2025 tax: What’s changing?

As we step into the new tax year, it's important to stay informed about the changes that might affect your finances. Let's dive into some key updates and how they could impact you.

Income tax changes

The income tax bands remain frozen for the 2025/26 tax year, which means as your wages increase, you might find yourself paying more tax. This phenomenon, known as ‘fiscal drag’, can push more earners into higher tax brackets. For example, if your income increases and the personal allowances and thresholds remain the same then more of what you earn is subject to tax and/or higher rates of tax and your overall tax burden increases. This makes it essential to plan carefully. You could consider tax efficient salary sacrifice options like pensions, company car or cycle-to-work schemes to keep your taxable income below key thresholds. Speak to your employer to understand how using employee benefits could help you.

National Insurance adjustments

Businesses will see changes in National Insurance rates, which may eventually impact employees. From April 2025, the rate at which employers contribute to national insurance has risen from 13.8% to 15%. The payment threshold has been adjusted from £9,100 to £5,000. On a positive note, the Employment Allowance, which enables eligible employers to lower their National Insurance Contribution (NIC) liability, has been increased from £5,000 to £10,500.

This change could have several implications for individuals as employers might need to adjust their budgets to accommodate the higher NIC rate, potentially affecting salary increases, bonuses, or other benefits.

Stamp duty updates

For those planning to buy a home, the end of the stamp duty holiday might mean paying more tax than previously if you are buying a house. The nil-rate threshold of £250,000 has reverted to its previous level of £125,000 and for first-time buyers the nil rate threshold has returned to £300,000 from £425,000. These changes could increase the cost of moving house. For example, a first-time buyer buying a home worth £425,000 will go from paying nothing to paying £6,250 on stamp duty.

For residential properties, the rates are now 5% for the portion of the property price between £250,001 and £925,000, 10% for the next portion up to £1.5 million, and 12% for anything above that. Additionally, if you're purchasing a second home or buy-to-let property, an extra 5% surcharge applies. These changes make it more important than ever to budget carefully for property purchases.

Capital gains tax (CGT)

Changes in capital gains tax could affect those selling taxable assets like property or shares. At the Autumn Budget in October 2024, the Chancellor announced that the main rates of capital gains tax will increase from 10% to 18% for basic-rate taxpayers and from 18% to 24% for higher-rate taxpayers. These changes were effective immediately. It's wise to review these updates to understand how they might influence your investment strategies. If you're planning to sell assets, speak to a financial adviser to consider the timing of your disposals and whether you have any capital losses that can be used to reduce your CGT liability. If you have complex financial affairs you should seek advice from a suitably qualified tax professional.

State pension and benefits

On a positive note, the state pension and child benefits have seen an increase. The full new state pension is now £230.25 per week, providing a bit more financial security for retirees. Child benefits have also been adjusted. From April, child benefit is worth £26.05 per week for the eldest child (up from £25.60) and £17.25 per week for younger children (up from £16.95). These increases are designed to help families and retirees manage their finances better in the face of rising living costs.

Council tax and household bills

Council tax and other household bills, including gas and electricity, have risen. The average Band D council tax set by local authorities in England for 2025-26 is £2,280, which is an increase of £109 or 5.0% compared to the previous year. The new energy price cap for April to June 2025 has increased by 6% to £1,849 per year for a typical household. This means that energy bills will rise for customers on variable tariffs. Fixed tariff customers won't see a change until their fixed rate is due to expire, although it’s worth checking when your fixed rate is due to end and shopping around to get a better deal. Broadband, TV, and mobile services are also seeing price hikes meaning that this is a good time to review your budget and ensure you're prepared for these increases.