Corporation Tax rates
The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2025, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
Comment:
“The government has committed to capping the main rate of Corporation Tax at 25% for the duration of the Parliament. This is currently the lowest in the G7.”
Capital allowances
The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long life assets at a rate of 50%. The government will explore extending Full Expensing to assets bought for leasing or hiring, when fiscal conditions allow.
The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.
The 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints have been extended to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.
Furnished Holiday Lettings
The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. The effect of abolishing the rules will be that FHL properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses. This will apply to individuals, corporates and trusts who operate or sell FHL accommodation.
There are a number of implications from 2025/26 which are detailed below.
Pensions – individuals will no longer be able to include this income within relevant UK earnings when calculating maximum pension relief.
Dwelling-related loans – the amount of income tax relief landlords can receive on residential property finance costs is restricted to the basic rate of income tax of 20%.
Replacement of domestic items – capital allowances will no longer be available for expenditure on new plant and machinery (subject to transitional rules) but instead businesses may claim relief on the replacement of certain items.
Capital gains – the rules which allowed FHL to be treated as a trade for various capital gains tax reliefs are withdrawn in relation to disposals made on or after 6 April 2025 (1 April 2025 for Corporation Tax). Roll-over relief on the replacement of business assets will no longer apply to acquisitions which take place on or after those dates. However, there are a number of detailed transitional rules to preserve certain reliefs such as Business Asset Disposal Relief in specific situations.
Losses – broadly, any unused losses can be carried forward to set against future years’ profits of either the UK or overseas property business as appropriate.
Multinational
The government will introduce the Undertaxed Profits Rule, being the final part of the G20-OECD Global Minimum Tax agreed by over 135 countries and jurisdictions. It will take effect for accounting periods beginning on or after 31 December 2024. The government confirmed that the Offshore Receipts in Respect of Intangible Property rules will be abolished in respect of income arising from 31 December 2024.
Additional amendments will also be made to the Multinational Top-up Tax and Domestic Top-up Tax legislation.
Energy Profits Levy
The Energy Profits Levy (EPL) (the temporary levy on profits arising from the upstream production of oil and gas) will increase from 35% to 38% and the end date of the levy will be extended to 31 March 2030. The EPL’s Investment Allowance will be removed and the Decarbonisation Investment Allowance reduced to 66%. These measures will take effect from 1 November 2024. The government will publish a consultation in early 2025 on how it will respond to price shocks once the EPL ends.
Comment:
“The purpose of the EPL is to ensure that oil and gas companies contribute more to the energy transition; one of the government’s key missions is to make the UK a clean energy superpower.“
Business rates
For 2025/26, eligible retail, hospitality and leisure (RHL) properties in England will receive 40% relief on their business rates liability. RHL properties will be eligible to receive support up to a cash cap of £110,000 per business.
For 2025/26, the small business multiplier in England will be frozen at 49.9p. The standard multiplier will be increased to 55.5p.
Creative industries
From 1 April 2025, film and high-end TV productions will be able to claim an enhanced 39% rate of Audio-Visual Expenditure Credit (AVEC) on their UK visual effects (VFX) costs. UK VFX costs will be exempt from the AVEC’s 80% cap on qualifying expenditure. Costs incurred from 1 January 2025 will be eligible.
UK films with budgets under £15 million and a UK lead writer or director will be able to claim an enhanced 53% rate of AVEC from 1 April 2025. This is known as the Independent Film Tax Credit.
From 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief will be set at 40% for non-touring productions and 45% for touring productions and all orchestra productions, applying UK-wide.
Capital Gains Tax
The Capital Gains Tax rates will increase for disposals, other than of residential property and carried interest, made on or after 30 October 2024. The basic rate of 10% will increase to 18% and the 20% rate will increase to 24%.
No changes will be made to the rates applying to the disposal of residential properties of 18% and 24%.
The rate applying to trustees and personal representatives will increase from 20% to 24% from the same date.
