Tax adjustments in 2025 due to take effect soon!
- TBA
- Feb 5
- 3 min read
Updated: Mar 13
Multiple measures from the Labour Party’s Autumn Budget are set to take effect in 2025.
From VAT on children’s education to council tax and inheritance tax, some UK families may see their bills increase by thousands of pounds this year.
So, which taxes will rise in 2025, and how will they impact your financial plans?
Council Tax Increases
Regardless of income level, anyone living in the UK must pay council tax, which will rise starting April 2025. The government has confirmed the council tax cap will remain, allowing bills in England to increase by up to 5%.
For an average Band D property in England, with a current council tax bill of £2,171, this means an additional £109 per month from April 2025.
End of Stamp Duty Holiday
The additional stamp duty relief for first-time homebuyers in England and Northern Ireland will end on March 31, 2025. Starting 1 April, the threshold for first-time buyer stamp duty will drop from £425,000 to £300,000.
Buyers of secondary or multiple properties will pay stamp duty on properties over £125,000 instead of the current £250,000.
For example, purchasing a £500,000 property in England or Northern Ireland will incur a £15,000 stamp duty, an increase of £2,500 from the current rate.
The Autumn Budget also raised stamp duty on buy-to-let and second homes by 2–5%, effective immediately.
Increase in Capital Gains Tax (CGT)
CGT, applied to profits from selling assets like investments or valuable items, saw a rate hike in the Autumn Budget. The lower rate increased from 10% to 18%, and the higher rate rose from 20% to 24%, aligning CGT with second-home sale tax rates.
Note that CGT is paid on profits, not the sale price, and losses from other asset sales can offset the tax.
Employer National Insurance Contributions (NICs)
From 6 April 2025, employer NICs will increase from 13.8% to 15%, and the threshold for employer contributions will drop from £9,100 to £5,000.
While this change directly impacts employers, critics have warned it may indirectly affect employees through reduced wage growth, fewer benefits, or limited job opportunities.
Tobacco, Alcohol, and Grocery Taxes
The Autumn Budget introduced higher ‘sin’ taxes on tobacco and alcohol starting 30 October 2024. Tobacco tax will rise by 2% based on the Retail Price Index (RPI), with hand-rolled tobacco increasing by 10%.
For alcohol, it will increase by 2.7% from 1 February 2025, except for lower-alcohol beverages (below 8.5%), where tax rates will decrease slightly.
A new grocery tax linked to net-zero legislation will also raise household costs. Retailers and manufacturers will charge based on packaging material usage, potentially adding £70 annually to the average household food bill.
VAT on Private School Fees
From 1 January 2025, 20% VAT will apply to private school tuition under the Labour Party’s flagship education policy. Schools have already previously informed parents of resulting fee increases.
For households with an average annual income of £55,910 and one child in private school, this policy could mean an additional £7,730 in bills, making private education even more of a luxury.
Additional Tax Changes 2025
Income Tax and NIC Threshold Freeze
Income tax and NIC thresholds will remain frozen until 2028, meaning inflation will push more people into higher tax brackets. Starting April 2028, thresholds will rise again with inflation.
For example, two adults earning £55,910 each will pay an additional £3,520 annually by 2028 due to inflation-adjusted thresholds.
Inheritance Tax Freeze and New Pension Rules
The inheritance tax (IHT) threshold freeze will extend to 2030.
Currently:
Estates exceeding £325,000 are taxed at 40% above the threshold
For direct descendants inheriting property, the threshold increases to £500,000
Transfers to a surviving spouse or civil partner are exempt up to £1 million
From April 2027, unused pensions will be included in IHT calculations. While this change is years away, it should be factored into estate planning.
Some advice from TB Accountants
With rising taxes and ongoing inflation, household expenses are set to increase significantly. We recommend proactive financial planning, prudent budgeting, and sufficient savings to address potential economic uncertainties.
Adhere to tax regulations and file on time to avoid penalties. Proper financial management is key to weathering economic challenges.