Tax bands and rates

The basic tax rate remains at 20%.

For the 2025/26 tax year, this rate applies to income up to £37,700, with the higher rate of 40% beginning at £50,270 for those eligible for the full personal allowance. This basic rate band will stay at £37,700 until April 2028. The Upper Earnings Limit for NICs and the Upper Profits Limit will also align with this threshold of £50,270 until then. From April 2028, the government intends to adjust these limits in line with inflation.

Additional Rate: The threshold for the 45% additional rate is set at £125,140 for 2025/26. This rate applies to non-savings and non-dividend income for taxpayers in England, Wales, and Northern Ireland, while the additional rate for savings and dividend income applies across the UK.

Scottish residents

Scottish taxpayers are subject to different tax rates and bands for income such as wages, self-employment profits, and rental income. In 2024/25, Scotland introduced a new 45% rate, resulting in six rates from 19% to 48%. Rates and bands for 2025/26 will be outlined in the Scottish Budget on 4 December 2024. Scottish residents have the same personal allowance as those in the rest of the UK.

Welsh residents

Since April 2019, the Welsh Government can vary income tax rates (excluding savings and dividend income). For 2024/25, Welsh tax rates match those in England and Northern Ireland. The Welsh Budget on 10 December 2024 will confirm rates for 2025/26.

Personal allowance

The personal allowance remains fixed at £12,570 until April 2028, with potential increases linked to inflation thereafter. For those with “adjusted net income” over £100,000, the personal allowance reduces by £1 for every £2 above this amount, phasing out entirely at £125,140.

Married couple’s allowance and blind person’s allowance

Both allowances will be uprated for 2025/26.

Marriage allowance

This allowance enables eligible couples to transfer £1,260 of their personal allowance to their spouse or civil partner, reducing the recipient’s tax bill by up to £250 annually. One spouse must have income below the personal allowance for the year. Couples can claim for prior years back to 2020/21 if they meet eligibility requirements, potentially saving over £1,000 by 2023/24. Claims for 2020/21 must be made by 5 April 2025.

Tax on savings and dividends

Savings income

Savings income, such as bank interest, qualifies for the Savings Allowance, which varies by tax rate. Basic rate taxpayers receive an allowance of £1,000, higher rate taxpayers receive £500, and additional rate taxpayers do not qualify. Savings within the allowance count toward an individual’s basic or higher rate band and may influence the tax rate on savings beyond the allowance. A 0% starting rate applies to savings up to £5,000, provided non-savings income is below £5,000.

Dividend income

The Dividend Allowance remains at £500 for 2025/26 and applies UK-wide. Dividends above this allowance are taxed as follows:

• 8.75% for basic rate taxpayers
• 33.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers

Dividends within the allowance still contribute to an individual’s tax bands, potentially affecting the tax rate on dividends above this threshold. Dividends are treated as the final income type taxed within an individual’s income.

Pension tax limits

For 2025/26:

• Annual Allowance (AA): £60,000.
• For individuals with “threshold income” exceeding £200,000, the AA is reduced by £1 for every £2 of “adjusted income” over £260,000, to a minimum of £10,000.
• Lump Sum Allowance: £268,275, representing the tax-free lump sum limit.
• Lump Sum and Death Benefit Allowance: £1,073,100 as the maximum tax-free lump sum in certain cases.

Individual Savings Accounts (ISAs)

ISA limits for 2025/26 are as follows:

• ISAs: £20,000
• Junior ISAs: £9,000
• Lifetime ISAs: £4,000 (excluding government bonuses)
• Child Trust Funds: £9,000

High Income Child Benefit Charge (HICBC)

The HICBC applies to high earners who receive or whose partner receives Child Benefit. For 2025/26, HICBC starts at £60,000, with a charge rate of 1% of the Child Benefit payment per additional £200 over this threshold. Child Benefit is fully withdrawn once income reaches £80,000. The proposed reform to base HICBC on household income, introduced by the previous government, will not proceed.

