UK Tax Changes in 2025/26

UK Tax Changes in 2025/26: What You Need to Know

 

As the new tax year began on 6 April 2025, the UK introduces several key changes that individuals and businesses should understand. Below is a plain-English, SEO-optimized guide to the main aspects of UK tax changes in 2025/26, along with actionable next-steps.

 

 

Income Tax — Frozen Allowances & The Rise of Fiscal Drag

What’s staying the same

• The Personal Allowance (the amount you can earn before paying income tax) remains at £12,570 for the 2025/26 tax year. GOV.UK+2RIFT Refunds+2
• The main income tax bands for England, Wales and Northern Ireland remain:
  • Basic rate: 20% on taxable income above £12,570 up to £50,270. Growth Capital Ventures+1
  • Higher rate: 40% on income from £50,271 to £125,140. IN-Accountancy+1
  • Additional rate: 45% on income above £125,140. DS Burge & Co+1

What you need to watch out for – Fiscal drag

Because the allowances and thresholds are frozen, while wages and other incomes may rise, many taxpayers risk being pushed into higher tax bands without any change The UK tax changes 2025/26 are among the most wide-ranging in recent years. From frozen income tax thresholds to the end of the non-domiciled regime, and from increased National Insurance to revised Capital Gains Tax, these reforms affect nearly every taxpayer.in rate — a phenomenon called fiscal drag. Blevins Franks+1
For example:

• If your earnings grow, but tax-bands don’t shift, more of your income may fall into the 40% or 45% band.
• If you earn over £100,000 your personal allowance will start to be reduced. For the 2025/26 year: the allowance reduces by £1 for every £2 of adjusted net income above £100,000, until the allowance is zero at £125,140. MaPS+1

Practical steps you can take

• Consider increasing pension contributions (which reduce taxable income) or putting money into tax-efficient vehicles such as ISAs.
• Make charitable donations (if eligible) to reduce taxable income.
• Review whether your salary or dividends mix (if you’re a company owner) could help mitigate entering a higher tax band.
• Speak to a qualified adviser to model your income for the year and check the impact of any bonus or pay rise.

 

National Insurance (NI) — Higher Employer Costs

What’s changing

• The employer Class 1 National Insurance (secondary contributions) rate increases from 13.8% to 15% as of 6 April 2025. House of Commons Library+1
• The secondary threshold (the earnings level above which employers pay this NI) is lowered to £5,000 per year. GOV.UK+1
• To offset some of the burden for small employers, the Employment Allowance has been doubled to £10,500 per year, and eligibility has been expanded from 6 April 2025. Sage

What this means for businesses and individuals

• Employers’ payroll costs will increase for many businesses unless they restructure or find efficiencies.
• If you run a small business, you should check if you qualify for the Employment Allowance and model what the extra employer NI cost means for cashflow.
• For employees, while NI rates for you may not change in the same way, increased employer costs might influence pay rises, benefits or hiring decisions.

Action tips

• Review your payroll now: forecast the impact of the 15% rate and the lowered threshold.
• Check your eligibility for the Employment Allowance and apply if you qualify.
• Discuss with your accountant whether salary adjustments, bonus timing or other payroll planning might mitigate the extra cost.
• For new hires planned in 2025/26, factor the employer NI increase into your budgeting.

Capital Gains Tax (CGT) — Important Planning Considerations

What’s changed

• The new CGT rates for individuals in 2025/26 have been adjusted: e.g., for many assets the rate is 18% for basic rate taxpayers and 24% for higher/additional rate taxpayers. Wesleyan+1
• The annual exempt amount (the tax-free allowance for gains) remains very low. Wesleyan
• The rate of tax on “carried interest” (commonly relevant for private equity/share-based rewards) is now 32%. Wesleyan
• For qualifying business disposals, the relief rate (formerly Entrepreneurs’ Relief / Business Asset Disposal Relief) is now 14%. DS Burge & Co

Why this matters

• If you’re planning to sell shares, business assets or investment properties, you need to factor in the higher rates and reduced scope of reliefs.
• Timing of disposals may make a difference (for example, completing before or after certain dates).
• The old planning assumptions (e.g., a lower CGT rate) may no longer apply, so you can’t rely on past advice without reviewing it.

Action tips

• If you’re planning a major disposal, engage with a tax adviser before committing to the deal.
• Run a “what if” on different disposal dates to compare tax outcomes.
• Consider whether reliefs such as Business Asset Disposal Relief apply, and whether you meet the conditions (holding period, participation etc.).
• If you hold high-value assets or investment portfolios, review your CGT exposure and whether you can spread gains, offset losses or restructure to reduce the tax hit.

 

Non-Domiciled Tax Rules — Move to Residence-Based Approach

What’s changed

• The longstanding non-dom (non-domiciled) regime has undergone major reform: the previous “remittance basis” regime is largely being replaced by a residence-based approach for long-term UK residents. Blevins Franks+1
• A temporary remittance window allows certain overseas income or gains to be brought into the UK at a discounted tax rate for a limited period (until 2028) — but this is transitional. Blevins Franks
• The overall expectation is that UK tax residence and worldwide income/asset treatment will apply more strictly for those who stay resident in the UK for many years.

