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Major Tax Overhaul: Eight Key Changes Coming in 2025 and Beyond

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As the UK prepares for significant tax reforms in 2025 and beyond, taxpayers are bracing for changes that will affect various aspects of their finances. From National Insurance to inheritance tax, these adjustments are set to reshape the financial landscape for many Britons.

Key Takeaways

  • National Insurance: Employer contributions will rise from 13.8% to 15%, with the earnings threshold dropping from £9,100 to £5,000.

  • Stamp Duty: The threshold for stamp duty on primary residences will decrease from £250,000 to £125,000, impacting first-time buyers significantly.

  • Council Tax: Local authorities can increase council tax bills by up to 5% starting April 2025.

  • Car Tax: New rates will apply based on CO2 emissions, with significant increases for higher emissions.

  • Alcohol Duty: Non-draught alcohol will see a 2.7% increase in duty, while draught products will decrease by 1.7%.

  • Capital Gains Tax: Rates will rise for both basic and higher rate taxpayers.

  • Inheritance Tax: The main threshold remains frozen until 2030, with pensions included in taxable estates from 2027.

  • Income Tax Thresholds: These will remain frozen until 2028, affecting take-home pay.

National Insurance Changes

Starting from April 6, 2025, employers will face increased National Insurance costs. The rate will rise from 13.8% to 15%, and the threshold at which employers begin paying this tax will drop significantly from £9,100 to £5,000. While this change won't directly affect workers' take-home pay, businesses may need to raise prices to offset the increased costs.

Stamp Duty Adjustments

The stamp duty thresholds in England and Northern Ireland will revert to previous levels, with the primary residence threshold dropping from £250,000 to £125,000. First-time buyers will also see their threshold decrease from £425,000 to £300,000, meaning more property purchases will incur stamp duty charges.

Council Tax Increases

Local authorities will have the authority to raise council tax bills by up to 5% starting in April 2025. The average band D council tax in England for 2024/25 was £2,171, indicating a potential increase in household expenses.

Changes to Car Tax Rates

Significant changes to car tax rates will take effect in April 2025, particularly affecting new vehicle purchases. For example:

  • Cars emitting 1-50 g/km of CO2 will see tax rise from £10 to £110.

  • Vehicles emitting 51-75 g/km will face increases from £30 to £130.

  • Cars emitting over 255 g/km will see first-year rates double from £2,745 to £5,490.

Alcohol Duty Rates

From February 1, 2025, alcohol duty rates on non-draught products, including wine and spirits, will increase by 2.7%. Conversely, duty on draught alcohol served in pubs and restaurants will decrease by 1.7%, providing some relief for consumers in the hospitality sector.

Capital Gains Tax Changes

Capital gains tax (CGT) rates will rise, with basic rate taxpayers seeing an increase from 10% to 18%, and higher rate taxpayers from 20% to 24%. This change will affect those selling assets and investments, potentially leading to higher tax liabilities.

Inheritance Tax Freezes

The main inheritance tax (IHT) threshold will remain frozen at £325,000 until 2030, with the additional rate for passing on property staying at £175,000. From April 2027, pensions will be included in the taxable estate, marking a significant shift in how estates are assessed for tax purposes.

Income Tax Thresholds

The personal allowance will remain at £12,570, and the National Insurance employee threshold will also stay frozen. This means that many taxpayers will not see any increase in their tax-free allowances until 2028, impacting their overall financial situation.

As these changes loom, taxpayers across the UK are urged to prepare for the financial implications of these tax reforms, which will undoubtedly affect their budgets and financial planning in the coming years.

Sources

  • Tax 2025: Full breakdown of the big HMRC changes next year and beyond - from National insurance to IHT, GB News.

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