1. Abolition of the Non-Dom Tax Regime
Effective from 6 April 2025, the UK will abolish the non-domiciled (non-dom) tax status. Previously, non-doms could elect to be taxed only on their UK income and gains, provided they did not remit foreign income to the UK. Under the new regime, all UK residents will be taxed on their worldwide income and gains.
Transitional provisions include a rebasing option for foreign capital assets to their value on 5 April 2019 and a temporary 50% exemption on foreign income for the 2025/26 tax year. Additionally, Business Investment Relief will remain available for qualifying investments of foreign income and gains from remittance basis years.
2. Capital Gains Tax (CGT) Rate Increases
As of 6 April 2025, CGT rates have risen:
- Basic Rate: Increased from 10% to 18%
- Higher Rate: Increased from 20% to 24%
These changes align CGT rates with those applied to property sales. The adjustments are part of broader reforms to ensure fairer taxation across different asset classes.
3. Inheritance Tax (IHT) Reforms
Significant modifications to IHT include:
- Agricultural Property Relief: From April 2026, estates exceeding £1 million will be subject to a 20% IHT on the value above this threshold, reduced from the standard 40% rate. This change has sparked protests from farmers, as many argue it threatens the viability of family-run farms.
- Pensions and IHT: Starting in April 2027, pensions will be included in the taxable estate for IHT purposes, potentially affecting estate planning strategies.
4. Employer National Insurance Contributions (NICs) Increase
Employers will see an increase in NICs from 13.8% to 15% for earnings above £5,000 annually, effective from April 2025. To mitigate the impact on businesses, the Employment Allowance has been raised from £5,000 to £10,500, exempting approximately 865,000 small businesses from paying NICs.
5. Stamp Duty Land Tax (SDLT) Adjustments
The government has introduced higher SDLT rates for certain property transactions:
- Additional Dwellings: The surcharge for additional properties has increased from 3% to 5%.
- Corporate Purchasers: Companies acquiring residential properties over £500,000 will now pay a 17% SDLT rate, up from 15%.
6. Value Added Tax (VAT) Threshold Increase
The VAT registration threshold has been raised from £85,000 to £90,000, effective from 1 April 2024. This adjustment aims to reduce the administrative burden on small businesses and aligns with the government’s commitment to support enterprise growth.
7. Reforms to Employee Ownership Trusts (EOTs)
Changes to EOTs include:
- Control Restrictions: Former owners are now prohibited from retaining control post-sale, ensuring genuine employee ownership.
- Trustee Requirements: Trustees must be UK-resident, enhancing governance standards.
- Clawback Period: The period for potential relief clawback has been extended, impacting tax planning strategies for businesses considering EOTs.
8. Introduction of Vaping Tax
A new tax on vaping products has been announced, set to take effect in October 2026. This measure aims to regulate the growing market and align taxation with public health objectives.
9. Making Tax Digital (MTD) for Income Tax Delayed
The implementation of MTD for Income Tax Self-Assessment (ITSA) has been postponed until 2026. This delay provides taxpayers and software developers additional time to prepare for the transition to digital tax reporting.
Conclusion
The tax reforms introduced in 2025 represent a significant shift in the UK’s fiscal policy, with a focus on fairness, sustainability, and modernization. Individuals and businesses are encouraged to review these changes and consult with tax professionals to understand their implications and ensure compliance.