As we are now in the new 2025/26 tax year, the UK tax landscape is set to undergo a range of changes that could have significant implications for both individuals and businesses.
Whether you’re a self-employed freelancer, a small business owner, or an employee, it’s essential to stay informed about the upcoming tax adjustments to ensure you’re compliant and not caught off guard.
In this guide, we’ll break down the key 2025/26 tax changes that you need to be aware of, helping you plan ahead and make informed decisions for your financial future.
1. Income Tax: Rates and Thresholds
In 2025, the UK government has not made any changes to income tax rates and thresholds, and they have been frozen for another year.
Income Tax Bands
For individuals in England, Wales, and Northern Ireland, the basic income tax bands are as follows:
- Personal Allowance: The tax-free allowance remains at £12,570, meaning you won’t pay income tax on earnings below this amount. However, if your income exceeds £100,000, your personal allowance is gradually reduced, eliminating it completely for those earning over £125,140.
- Basic Rate: The basic rate of 20% applies to earnings between £12,571 and £50,270.
- Higher Rate: The higher rate of 40% applies to earnings between £50,271 and £150,000.
- Additional Rate: For income above £150,000, the additional rate of 45% will apply.
This freeze on the tax thresholds means that more people will be dragged into higher tax bands as wages rise, resulting in higher tax bills without any changes to their real life income.
The tax bands for those living in Scotland have been adjusted slightly on the basic rate band. The bracket for paying 20% is now from £2,828.00 to £14,921. All other brackets have remained the same as the 2024/25 tax year
You can estimate your income tax here.
2. National Insurance Contributions (NICs) Updates
National Insurance is an area set for change in 2025. These contributions are important not only for funding the UK’s social security system but also in determining your eligibility for certain benefits, including the state pension.
Thresholds and Rates
The government has kept the Employee Class 1 NIC rate and threshold the same as prior year. But they have changed the Employer NIC rates and thresholds.
- Employee Contributions: Employees will pay 8% on earnings between £12,570 and £50,270 and 2% on earnings above £50,270.
- Employer Contributions: Employers will pay a flat rate of 15% on employee earnings above £5,000. The Employer NIC Allowance has been increased to £10,500 for all eligible businesses.
For self-employed individuals, Class 2 and Class 4 contributions will remain largely unchanged, with the Class 2 rate set at £3.50 per week and Class 4 contributions at 6% for earnings between £12,570 and £50,270 and 2% on earnings above this threshold.
3. Corporation Tax
The corporation tax rates have also remained unchanged from the 2024/25 tax year. In April 2023, the UK introduced a progressive corporation tax system, with companies that make more than £250,000 facing a 25% corporation tax rate. Companies with profits of less than £50,000 will pay the small company rate of 19%.
Companies that have profits between £50,000 and £250,000 will pay a marginal rate of tax which results in a calculation initially at 25% but then a discount is applied based on the actual profit level of the company.
4. Capital Gains Tax (CGT) Adjustments
Capital Gains Tax (CGT) is charged on the profit when you sell or dispose of an asset, such as property or shares. In budget in October 2024, the UK government made changes to the Capital Gains rates, some of these changes were immediate, and some were deferred until 6th April 2025.
Increase in CGT Rates
The rates for Capital Gains on the sale of assets other than residential property changed from 10% and 20% to 18% and 24% respectively for any disposals made on or after 30th October 2024
The rate of Capital Gains tax that applies to Business Asset Disposal Relief (BADR) will increase from 10% to 14% from 6th April 2025, and then from 14% to 18% from 6th April 2026.
The rates for disposals of residential properties remains the same
CGT Annual Exemption
In 2025/26, the annual exemption for capital gains tax is £3,000, which would mean that more individuals would have to pay CGT on their investments and property sales.
5. Inheritance Tax (IHT) and the Residence Nil-Rate Band
Inheritance Tax (IHT) is one of the most important tax considerations for individuals with significant assets or estates.
Thresholds for IHT
The IHT threshold, which is currently set at £325,000, has been frozen until 2026. This means that more estates will be liable for IHT as property prices and the value of assets increase over time. The rate for IHT is 40% on estates above the threshold, though this can be reduced by the Residence Nil-Rate Band if the estate includes a family home.
Residence Nil-Rate Band
The Residence Nil-Rate Band (RNRB) is an additional allowance for individuals passing on a family home to direct descendants, such as children or grandchildren. The RNRB is set at £175,000 in 2025/26.
You are able to inherit the Nil Rate Band from your spouse if they die before you and leave their whole estate to you, the remaining spouse.
6. VAT and Business Tax Changes
For businesses, VAT will continue to be an important tax consideration. There are no dramatic changes are in VAT rates. The VAT registration threshold remains at £90,000
Additionally, businesses involved in cross-border trade will need to stay updated on any changes to any EU rules, and particularly to any US tariffs currently being adjusted.
If you are unsure of how any of these changes are going to affect you personally, or as a business, please get in touch with Turas Accountants today. We can make sure you are taking all of the changes into account and are being as tax-efficient as possible – saving you money!