Taxation is one of the biggest stumbling blocks in any financial plan. It’s one of those things that we all know about but regularly fail to plan for, but doing so can have huge ramifications for your ability to preserve or build your wealth.
Tax can affect all aspects of your finances, too, from your investments to savings, income, and more, and 2025 has some changes coming into view that you need to be aware of.
Key UK Tax Changes For 2025
Capital Gains Tax (CGT) in 2025
The big news towards the end of 2024 was that Labour was increasing the main CGT rates from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers.
These changes apply to assets other than residential property and carried interest, with gains on the latter being taxed at 32% for basic and higher-rate taxpayers.
The annual exemption for Capital Gains Tax, however, will remain at £3,000 for the 2025/2026 tax year, with gains above this number taxed at different rates depending on the asset type or your income band.
2025 and Inheritance Tax (IHT)
IHT also saw an overhaul in the latter half of 2024, with IHT relief for agricultural and business assets now capped at £1 million. Previously, assets of this nature could be passed onto heirs with up to 100% IHT relief, so family farms and businesses could be transferred with no tax liabilities.
Now, any assets over the new threshold will be taxed at 20%, which is half the standard IHT rate. However, this can be paid interest-free over ten years. These changes will be implemented from 2026, but require major planning in 2025 for affected individuals and businesses.
Pensions and IHT are also becoming intertwined, with the value of any unused pension funds subject to IHT as of April 6th, 2027.
Employers’ National Insurance Contributions (NIC) in 2025
From April 2025, the rate for employers’ National Insurance contributions will rise. It will increase to 15% on top of salaries over £5,000 per employee.
This will affect thousands of businesses and have knock-on effects for employees as businesses may be unable to afford new staff or to keep the staff they have.
2025 and Energy Profits Levy
As of November 2024, the Energy Profits Levy on oil and gas companies operating in the UK increased to 38%. This is set to remain in place until March 31st, 2030, unless market oil and gas prices fall below certain historical average thresholds.
Dividend Tax Adjustments for 2025
In recent years, the dividend allowances have been reduced substantially. In the 2022/2023 tax year, for example, it stood at £2,000, but for the 2025/2026 tax year, the allowance is at £500, the same as last year.
Dividends exceeding this allowance are taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers.
The National Insurance and Income Tax Situation
There are no plans to change National Insurance Contribution rates or thresholds for individuals, or for Income Tax or Personal Allowance thresholds, but things could change in the year with Labour already making bold changes to the UK tax system, particularly for higher earners.
Conclusion
2025 is set to be an interesting year and potential changes on the horizon demonstrate the importance of proactive financial planning.
To uncover your options for a comfortable financial future, call our experts on 020 8366 4400 or email enquiries@cedarhfs.co.uk.