Tax and Budget Changes for 2025
- Carbon Accountants Info Blog
- 5 days ago
- 4 min read
Updated: 4 days ago
The only constant is change
Employment Taxes
Chancellor Rachel Reeves' Spring Statement. "No additional employment tax increases are planned", but new measures starting 6 April 2025 will significantly impact businesses, particularly in hospitality, retail, and care sectors. These changes will affect cash flow and profit margins unless businesses take action.
National Minimum Wage (NMW): Increases to £12.21 per hour from April 2025.
18 to 20-year-olds: £10.00 (+ £1.40) (+16.3%)
16/17s and apprentice rate: £7.55 (+ £1.15) (+18.0%)
Employer National Insurance (NI):
Main rate rises by 1.2% from 6 April 2025.
Employer Class 1, 1A, and 1B NICs increase to 15%. Up from 13.8%
Class 1 NIC Secondary threshold reduces from £9,500 to £5,000 per year, meaning earnings above £5,001 will be subject to Class 1 NIC.
Employment Allowance:
Increases from £5,000 to £10,500 and extends to larger businesses, offering some relief. Director only payroll cannot obtain this relief.
Company vehicle tax changes:
HMRC redefines "car" and "van" for tax purposes, potentially increasing taxable benefits. Double cab pickups, previously treated as vans, may now be classified as cars depending on their payload capacity.
If deemed a car, this could lead to increased Benefit-in-Kind (BIK) tax for employees who use them. Businesses may also face higher corporation tax charges where these vehicles no longer qualify for the annual investment allowance for vans
There remains the benefit in kind if vans or pickups are taken home and used privately
Statutory Pay Increases:
Sick pay rises to £118.75 per week.
Family leave pay (maternity, paternity, adoption, etc.) increases to £187.18 per week.
Despite concerns from business groups, the Chancellor maintains that these measures are necessary for national economic stability.
Furnished Holiday Lettings (FHL)
The abolition of the Furnished Holiday Lettings (FHL) tax regime. This change aligns the taxation of FHL properties with other property businesses, significantly affecting tax reliefs and financial planning for landlords.
Key Changes from 6 April 2025
Capital Allowances
Landlords will no longer be able to claim capital allowances under the FHL regime.
Instead, they can claim replacement of domestic items relief, similar to standard property businesses.
Existing capital allowances pools can still be used, but no new claims can be made after the transition.
Business Asset Disposal Relief (BADR)
FHL property sales will no longer qualify for BADR, which previously allowed for reduced Capital Gains Tax (CGT) rates.
Landlords planning to sell should assess the impact on potential tax liabilities.
Income Tax and Mortgage Interest Relief
Currently, FHL owners can deduct 100% of mortgage interest from rental income.
From April 2025, only a 20% tax credit will be available, in line with standard buy-to-let rules.
Annual Tax on Enveloped Dwellings (ATED) tax regime
This is a timely reminder to ensure that any UK residential properties held by non-natural persons potentially within the ATED regime are identified, and returns submitted by the deadline, claiming any appropriate relief.
Returns for the 2025-26 chargeable period are due by the end of the month for relevant property interests held on 1 April
Business Taxes
The Corporate Tax Roadmap aims to provide stability and certainty. Few changes were announced in Spring 2025, but several consultations are underway:
R&D Tax Relief Advance Clearances
Aims to reduce fraud and errors.
Advanced Certainty for Major Projects
Proposes tax certainty for large investors, initially focusing on Corporation Tax.
Behavioural Penalty Reform
Seeks a simpler penalty system for tax compliance.
Tackling Non-Compliant Tax Advisers
Expands HMRC’s powers to gather information and publish tax adviser details.
Stricter Rules on Tax Avoidance Schemes
More disclosures and tougher penalties, including criminal prosecutions.
Other measures to combat tax evasion include:
Joint efforts by HMRC, Companies House, and Insolvency Services to prevent tax evasion through insolvency.
Late payment penalties increase from April 2025:
3% penalty if overdue by 15 days.
Additional 3% if overdue by 30 days.
10% annual penalty if overdue 31+ days.
Stamp Duty Land Tax
From 1 April 2025:
Companies purchasing residential properties over £250,000 may face higher Stamp Duty Land Tax (SDLT).
Follows rate increases effective 31 October 2024.
Personal Taxes
Inheritance Tax (IHT) Changes:
Agricultural & Business Property Relief:
From 6 April 2026, 100% relief applies to the first £1 million of qualifying assets.
Value above £1 million gets 50% relief, creating a 20% IHT rate.
May impact farms and family-owned businesses.
Consider revising wills, IHT exposure, and life policies.
Pensions & IHT:
From 6 April 2027, unused pension funds will count towards IHT.
40% IHT may apply if funds pass to someone other than a spouse.
Consider updating pension beneficiary nominations.
Residency & IHT:
From 6 April 2025, UK residents for 10+ out of the last 20 years will have worldwide assets taxed under UK IHT.
If leaving the UK after 6 April 2025, an IHT tail applies for up to 10 years.
Capital Gains Tax (CGT)
From 30 October 2024:
CGT on most assets rises from 10% & 20% to 18% & 24%.
CGT for trustees and personal representatives rises from 20% to 24%.
Business Asset Disposal Relief (BADR):
Current £1 million allowance taxed at 10%.
From 6 April 2025, rate increases to 14%.
From 6 April 2026, rate further rises to 18%.
Residential property CGT rates remain unchanged at 18% and 24%.
Conclusion
The Government is focusing on tax revenue collection, compliance, and fiscal stability. Businesses and individuals should review their tax planning strategies and take action to mitigate the financial impact of these upcoming changes.
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