Comment:
“The changes in the main rates of Capital Gains Tax brings them in line with those paid on disposal of residential property. This means that there will be no need going forward to differentiate between the types of property being disposed of.”
Capital Gains Tax annual exemption
The annual exempt amount will remain at £3,000 for 2025/26.
Business Asset Disposal Relief and Investors’ Relief
The rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025. The rate will increase again to 18% for disposals made on or after 6 April 2026.
In addition, the lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. This limit takes into account any prior qualifying gains where the relief was claimed.
Carried interest rates and reform
The rates that apply to carried interest of 18% and 28% will increase to a flat rate of 32%. This will apply to carried interest arising to an individual on or after 6 April 2025.
From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.
Capital Gains Tax on liquidation of a Limited Liability Partnership
Where a member of a Limited Liability Partnership (LLP) has contributed assets to the LLP, chargeable gains that accrue up to the contribution will be charged to tax when the LLP is liquidated and the assets are disposed of to the member, or a person connected to them. The charge to tax will be on the member and the measure will have effect for liquidations that commence on or after 30 October 2024.
Reducing tax-free overseas transfers of tax relieved UK pensions
The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS), unless an exclusion from the charge applies. Transfers to QROPS established in the EEA and Gibraltar were included within the exclusion but this exclusion will no longer apply for such transfers made on or after 30 October 2024.
Inheritance Tax nil rate bands
The nil rate band has been frozen at £325,000 since 2009 and this will continue to be frozen up to 5 April 2030. An additional nil rate band, called the ‘residence nil rate band’ is also frozen at the current £175,000 level, as is the residence nil rate band taper starting at £2 million. These are also frozen until 5 April 2030.
Unused pension funds and death benefits
The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027.
Agricultural Property Relief & Business Property Relief
From 6 April 2026, agricultural and business property will continue to benefit from the 100% Inheritance Tax relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Property in excess of the limit will benefit from a 50% relief, as will, in all circumstances, quoted shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.
Extension of Agricultural Property Relief to environmental land management
From 6 April 2025, the existing scope of Agricultural Property Relief will be extended to land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
The VAT registration threshold
From 1 April 2025 the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.
Removal of VAT exemption for private school fees
Private school fees for education and vocational training will no longer benefit from VAT exemption and will be subject to VAT at the standard rate (20%). The change will apply to terms beginning on or after 1 January 2025 although certain prepayments made after 29 July 2024 will also be included.
Stamp Duty Land Tax changes
Individuals who purchase additional residential properties, such as second homes or buy-to-let properties, in England and Northern Ireland, generally pay Stamp Duty Land Tax (SDLT) at 3% above the standard SDLT rates. This rate is increased to 5% for transactions with an effective date (usually the date of completion) on or after 31 October 2024.
Similar changes are made for companies and other non-natural persons purchasing residential property in England and Northern Ireland.
In addition, there is also an increase in the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, from 15% to 17%, from the same date.
Making Tax Digital for Income Tax Self Assessment
The government is committed to delivering Making Tax Digital for Income Tax Self Assessment, which is supposed to start in April 2026. The government will expand the rollout of the programme to those with incomes over £20,000 by the end of this Parliament and will set out the precise timing for this at a future fiscal event.
Other changes
HMRC has announced a variety of compliance initiatives, which include the following:
- investing in additional HMRC compliance staff and debt management staff
- modernising HMRC debt management IT systems
- pre-populating tax returns with Child Benefit data (for the purposes of the High Income Child Benefit Charge)
- increasing the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5%.
The government will ensure shareholders cannot extract funds untaxed from close companies by legislating to remove opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change will apply from 30 October 2024.
The government will support charitable giving by legislating to prevent abuse of the charity tax rules, ensuring that only the intended tax relief is given to charities. These changes will take effect from April 2026 to give charities time to adjust to the new rules.
From 30 October 2024, alternative finance tax rules will be amended to put certain tax consequences of alternative and conventional financing arrangements on a level playing field.
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