Non-UK domiciled individuals

Significant changes are forthcoming for non-UK domiciled individuals. From 6 April 2025, the domicile-based tax system will transition to a residence-based system. New residents who haven’t been UK tax residents within the last decade will receive a four-year exemption on foreign income and gains. The exemption on foreign income and gains in settlor-interested trusts will cease for individuals not qualifying for the four-year regime.

For Capital Gains Tax (CGT), individuals who have used the remittance basis in the past can rebase foreign assets to their 5 April 2017 value for disposals. Foreign income and gains accrued before 5 April 2025 under the remittance basis will continue to be taxed upon remittance to the UK, even for those eligible for the new four-year relief.

Temporary repatriation facility (Facility)

From 2025/26, a Facility will allow former remittance basis users to remit pre-existing foreign income and gains at a reduced rate. The Facility rate will be 12% for the first two years and 15% in the third and final year.

Inheritance tax (IHT) reform

The current domicile-based IHT system will transition to a residence-based model, impacting non-UK assets held by individuals and trusts. Overseas Workday Relief will align with the new four-year foreign income and gains regime, limited to the lesser of £300,000 or 30% of total employment income.

National Insurance Contributions (NICs)

Employees and NICs

From 6 April 2025, the employer NIC rate will increase to 15%.

The Secondary Threshold, which determines the earnings level at which employers pay NICs, is currently set at £9,100 per year. This will be lowered to £5,000 per year from 6 April 2025 until 6 April 2028, with subsequent adjustments based on the Consumer Price Index (CPI).

The Employment Allowance, currently offering a £5,000 NIC deduction for businesses with employer NIC bills under £100,000, will rise to £10,500 from 6 April 2025. The £100,000 eligibility cap will also be removed, extending the allowance to all eligible employers.

Self-employed NICs

Class 4 NIC rates for self-employed individuals will remain at 6% and 2% from 6 April 2025.

From 6 April 2024, self-employed individuals with profits over £6,725 can access contributory benefits, including the State Pension, via a National Insurance credit without paying Class 2 NICs. Voluntary contributions will remain available for those with profits below this level.

Additional NIC changes for 2025/26

From 2025/26, the Lower Earnings Limit (LEL) and Small Profits Threshold (SPT) will increase by 1.7%, reflecting the September 2024 CPI. Voluntary Class 2 and Class 3 NICs will also increase by 1.7%.

The LEL will be £6,500 annually (£125 weekly), and the SPT will be £6,845 annually. Class 2 NIC will be £3.50 weekly, and Class 3 NIC will be £17.75 weekly.

Employer NICs relief for veterans

Employer NIC relief for hiring qualifying veterans will be extended by one year, from 6 April 2025 to 5 April 2026. Businesses will be exempt from paying employer NICs on the first £50,270 of annual earnings for veterans in their first civilian role.

National Living Wage (NLW) and National Minimum Wage (NMW)

The new NLW and NMW rates will apply from 1 April 2025:

• NLW: £12.21
• Ages 18-20: £10.00
• Ages 16-17: £7.55
• Apprentices: £7.55 (applies to those under 19 or in the first year of apprenticeship)

Comment: An NLW worker working 37.5 hours weekly will see an annual gross pay increase of £1,505.54, or £125.46 monthly.

Benefits for company cars

For the 2025/26 tax year:

• Zero-emission cars: Tax rate increases from 2% to 3%.
• Other cars: The rate increases by 1%, with a maximum benefit of 37%.

The government has confirmed benefit-in-kind rate increases for company cars, effective until 2029/30.

• Car fuel benefit charge: This will increase in line with CPI from 6 April 2025.
• Double cab pick-up vehicles: Double cab pick-up vehicles (DCPUs) with a payload of at least one ton will be treated as cars for certain tax purposes from April 2025, including capital allowances and benefits in kind. Employers with DCPUs purchased or leased before April 2025 can apply the existing capital allowances until disposal, lease expiry, or 5 April 2029.
• Company vans: The Van Benefit Charge and Van Fuel Benefit Charge will be uprated by CPI from 6 April 2025.

Mandatory reporting of benefits in kind via payroll software

From April 2026, phased requirements will mandate the use of payroll software to report and pay tax on benefits in kind, applying to Income Tax and Class 1A NICs.