Who might be affected

• Individuals who have historically used the non-dom status to shelter overseas income or gains from UK tax, and who intend to remain UK resident long-term.
• Those with significant overseas assets, trusts, companies or foreign income streams.
• Business owners, entrepreneurs and high-net-worth individuals with cross-border ties.

Action tips

• If you are or may become UK resident and have overseas income/assets, get specialist advice now. The transitional window may provide opportunities, but timing and structuring will be crucial.
• Review your offshore structure: could UK tax residence cause changes to how and when your overseas income is taxed?
• Consider whether bringing in overseas income/gains now (under the remittance window) makes sense, weighed against the longer-term residence-based regime.
• Document your residence status, days in the UK, overseas ties and plans, because HMRC will look closely at these matters.

State Pension, Benefits & Other Upratings

What’s new

• The full new State Pension has been increased for the 2025/26 tax year. Wealthify
• Many benefits and their thresholds have been modestly uprated — though in some cases the uprating may lag behind inflation or cost-of-living increases.
• Because many thresholds are frozen until at least April 2028, benefit eligibility may tighten over time due to inflation and wage growth. RIFT Refunds+1

Practical considerations

• If you’re approaching retirement, check your forecast for the new State Pension and how it fits into your income/expenses planning.
• If you receive benefits, check whether any changes in your income (e.g., increasing salary) might reduce eligibility or increase tax.
• For households relying on multiple income streams (salary, self-employed income, rental income), the combined effect of frozen tax bands + benefit uprating may erode disposable income.

 

Summary of Key Figures for 2025/26

Here are some of the headline numbers for the 2025/26 tax year:

• Personal Allowance: £12,570. RIFT Refunds+1
• Income Tax basic rate band: 20% up to £50,270 (taxable income after allowance). Research Briefings+1
• Income Tax higher rate band: 40% between £50,271 and £125,140. DS Burge & Co+1
• Additional rate: 45% above £125,140. DS Burge & Co+1
• Employer National Insurance: 15% rate on earnings above the secondary threshold (£5,000 per annum for 2025/26). GOV.UK
• CGT rates (for illustration): 18% / 24% for many disposals. 14% for Business Asset Disposal Relief when eligible. 32%                                                                             for carried interest. Wesleyan+1

Why It Matters — The Bigger Picture

• Freezing tax bands (allowances and thresholds) effectively increases tax revenue from the same incomes over time as inflation or pay rises push people into higher bands (fiscal drag).
• The increase in employer NI costs affects business viability, hiring costs and may influence pay rises or employment decisions.
• For owners and investors, higher CGT and changes to the non-dom regime mean previous tax-planning assumptions may no longer hold.
• The changes reinforce the need for proactive tax planning: doing nothing may mean paying more tax or missing opportunities.

Practical Next Steps for Individuals & Businesses

1. Individuals (Employees, Self-employed, High Earners)
   • Review your income forecast for the year: will a bonus, pay rise or second job push you into a higher tax rate?
   • Maximise pension contributions and ISA investments to reduce taxable income.
   • Check if you make donations eligible for tax relief.
   • If you hold significant investment or property gains, plan the timing of disposals and consult a tax adviser.
2. Businesses & Employers
   • Review payroll costs for 2025/26: factor in the 15% employer NIC rate and the lowered threshold to £5k.
   • Confirm eligibility for the Employment Allowance (£10,500) and claim it if eligible.
   • When hiring new staff, include the increased employer NIC liability in your budgeting.
   • If you have owner-directors extracting income via salary/dividends, review whether the mix remains optimal in light of changing tax bands and CGT rates.
3. Overseas / Non-Dom / Cross-border Individuals
   • If you have foreign assets, income or trusts, and are UK resident (or planning to become so), engage specialist tax advice now.
   • Review whether the transitional remittance window applies and whether bringing in overseas income now makes sense.
   • Keep detailed records of your UK residence status, days spent abroad and overseas ties (home, family, business) — these matter more than ever.
4. General Financial Planning
   • Update your cash-flow and budgeting assumptions: more tax may be payable, employer costs may indirectly impact you, and benefit eligibility may alter.
   • Consider the impact of “tax creep” (pay rises + frozen bands) on your real take-home pay.
   • Review investments and asset holdings in light of CGT changes: e.g., you may want to spread disposals over years, make use of reliefs, or defer gains.

 

Final Thoughts

The UK tax changes in 2025/26 create both challenges and opportunities. While some aspects remain unchanged (personal allowance, main income tax rates), the freezing of thresholds, the increase in employer NI contributions, the higher CGT rates and the overhaul of the non-dom regime mean that the status quo is no longer a safe bet. Proactive planning is now more important than ever.

If you want a tailored breakdown for your personal or business situation — such as modelling your tax liability for 2025/26, reviewing pension/ISA strategy, or planning a business disposal — speak to a tax professional sooner rather than later.