5 Key UK Tax Changes in 2025/26 & How They Affect You

The UK tax changes in 2025 introduce significant reforms impacting businesses, individuals, and investors. With higher National Insurance costs, Capital Gains Tax increases, and the abolition of the non-dom tax regime, these updates could reshape financial planning.

Whether you’re a business owner navigating increased employer NICs, an investor adjusting to higher Capital Gains Tax rates, or a family concerned about Inheritance Tax changes, understanding these tax shifts is essential for minimising liabilities and ensuring compliance.

In this guide, we break down the five most important UK tax changes for 2025/26, explain who they affect, and provide insights on how to prepare.

For further context on how tax policy is evolving, explore our Labour Budget 2024 analysis.

1. National Insurance Changes: Higher Costs for Employers

One of the biggest UK tax changes in 2025 is the increase in National Insurance Contributions (NICs) for employers. From 6 April 2025, businesses will face a 1.2% rise in employer NICs, increasing the rate to 15%. Additionally, the threshold at which businesses start paying NICs will drop from £9,100 to £5,000, adding further financial pressure.

However, there is some relief available—the Employment Allowance is increasing from £5,000 to £10,500, helping businesses offset some of these rising costs.

What’s Changing?

• Employer NIC Rate Increase – Rising from 13.8% to 15%
• Lower NIC Threshold – Businesses will pay NICs on wages above £5,000, down from £9,100.
• Employment Allowance Increase – Businesses can reduce their NIC bill by up to £10,500, up from £5,000.
• No Change for Employees – At this stage, there are no confirmed changes to employee NICs.

How This Affects You

• Businesses & Employers – Higher payroll costs, particularly for companies with large workforces, though the increased Employment Allowance may help offset this.
• Small Business Owners – Increased NIC liabilities may require adjustments in salary structures, but many will benefit from the enhanced allowance.
• Self-Employed Individuals – Potential impact on Class 2 & Class 4 NICs, though specific changes are yet to be confirmed.

What You Can Do to Prepare

✅ Review Payroll Costs – Adjust budgets to account for the NIC increase and factor in the additional Employment Allowance.
✅ Explore Tax-Efficient Salary Structures – Directors may consider tax-efficient ways to withdraw income.
✅ Assess Hiring & Growth Plans – Increased employer costs could influence hiring decisions, but the higher Employment Allowance may soften the impact.

For full details, visit the UK Government’s NIC rates for 2025/26.

2. Capital Gains Tax: Higher Rates & Reduced Allowances

As part of the UK tax changes in 2025, Capital Gains Tax (CGT) rates are increasing, while the CGT annual exempt amount remains permanently reduced. These updates impact property investors, business owners, and individuals disposing of taxable assets.

What’s Changing?

• Lower CGT Allowance: £3,000 for individuals, £1,500 for trustees (unchanged from 2024/25).

Higher CGT Rates (Effective 30 October 2024):

• Basic rate taxpayers: 10% → 18% (for non-residential property and carried interest).
• Higher rate taxpayers: 20% → 24% (for non-residential property and carried interest).
• Trustees & Personal Representatives: 20% → 24% (for disposals on or after 30 October 2024).
• Residential property CGT remains unchanged at 18% (basic rate) and 24% (higher rate).

Business Asset Disposal Relief (BADR):

• April 2025: BADR & Investors’ Relief rates increase from 10% to 14%.
• April 2026: Rates rise again from 14% to 18%.

How This Affects You

• Property Investors & Landlords – Selling rental properties will result in higher CGT bills due to increased tax rates.
• Business Owners & Entrepreneurs – Those selling shares or business assets will see BADR rates increase over time, meaning higher tax liabilities.
• Investors – Anyone holding stocks, bonds, or other taxable assets should reassess disposal strategies to minimise exposure.

What You Can Do to Prepare

✅ Use Your CGT Allowance Before April 2025 – Take advantage of the £3,000 exemption before the new tax year starts.
✅ Consider Holding Assets Longer – Spreading gains over multiple tax years may help reduce overall tax liability.
✅ Maximise Tax-Efficient Investments – ISAs, pensions, and tax-free investment wrappers can help shield gains from CGT.
✅ Plan Business & Investor Disposals Strategically – If selling assets, plan ahead to factor in the BADR rate increases in 2025 & 2026.

3. Inheritance Tax: New Rules Affecting Estates

Among the UK tax changes in 2025, Inheritance Tax (IHT) is being reformed, shifting to residence-based taxation and introducing new relief caps on business and agricultural property.

What’s Changing?

• Residence-Based IHT (April 2025) – Long-term UK tax residents (10+ years) will pay IHT on worldwide assets.

• IHT Liability Upon Leaving the UK – Former UK tax residents remain liable for UK IHT for 10 years (previously 3 years).

Agricultural & Business Property Relief (April 2026) –

• 100% IHT relief applies only to the first £1 million of agricultural/business assets.
• Anything above £1 million gets 50% relief (subject to 20% IHT).

Environmental Land Incentives: APR now applies to eco-managed farmland, reducing tax liabilities.

How This Affects You

• High-Net-Worth Individuals & Non-Doms – Those who previously structured their wealth offshore will now be liable for UK IHT on worldwide assets after 10 years of UK residency.
• Farmers & Agricultural Estate Owners – Farms worth more than £1 million will now face partial IHT charges, increasing tax burdens for generational farming families.
• Business Owners – Business property worth more than £1 million will face higher IHT charges when transferred as part of an estate.