Addressing tax non-compliance in the umbrella company market

To address high levels of tax avoidance and fraud in the umbrella company sector, recruitment agencies will be made accountable for PAYE on payments to workers provided through umbrella companies. In cases where no agency is involved, the end client will assume responsibility. This change takes effect from April 2026, aiming to shield workers from unexpected tax bills resulting from non-compliant umbrella companies.

Ending car ownership schemes exploiting tax loopholes

The government will introduce draft legislation to close tax loopholes in car ownership schemes, where cars are sold to employees under nominal terms, circumventing company car tax. These measures will ensure fair treatment for all employees and will come into force from 6 April 2026.

Taxation of employee ownership trusts and employee benefit trusts

A series of reforms will be introduced to limit potential abuses within Employee Ownership Trusts and Employee Benefit Trusts. The changes will keep these schemes focused on promoting employee ownership and reward structures, effective from 30 October 2024.

Clarifying the taxable status of statutory neonatal care pay

Legislation will clarify the tax treatment of Statutory Neonatal Care Pay, ensuring it is subject to Income Tax in line with other statutory maternity and paternity payments.

Corporation tax rates

The government has confirmed that Corporation Tax rates will remain unchanged. From April 2025, the main rate will stay at 25% for companies with profits exceeding £250,000. Companies with profits of £50,000 or less will continue to pay a 19% small profits rate. For companies with profits between £50,001 and £250,000, a marginal relief will apply, creating a gradual increase in the effective Corporation Tax rate.

Comment: The government has committed to capping the main Corporation Tax rate at 25% for the duration of this Parliament, making it currently the lowest rate among G7 countries.

Capital allowances

The Full Expensing rules allow companies a 100% write-off on qualifying purchases of new and unused plant and machinery (excluding cars). Integral features and long-life assets qualify for a 50% deduction. The government will consider extending Full Expensing to assets acquired for leasing or hiring as fiscal conditions permit.

The Annual Investment Allowance, available to both incorporated and unincorporated businesses, provides a 100% deduction on certain plant and machinery up to a financial limit of £1 million annually. Additionally, the 100% First Year Allowance (FYA) for qualifying zero-emission cars and plant or machinery for electric vehicle charge points has been extended until 31 March 2026 for corporation tax and 5 April 2026 for income tax.

Furnished Holiday Lettings (FHL)

The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. As a result, FHL properties will become part of the owner’s UK or overseas property business, subject to the same rules as non-furnished holiday rental properties. This change will affect individuals, companies, and trusts operating or selling FHL accommodation.

Implications for 2025/26:

• Pensions: income from FHLs will no longer count as relevant UK earnings for pension relief calculations.
• Dwelling-related loans: Income tax relief on finance costs for residential property will be limited to the basic rate of 20%.
• Replacement of domestic items: Capital allowances for new plant and machinery (with certain transitional exceptions) will no longer apply, although businesses may claim relief on replacement items.
• Capital gains: FHL capital gains tax reliefs are withdrawn for disposals made on or after 6 April 2025 (or 1 April 2025 for Corporation Tax). Roll-over relief on business asset replacements will also cease for acquisitions after these dates, with specific transitional rules preserving certain reliefs, such as Business Asset Disposal Relief, under specific conditions.
• Losses: Unused losses can generally be carried forward to offset future profits in the UK or overseas property business as applicable.

Multinational tax compliance

The Undertaxed Profits Rule, part of the G20-OECD Global Minimum Tax, will be implemented for accounting periods beginning on or after 31 December 2024, impacting over 135 countries and jurisdictions. Additionally, the Offshore Receipts in Respect of Intangible Property rules will be abolished from this date, along with amendments to Multinational Top-up Tax and Domestic Top-up Tax legislation.

Energy Profits Levy (EPL)

The temporary Energy Profits Levy on oil and gas production profits will increase from 35% to 38%, with the end date extended to 31 March 2030. The EPL Investment Allowance will be removed, and the Decarbonisation Investment Allowance will be reduced to 66%, effective from 1 November 2024. In early 2025, the government will consult on responses to potential price shocks once the EPL concludes.

Comment: The EPL aims to ensure that oil and gas companies support the UK’s energy transition, contributing to the government’s goal of becoming a clean energy superpower.

