New tax year, new rules

Leontia Doran takes a look at the key tax changes which take effect from April 2025 and looks ahead at what we can expect in the coming years.   

The new tax and financial year always sees a plethora of previously announced tax technical and administrative changes; 6 April 2025 and the start of the new Financial Year 2025 on 1 April 2025 are no different. This article aims to provide a flavour of the key changes taking effect from April 2025 and looks ahead to some major changes in the coming years.

Employer National Insurance Contributions (NICs)

From 1 April 2025, employers are required to pay an increased rate of the National Minimum Wage and just days later from 6 April, a range of changes to employer NICs is resulting in higher wage bills.

From 6 April 2025, the rate of Employer NICs increased from 13.8 percent to 15 percent and the 0 percent Employer NICs threshold reduced from £9,100 to £5,000, although the Employer NICs employment allowance increased from £5,000 to £10,500.

These increased Employer NICs costs rise more sharply for businesses with lower-income employees which particularly impact on businesses who rely on part time staff such as in the retail and care sectors but especially for hospitality businesses.

End of the non-domicile regime

From 6 April 2025, the rules for the taxation of non-UK domiciled individuals, and specifically the remittance basis (RB) for foreign income/gains, came to an end. However, any foreign income/gains that arose on/before the 5 April 2025 which fell under the remittance basis are taxed under the previous rules when remitted. The concept of domicile as a relevant connecting factor in the UK tax system has now been replaced by a tax residence-based system.

The new regime provides 100 percent relief on foreign income/gains for new arrivals to the UK in their first four years of UK tax residence provided the individual was not resident in any of the 10 prior consecutive years.

For Capital Gains Tax (CGT) purposes, past remittance basis users are able to rebase foreign assets held on 5 April 2017 to the value at the disposal date provided they were non-UK domiciled up to 5 April 2025.

A new Temporary Repatriation Facility (TRF) is also available for individuals who previously claimed the RB. This enables them to designate and remit at a reduced tax rate foreign income/ gains prior to 6 April 2025. The TRF is available for a limited period of three tax years commencing in 2025/26 at a 12 percent rate for the first 2 years and 15 percent in the final year.

The domicile-based system of Inheritance Tax (IHT) has also been replaced with a new residence-based system for long-term residents owning non-UK property not previously within the scope of UK IHT. An individual is long-term resident when they have been UK tax resident for at least 10 of the previous 20 tax years and they will remain as such three to 10 years after becoming non-resident. 

Business asset disposal relief (BADR) and Investors’ Relief (IR)

As a result of the increased rates of CGT from 30 October 2024, BADR and IR both increased from 10 percent to 14 percent from 6 April 2025 and both will further increase to 18 percent from 6 April 2026. The lifetime limit (LL) for BADR remains at £1 million.

In contrast, the LL for IR reduced from £10 million to £1 million for all qualifying disposals made on or after 30 October 2024. To compound these phased increases, anti-forestalling rules aim to limit potential planning in this area.

Treatment of double cab pick-ups (DCPUs)

From 1 April 2025 for Corporation Tax and 6 April 2025 for Income tax and NICs purposes, HMRC treats most DCPUs as cars, and not vans, for direct tax purposes. HMRC has therefore changed its policy on these vehicles potentially leading to increased tax bills for employers, employees and businesses.

Previously HMRC treated a DCPU with a payload of one tonne or more as a van for the purposes of benefit-in-kind calculations, capital allowances, and certain deductions from business profits. In so doing, HMRC was following the definitions of ‘car’ and ‘van’ that apply for VAT purposes.

From April 2025, a vehicle will therefore only be treated as a van if the construction of the vehicle at the time it was made means that it is primarily suited for the conveyance of goods.

Tax reporting requirements

At the start of each new tax year, HMRC’s self-assessment returns get a bit of a makeover to reflect any changes to legislation. This year, those changes will not only reflect some previously announced decisions but also help deal with late rate changes.

CGT rate changes

Last October, the Chancellor announced that for gains on assets other than residential property, the basic rate of CGT rate increased from 10 percent to 18 percent, and the higher rate from 20 percent to 24 percent with effect from 30 October 2024. 

At that point HMRC had already updated the 2024/25 SA100 return therefore unrepresented taxpayers must use a HMRC calculator to calculate and report an adjustment figure to get the correct CGT position in their return. Agents using commercial software should check that this is reflected correctly in their client’s return. 

For trustees/personal representatives, a new adjustment box will be added to that return and a similar calculator will be provided for taxpayers. As a result, HMRC has requested that trusts/estates wait until the 2024/25 SA900 return is published to ensure that the correct rate of CGT is used.

Cryptoassets

For the first time, individuals with cryptoassets are required to report income/gains arising on these transactions separately on their return. A policy first announced by the previous Chancellor in 2023, this aims to assist HMRC in making use of the data it expects to start receiving from 2027 about these transactions.

