made after 29 July 2024.
Individuals who purchase additional residential properties, such as second homes or buy-to-let properties, in England and Northern Ireland, generally pay Stamp Duty Land Tax (SDLT) at 3% above the standard SDLT rates. For transactions with an effective date (usually the completion date), this rate rises to 5%.
Companies and other non-natural persons buying residential property in England and Northern Ireland will face similar changes.
In addition, there is also an increase in the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%, from the same date.
The government plans to launch Making Tax Digital for Income Tax Self Assessment in April 2026 and has reaffirmed its commitment to the rollout. The government will expand the rollout of the programme to those with incomes over £20,000 by the end of this Parliament and will set out the precise timing for this at a future fiscal event.
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