What You Can Do to Prepare

✅ Review Your Estate Plan – Ensure your estate structure aligns with the new rules.
✅ Maximise IHT-Free Gifting – Use the £3,000 annual gift exemption and other allowances to transfer wealth tax-free.
✅ Consider Trusts for Estate Planning – Discretionary trusts may help shelter assets from IHT.
✅ Plan for Agricultural IHT Charges – Farmers and business owners should reassess estate succession plans to mitigate tax exposure.

4. Non-Domiciled Tax Status: Major Reforms for Global Wealth

One of the most significant UK tax changes in 2025 is the abolition of the non-domiciled (non-dom) tax regime, which historically allowed individuals residing in the UK to avoid tax on overseas income and gains. From 6 April 2025, the UK will move to a residence-based taxation system, meaning long-term UK residents will be taxed on their worldwide income and assets.

What’s Changing?

End of Non-Dom Status (April 2025)

• The UK is replacing its domicile-based tax system with a residency-based model.
• Individuals who have been UK tax residents for at least 10 years will be liable for UK tax on their worldwide income and gains, regardless of their former domicile status.
• Those leaving the UK will need to wait 10 years before shedding UK tax liability (previously 3 years).

Temporary Repatriation Facility (2025-2028)

A limited-time lower tax rate will apply for non-doms who bring overseas income into the UK:

• 12% tax rate for remittances in the 2025/26 and 2026/27 tax years.
• 15% tax rate for remittances in the 2027/28 tax year.

This provides a short window to bring foreign earnings into the UK at a reduced tax rate instead of facing full UK tax rates.

Residence-Based Inheritance Tax (April 2025)

• The existing domicile-based IHT system is being replaced with a residence-based model.
• Anyone who has been a UK tax resident for at least 10 out of the last 20 years will now be subject to UK IHT on worldwide assets—not just former non-doms.
• Those who leave the UK will still be subject to UK IHT for up to 10 years after leaving, extending the previous 3-year rule.

How This Affects You

• Long-Term UK Residents – Anyone who has lived in the UK for 10+ years will now pay IHT on worldwide assets, not just UK assets.
• Expats & Former UK Residents – Leaving the UK does not immediately remove IHT liability; individuals remain liable for UK IHT for 10 years after exiting the UK.
• Wealthy Non-Doms – Those holding assets in offshore trusts or receiving foreign income must now pay UK tax on worldwide earnings.

What You Can Do to Prepare

✅ Review Your Residency Status – Determine if you fall under the new 10-year worldwide IHT rule.
✅ Utilise the Temporary Repatriation Facility – If you have offshore income, consider remitting it to the UK while the 12% and 15% tax rates apply.
✅ Reassess Offshore Trusts & Investments – Seek tax advice on whether restructuring your overseas assets is beneficial.
✅ Plan for IHT Exposure – If you have international assets, review estate planning strategies to minimise future IHT liabilities.

For more insights on how government tax policy is evolving, read our Labour Budget 2024 analysis.

5. National Minimum & Living Wage Increases

As part of the UK tax changes in 2025, the government is raising both the National Living Wage (NLW) and National Minimum Wage (NMW) from April 2025. This increase will affect employers, small businesses, and employees across the UK, particularly those in lower-income brackets.

What’s Changing?

• National Living Wage (Ages 21+): Rising from £11.44 to £12.21 per hour.
• National Minimum Wage (Ages 18-20): Increasing from £8.60 to £10 per hour.
• Apprentice Wage: Set to rise, with official rates expected to be confirmed closer to April 2025.

How This Affects You

• Business Owners & Employers – Payroll costs will increase, especially for businesses employing lower-wage workers.
• Small Businesses & Start-ups – Additional wage costs may require budget adjustments or pricing changes.
• Employees & Workers – Those earning the minimum wage will see an increase in take-home pay.

For further guidance on payroll and business tax planning, see our 2024/25 Year-End Tax Planning Guide.

How Nichols & Co. Can Help You Navigate the 2025/26 Tax Changes

With significant UK tax changes in 2025, from higher National Insurance costs to Capital Gains Tax increases and the end of non-dom status, careful planning is essential to protect your finances and minimise liabilities. At Nichols & Co., we offer tailored tax strategies for businesses, property investors, and high-net-worth individuals to ensure you stay compliant while optimising your tax position.

For Business Owners & Employers

• National Insurance & Payroll Strategy – Adjust payroll structures to manage rising employer NIC costs.
• Corporate Tax Planning – Ensure tax-efficient profit extraction and dividend strategies.
• VAT & Payroll Compliance – Stay ahead of wage increases and business tax reforms.

For Property Investors & Landlords

• Capital Gains Tax Planning – Minimise tax exposure with exemptions and strategic disposals.
• Buy-to-Let & Portfolio Tax Efficiency – Reduce tax burdens on rental income and disposals.
• Estate & Succession Planning – Protect property assets with trusts and inheritance tax strategies.

For High-Net-Worth Individuals & Expats

• Non-Dom & Offshore Tax Planning – Navigate the end of the non-dom regime and IHT exposure.
• Inheritance Tax Mitigation – Reduce liabilities with gifting strategies, trusts, and wealth transfers.
• Repatriation & Wealth Structuring – Optimise offshore holdings with expert guidance on UK tax rules.

Schedule a consultation today and let Nichols & Co. guide you through the 2025/26 tax changes with tailored financial strategies for your unique needs.