Tax changes you need to know about in 2025

Personal taxes

Capital Gains Tax increase

Capital gains tax (CGT) is charged on the profits made from selling assets, such as investments or valuable possessions.

At the Autumn Budget it was confirmed that CGT would rise with immediate effect from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher and additional rate taxpayers. Remember, that gains can also be offset against losses made when selling other assets, so it is important to retain records when selling items which may attract capital gains or losses.

Frozen thresholds to create further tax liabilities

Under the current threshold freeze, the personal allowance will stay at £12,570 before tax begins, with the National Insurance employee threshold also remaining the same. The main IHT threshold will also remain frozen at £325,000 until 2030. The additional rate for passing on property will stay at £175,000, while the annual gift allowance remains fixed at £3,000.

All these threshold freezes will mean increasing tax liabilities when inflation over time is factored in. It is also important to note that a significant change will occur from April 2027, when pensions will be included as part of the taxable estate.

Stamp duty holiday to end, and rates increased for second homes

Stamp duty thresholds in England and Northern Ireland are set to decrease from April 2025, affecting those purchasing property from 1 April 2025.

The current threshold of £250,000 for paying stamp duty on a primary residence will revert to its previous level of £125,000. First-time buyers will also be impacted, with their stamp duty threshold dropping significantly from £425,000 to £300,000.

These changes mark the end of temporary measures introduced in September 2022, meaning more property purchases will become subject to stamp duty charges and will result in homebuyers paying tax on a larger portion of their property’s value.

Furthermore, stamp duty for buy-to-let properties and second homes has increased from 3% to 5% and this change took place immediately after the Autumn Budget on 30 October 2024.

Council tax to rise

Council tax is set to rise again in April 2025, with local authorities in England permitted to increase bills by up to 5%.

The average band D council tax in England for 2024/25 was £2,171, according to Government figures, so this could mean a rise of £109 in council tax.

Road tax increases and electric car exemption to end

Significant changes to car tax rates will also take effect from April, particularly affecting new vehicle purchases.

Starting in April 2025, electric vehicle (EV) owners will no longer be exempt from Vehicle Excise Duty (VED), commonly known as road tax. Currently, EVs are free from this charge, but a new rate structure will see them pay a first-year rate of £10. Additionally, EVs priced over £40,000 will face the Expensive Car Supplement, which currently stands at £410.

Meanwhile, new cars emitting between 1-50g/km of CO2, including hybrids, will see tax rise from £10 to £110. Vehicles emitting 51-75g/km of CO2 will face increases from £30 to £130, while rates for cars emitting 76g/km and above will double. At the top end, cars emitting over 255g/km of CO2 will see first-year rates double from £2,745 to £5,490.

Increases in tobacco and alcohol duty

From 30 October 2024, tobacco duty has risen by the Retail Price Index (RPI) measure of inflation plus 2%. Duty on hand-rolling tobacco has risen by RPI plus 10%.

Alcohol duty rates on non-draught products including wine, spirits and bottled beer will increase by 2.7% from 1 February 2025. However, duty on draught alcohol served in pubs, bars and restaurants will decrease by 1.7%.

Business taxes

Employers National Insurance Contributions to increase

Employers will face increased National Insurance costs from 6 April 2025, with rates rising from 13.8% to 15%. The earnings threshold at which employers start paying this tax will drop significantly from £9,100 per year to £5,000.

However, the Employment Allowance which currently allows businesses with employer NIC bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill, will rise. 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.

Corporation Tax to remain unchanged

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.

Company size thresholds to increase

New regulations increasing company size thresholds and removing certain requirements from the Directors’ Report will be effective from April 2025.

The Government estimates this will result in around 113,000 companies and LLPs moving from the small to micro-entity category, 14,000 moving from medium-sized to small and 6,000 moving from large to medium-sized, and therefore entitled to a reduction in reporting and audit requirements.

For entities moving into the small entities regime, the impact will be significant. They will be exempt from the requirement to have a statutory audit of their annual accounts (subject to implications of group membership) and from producing a Strategic Report. They will also be able to take advantage of simpler accounting requirements. Those moving to the micro entities regime will additionally be exempt from producing a Directors’ Report. You can see further details on the company threshold changes here.

Business Asset Disposal Relief tax rates to increase

Business Asset Disposal Relief (BADR) operates by applying a lower rate of Capital Gains Tax (‘CGT’) for individuals on certain disposals, including the sale of shares in trading companies or holding companies of trading groups. BADR is therefore a valuable relief for business owners when they sell their businesses.

For disposals made on or after 6 April 2025, the rate of tax on gains eligible for BADR 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. There has been no change to the £1 million lifetime limit.

Merged R&D scheme takes affect from March 2025

In April last year, the old SME and RDEC schemes merged into a new merged R&D scheme. This new merged scheme will apply for accounting periods starting on or after 1 April 2024 (and therefore accounting periods ending March 2025 onwards).

Under the new scheme, costs related to subcontractors and externally provided workers is only allowable if the work is undertaken in the UK, subject to specific exemptions. Meanwhile, existing RDEC restrictions on claiming subcontracted R&D expenditure will be removed. You can read more on the new R&D merged scheme here.

Living Wage and Minimum Wage to increase from April 2025

The National Living Wage (NLW) and National Minimum Wage (NMW) will both increase from 1 April 2025. The rates which will apply are as follows:

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Double cab pick-up vehicles to be treated as cars

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, DCPUs will be treated as cars for the purposes of capital allowances, benefits in kind and some deductions from business profits.

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.

Furnished Holiday Lettings tax exemptions to be abolished

The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. The effect of abolishing the rules will be that FHL properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.

This will apply to individuals, corporates and trusts who operate or sell FHL accommodation. Further details on these changes are available in our Budget coverage here.

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