Business rates relief

For the 2025/26 financial year, eligible retail, hospitality, and leisure (RHL) properties in England will receive a 40% reduction in business rates liability, capped at £110,000 per business. The small business rate multiplier in England will be frozen at 49.9p, while the standard multiplier will increase to 55.5p.

Creative industry tax reliefs

Starting from 1 April 2025:

• Film and high-end TV productions can claim a 39% Audio-Visual Expenditure Credit (AVEC) for UK visual effects (VFX) costs, exempt from the 80% expenditure cap.
• UK films with budgets under £15 million that involve a UK lead writer or director can claim a 53% AVEC under the Independent Film Tax Credit.
• Theatre, Orchestra, and Museums & Galleries Exhibitions Tax Relief rates will be set at 40% for non-touring productions and 45% for touring and all orchestra productions across the UK.

Additional measures

• Anti-avoidance in close companies: From 30 October 2024, legislation will prevent shareholders from extracting funds from close companies without tax implications, ensuring compliance with anti-avoidance rules under the loans to participators regime.
• Charity tax relief: To prevent misuse of charity tax reliefs, the government will enact measures from April 2026 to ensure that only eligible charities benefit from the reliefs, providing time for charities to adapt.
• Alternative finance: From 30 October 2024, the government will amend tax rules for alternative finance to ensure parity with conventional finance arrangements.

Capital gains tax rates

Starting from 30 October 2024, Capital Gains Tax (CGT) rates will increase for most disposals except those involving residential property and carried interest. Key changes include:

• The basic rate increasing from 10% to 18%.
• The higher rate rising from 20% to 24%.

Rates for residential property disposals will remain unchanged at 18% (basic rate) and 28% (higher rate).

For trustees and personal representatives, the rate will increase from 20% to 24%, effective from the same date.

Comment: Aligning the CGT rates with those for residential property simplifies the tax framework by eliminating the need to differentiate between property types during disposal.

Annual exemption

The annual CGT exempt amount will stay fixed at £3,000 for the 2025/26 tax year.

Business asset disposal relief & investors’ relief

• From 6 April 2025, the tax rate for individuals claiming these reliefs will rise from 10% to 14%.
• An additional increase to 18% will apply for disposals on or after 6 April 2026.
• The Investors’ Relief lifetime limit will reduce from £10 million to £1 million for disposals on or after 30 October 2024, including prior qualifying gains.

Carried interest

• The current rates of 18% and 28% will change to a flat 32% rate for carried interest arising from 6 April 2025.
• From April 2026, carried interest will transition to the income tax framework, with a 72.5% multiplier applied to qualifying interest brought into charge.

LLP liquidations

When a Limited Liability Partnership (LLP) is liquidated, assets contributed by a member that result in chargeable gains will be taxed when the assets are disposed of to the member or a connected person. This applies to liquidations commencing on or after 30 October 2024.

Inheritance tax (IHT)

Nil rate bands

The nil rate band of £325,000 and the residence nil rate band of £175,000 will remain frozen until 5 April 2030. The taper for estates exceeding £2 million also stays frozen.

Pension funds & death benefits

From 6 April 2027, unused pension funds and death benefits payable from a pension will be included in the deceased’s estate for inheritance tax purposes.

Agricultural & business property relief

From 6 April 2026, a combined limit of £1 million will apply to agricultural and business property qualifying for 100% IHT relief.

• For property above this limit, a 50% relief will apply.
• Quoted shares designated as “not listed” (e.g., AIM shares) will receive 50% relief in all cases.

Extension of agricultural property relief

From 6 April 2025, Agricultural Property Relief will extend to land managed under environmental agreements with public authorities, devolved governments, or approved organizations.

Overseas transfers of tax-relieved pensions

The Overseas Transfer Charge (OTC), which applies a 25% tax on transfers to Qualifying Recognized Overseas Pension Schemes (QROPS), will extend to transfers to schemes in the EEA and Gibraltar starting 30 October 2024, removing the current exclusion.

