Tax 2025

Tax changes taking effect in the 2025/26 tax year: what you need to know

March 31, 2025

Several changes to UK tax regulations were announced in the Chancellor’s Autumn Budget. Some of them took effect immediately, while others kick-in from 6 April 2025.  The next two years will bring more changes which are worth keeping an eye on.  There is also plenty that hasn’t changed but might impact on your financial planning all the same. 

So, as we enter the new tax year, what’s likely to affect you?

• Income tax

The continued freeze on Income Tax brackets could mean more of your income being taxed at higher rates. Many retirees who expected to be non-taxpayers are surprised to find that the increased state pension now uses up most, if not all, of their Personal Allowance.  If you earn over £100,000 you will continue to see your Personal Allowance reduced by £1 for every £2 up to £125,140 which is equivalent to a 60% rate of tax on that slice of income.

The standard Income Tax rates in England and Northern Ireland for the tax year 2025-26 are:

• Tax-free Personal Allowance up to £12,570 0%
• Basic tax rate £12,571-37,700 20%
• Higher tax rate £37,701-£125,140 40%
• Additional tax rate above £125,140 45%

NB: In her 2024 Autumn Budget, Chancellor Rachel Reeves said there would be no extension of the freeze in Income Tax and employee National Insurance thresholds. So from 2028/2029, these personal tax thresholds are currently due to increase in line with inflation.

• State Pension increase

Both types of State Pension will rise by 4.1% in 2025/2026, in line with the so-called ‘triple lock’. 

From April 2025, the full new State Pension will go up from £221.20 to £230.25 a week and the full basic State Pension will increase from £169.50 to £176.45 per week.

If you are claiming State Pension as well as drawing income from your private pension (or still earning a salary), it’s worth checking now whether your combined income is likely to push you into a higher rate Income Tax bracket.

• Capital gains tax increase

If you are planning to sell property other than your main residence, or to cash-in shares or other investments, it’s important to remember that an increase in Capital Gains Tax (CGT) has already been in place since 30 October 2024. 

CGT is charged on the profits made from selling assets, such as investments or second homes, and the 2024 Autumn Budget included immediate increases in the rates at which it is paid on any profits from the sale of these assets.

The lower rate of CGT for all assets has increased from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher-rate taxpayers. This brings them into line with the rates on residential property, which remain at 18% and 24%.

(Remember, CGT is payable on any gain you make, rather than on the total sale price. Gains can also be offset against losses made when selling other assets.)

• Stamp Duty Land Tax holiday ends, plus rates go up on second homes

There are a number of changes to Stamp Duty (or Stamp Duty Land Tax (SDLT)), the tax on the property price when you buy a house or flat in England and Northern Ireland (rates and thresholds are different in Scotland and Wales). How these affect you will depend on whether you are a first-time buyer, home mover, or are buying a second home or buy-to-let property.

• First-time buyers

The extra SDLT relief for first-time buyers and home movers in England and Northern Ireland ended on 31 March 2025. From 1 April, the SDLT threshold for first-time buyers dropped from £425,000 (on a property worth £625,000 or less) to the previous rate of £300,000.

• Home movers

Also from 1 April 2025, home movers will pay SDLT on purchases over £125,000, rather than £250,000. 

For example, based on the new thresholds and SDLT rates, a home mover completing on a property worth £500,000 in England or Northern Ireland would pay £15,000 in SDLT rather than the £12,500 they would have paid before 31 March. 

• Buy-to-let or second home buyers

The bad news for anyone looking for a buy-to-let or second home was that the Chancellor announced in her Autumn Budget that the SDLT rate for buy-to-let properties and second homes would increase by 2%. (This change took effect in October, immediately after the Budget announcement.)

• Savings and investments
• ISAs

Rumoured changes to ISA allowances, and the cash element in particular, failed to materialise.  The savings allowances for ISAs remain unchanged in the tax-year 2025-26:

• You can save up to a total of £20,000 into a single or multiple ISA accounts (which can be a combination of cash ISAs, stocks and shares ISAs or innovative finance ISAs)
• You can pay up to £4,000 into a Lifetime ISA

• Pension savings

The limits on how much you can add to your pension pot in a year also remain unchanged, with a standard Annual Allowance of £60,000.  Beware of two further limits known as the Tapered Annual Allowance and the Money Purchase Annual Allowance.  How much you can save depends on your earned income and other circumstances, so we recommend speaking to an IFA if you’re in any doubt.

• Inheritance Tax (IHT) and new pension rules

If you die with an estate worth more than £325,000, it is highly likely your executors will need to pay IHT at a rate of 40% on the value above this Nil Rate Band.

The threshold rises to £500,000 if your estate includes your main residence and you pass it to direct descendants.  This is called the Residence Nil Rate Band. Since there is no IHT payable on transfers between a spouse or civil partner, these allowances can be doubled up on the subsequent death of the survivor.

The current IHT thresholds were due to be frozen until 2028, but this freeze has been extended until 2030. Rising house prices and the value of investments, means that more estates are likely to exceed these frozen IHT thresholds.  If this is a concern for you or your family, it’s advisable to review your personal circumstances with your IFA who can help identify potential strategies to manage the impact of IHT on your estate.

A significant change announced in the Autumn Budget is the inclusion of ‘unspent’ pension funds in your estate for IHT purposes from April 2027. The full implications for your beneficiaries remain unclear but there could be a series of unexpected consequences including the potential loss of the RNRB described above.

Although the rules remain unchanged for a couple of years, it is certainly worth understanding the value of all assets that might form part of your estate, especially if leaving a pension pot to a financial dependant, or other beneficiaries, is a significant part of your wealth distribution plan.

• Abolition of the non-domiciled (non-dom) tax regime

The existing non-dom tax regime– for UK residents whose permanent home or domicile for tax purposes is outside the UK– will be abolished from April 2025, to be replaced by a new scheme based on residence, under which more UK residents who are not UK nationals will pay tax on their global income under UK tax legislation (with a transitional period designed to ease the transition to the new system). UK nationals returning to the UK after a period living abroad will also have a window during which to transfer their overseas money to the UK. 

How this affects you will vary depending on how long you have been resident in the UK, or abroad along with various other factors. If you have previously claimed non-dom status and want to understand how the changes will impact you, speak to your IFA.

• Employer National Insurance increase

If you are a business owner and employer, don’t forget that increases to employer National Insurance (NI) contributions also come into effect from 6 April 2025.

NI contributions for employers increased from 13.8% to 15% from 6 April 2025, and the threshold for earnings that are subject to this levy has been lowered from £9,100 to £5,000.

Understand what this means for you

A detailed review of your financial circumstances will help you understand how these changes might apply to you and your family.  Your IFA can recommend a suitable strategy to address these and mitigate against negative effects, meaning you keep more of your money.

At Talis IFA, we take a ‘life first, money second’ approach, so our recommendations are based on developing a deep understanding of your current situation and future plans – whether that’s focused on here and now, or working towards financial security later on.

Find a Talis IFA here.