UK Tax changes from FY 2025
In 2025, the UK government is implementing several significant tax changes that will impact individuals and businesses. Understanding these changes is crucial for effective financial planning and compliance.
1. Vehicle Excise Duty (VED) for Electric Vehicles
Starting from April 1, 2025, electric vehicles (EVs) will no longer be exempt from Vehicle Excise Duty. Previously, EVs benefited from a zero-rate VED to encourage adoption of environmentally friendly transportation. However, with the increasing number of EVs on the road, the government aims to ensure that all vehicle owners contribute to road maintenance and infrastructure costs. The standard VED rate will apply to EVs registered after April 1, 2017, aligning their tax obligations with those of petrol and diesel vehicles.
2. Capital Gains Tax (CGT) Adjustments
From April 6, 2025, the UK will see adjustments in Capital Gains Tax rates and exemptions:
Annual Exemption Reduction: The annual CGT exemption will be reduced, meaning individuals can realize fewer tax-free gains each year.
Rate Increases: For basic rate taxpayers, the CGT rate on most assets will increase from 10% to 18%. For higher and additional rate taxpayers, the rate will rise from 20% to 24%. These changes aim to increase government revenue and align CGT rates more closely with income tax rates.
3. Reformation of Non-Domiciled Tax Status
Effective April 6, 2025, the UK will abolish the non-domiciled (non-dom) tax status, transitioning to a residence-based taxation system. Under the new regime, individuals residing in the UK will be taxed on their worldwide income and gains, regardless of their domicile status. However, a transitional relief provides that new UK residents, who have not been tax residents in the UK for any of the previous 10 consecutive years, will enjoy a 100% exemption on foreign income and gains for their first four years of UK tax residence.
4. Employer National Insurance Contributions (NICs)
From April 6, 2025, employer National Insurance contributions will increase from 13.8% to 15%. Additionally, the secondary threshold—the earnings level above which employers start paying NICs—will be reduced to £5,000 per year. To offset some of the burden on smaller businesses, the Employment Allowance, which reduces employers' NICs bills, will be increased to £10,500 per year, and the £100,000 threshold for eligibility will be removed.
5. VAT on Private School Fees
The government plans to remove the VAT exemption on private school fees, subjecting them to the standard 20% VAT rate. This change aims to generate additional revenue and address disparities between private and state education funding. Critics argue that this could make private education less affordable and increase pressure on state schools if students transfer due to higher fees.
6. Stamp Duty Land Tax (SDLT) Threshold Adjustments
Effective April 1, 2025, the nil-rate band for Stamp Duty Land Tax will be reduced:
First-Time Buyers: The threshold will decrease from £425,000 to £300,000.
Other Buyers: The threshold will revert from £250,000 to £125,000.
This adjustment means that purchasers will pay SDLT on property values exceeding these lower thresholds, potentially increasing the overall tax liability for homebuyers.