VAT updates

VAT registration and deregistration thresholds

From 1 April 2025, the VAT thresholds remain unchanged:

• Registration threshold: £90,000
• Deregistration threshold: £88,000

VAT on private school fees

Private school fees for education and vocational training will be subject to the standard VAT rate of 20%.

• Applies to terms starting on or after 1 January 2025.
• Prepayments made after 29 July 2024 are also included.

Stamp Duty Land Tax (SDLT) changes

Additional residential properties

The SDLT surcharge for additional residential properties, such as second homes or buy-to-let investments, in England and Northern Ireland will rise from 3% to 5% for transactions with an effective date (usually completion) on or after 31 October 2024.

Corporate purchases

For companies and other non-natural persons purchasing residential properties worth over £500,000, the SDLT rate will increase from 15% to 17% starting on 31 October 2024.

Making Tax Digital (MTD) for Income Tax Self-Assessment

The government remains committed to implementing MTD for Income Tax Self-Assessment starting in April 2026.

• The rollout will gradually expand to include taxpayers with incomes over £20,000 before the end of this Parliament.
• Further details about precise timings will be shared at a later fiscal event.

HMRC compliance initiatives

HMRC is introducing several measures to improve tax compliance, including:

• Hiring additional compliance and debt management staff.
• Upgrading IT systems for debt management.
• Prepopulating tax returns with Child Benefit data to facilitate the High Income Child Benefit Charge.
• Raising the late payment interest rate on unpaid tax liabilities by 1.5%.

Income tax

Rates and bands (2025/26 vs 2024/25)

The income tax rates for England, Northern Ireland, and Wales (excluding devolved tax rates for Scotland and Wales) remain unchanged for 2025/26:

Savings and dividend income

• Savings allowance:
  • Basic rate taxpayers: £1,000
  • Higher rate taxpayers: £500
• Dividend income rates and allowances remain unchanged:
  • Allowance: £500
• Rates:
  • Ordinary rate: 8.75%
  • Upper rate: 33.75%
  • Additional rate: 39.35%

Income tax reliefs

Pensions

• Lump sum allowance: £268,275
• Annual allowance limit: £60,000
• Money Purchase Annual Allowance: £10,000

National Insurance Contributions (NICs)**

Class 1 (Employed)

Employer NICs is 0% for:

• Military veterans
• Employees under 21
• Apprentices under 25 earning up to £967/week

Other classes

• Class 1A and Class 1B (employers): 15%
• Class 2 (self-employed): Nil (voluntary contributions: £3.50/week for profits below £6,845)
• Class 3 (voluntary): £17.75/week
• Class 4 (self-employed):
  • 6% on profits between £12,570 and £50,270
  • 2% on profits above £50,270

Inheritance tax (IHT)**

Residence Nil-Rate Band (RNRB): Additional £175,000 may apply.

Corporation tax (2025/26 and 2024/25)**

• Marginal relief fraction: 3/200.
• Adjustments apply for associated companies and specific industries (e.g., oil).

Devolved income tax rates and bands

Scotland (2024/25 vs. 2025/26)

Scotland’s rates and bands for 2025/26 are yet to be confirmed (tbc). Below are the 2024/25 bands:

These bands reflect the progressive income tax system in Scotland, where the higher rates apply at earlier thresholds compared to the rest of the UK.

Car, van, and fuel benefits (2025/26)

Taxable benefits for cars based on CO2 emissions (g/km)

• Diesel supplement: Add 4% for fully diesel cars unless they are registered on or after 1 September 2017 and meet the Euro 6d emissions standard. Maximum rate remains 37%.
• CO2 adjustment: For emissions of 75 g/km or more, CO2 figures are rounded down to the nearest 5 or 0.
• Fuel and van benefits
• Car fuel benefit: £28,200
• Van benefit: £4,020
• Van fuel benefit: £769

Capital allowances (2025/26)

First Year Allowance (FYA)

• 100% Allowance: For certain plant, machinery, and cars with 0 g/km emissions.

Corporation tax FYAs

• Full expensing (100%): For new, unused plant and machinery.
• 50% FYA: For new, unused long-life assets and integral building features.

Annual investment allowance

• Limit: £1,000,000 (excluding cars).

Writing down allowance

Value-added tax (VAT)