2025/26 tax returns 

New regulations also bring in further changes for 2025/26. If an unincorporated business commences/ceases in the tax year, the taxpayer must include the date of commencement/cessation in their return. This could prove challenging in scenarios where the relevant date is not easily determined, for example where an individual has been trading under the trading allowance and first needs to begin reporting trading income.

Also from 2025/26, director’s receiving dividends from close companies must include the following in their return:

• Name and registered number of the company;
• Amount of dividend received from the company (declared separately from other dividends); and
• Details of the highest percentage of share capital held in the year.

Looking ahead

It’s also important to look ahead and plan for what future changes are hurtling down the tax tracks at us. 2026/27 will be another exceptional year for tax practitioners with a wide range of changes previously announced and already expected to take effect from 6 April 2026.

Mandatory payrolling of benefits in kind

In January 2024 the previous Government announced that from 6 April 2026 employers will be required to report and pay Income Tax and class 1A NICs on most benefits in kind (BIKs) in real-time via the employer’s full payment submission, effectively introducing mandatory payrolling of BIKs.

Feedback provided to the Government about this change mainly centred around the potential for increases in employer administrative burdens in relation to reporting all BIKs in real-time and that due to potential delays in receiving invoice details of BIKs provided by third parties, accurate real-time reporting would not be possible for invoices received after the end of provision of the benefit.

As a result, the Government has announced some amendments as follows: 

• the real time reporting of and payment of tax on BIKs will not commence from April 2026 for employment related loans and accommodation but will for all other BIKs with voluntary payrolling available for these BIKs from April 2026,
• The P11D/P11D(b) process will still be available for those that do not want to voluntarily payroll employment related loans and accommodation which will be mandated in due course,
• an end of year process will be introduced to amend the taxable values of any BIKs that cannot be determined during the tax year. However, the taxable values of most BIKs will still need to be reported as accurately as possible during the tax year, and
• HMRC will continue to monitor the penalty position in 2026/27 whilst employers get used to the new process of reporting BIKs in recognition that there will inevitably be a period of adjustment in the first year.

IHT future changes

The Chancellor of the Exchequer announced in the 2024 Autumn Budget that following the April 2025 changes to IHT territoriality, there would be further significant changes to IHT in the next two tax years. 

Firstly, controversial reforms were announced to the IHT reliefs, agricultural property relief (APR) and business property relief (BPR) which are expected to commence from April 2026. A new £1 million allowance will apply to the combined value of property that qualifies for 100 percent BPR or 100 percent APR or both. After this £1 million allowance has been exhausted, relief will apply at a lower rate of 50 percent to the combined value of qualifying agricultural and business property, effectively resulting in a 20 percent rate of IHT.

The Government has already stated that it will not be consulting on this policy change, however a technical consultation is expected to take place on the draft legislation and a consultation is currently open seeking views on aspects of the application of the £1 million allowance for property settled into trust. Chartered Accountants Ireland has already discussed its concerns in relation to these proposals with HMRC and has highlighted the particularly damaging impact for Northern Ireland businesses and farms.

Secondly, the Budget announced that from 6 April 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. Pension scheme administrators will also become liable for reporting and paying any IHT due on pensions to HMRC.

Making Tax Digital (MTD) for Income Tax

MTD for Income Tax is now less than a year from commencement with the first quarterly returns due to be submitted to HMRC on or before 7 August 2026.

From 6 April 2026, the first phase of mandation for this major project commences for unincorporated businesses and landlords with total gross income from self-employment (excluding partnership income) and property in 2024/25 exceeding £50,000. Those with total gross income exceeding £30,000 will be mandated from 6 April 2027. Other income sources are not counted when assessing if the MTD turnover limit for mandation has been breached.

In the Autumn Budget, the Government announced that the total gross income limit will drop to £20,000, the timeline for which will be set out at a later date within the current Parliament with no timeline currently set for the mandation of partnerships. Currently, taxpayers can voluntarily sign up to participate in testing MTD for Income Tax ahead of mandation.

If a taxpayer is exempt or chose not to sign up voluntarily during the testing period, they must continue to report income and gains in a Self-Assessment tax return. If certain conditions are met, a taxpayer may be automatically exempt from MTD and does not need to apply for an exemption.

MTD requires mandated taxpayers to:

• maintain digital accounting records in a software product/spreadsheet (paper records will not satisfy the legislative requirements), and
• submit quarterly updates to HMRC by the seventh day of the month after each quarter end (5 July, 5 October, 5 January and 5 April unless calendar months are elected for), and
• finalise their tax position after the end of the tax year (the final declaration is due by 31 January after the end of the tax year).

Quarterly updates must be submitted using functional compatible software which can interact with HMRC's API (application program interface). This will require the taxpayer to either purchase a suitable commercial software product or appoint an agent to submit information to HMRC on their behalf using such software.

Quarterly updates are intended to be a simple summary of transactions and a final, year-end return will also be required within which any tax and accounting adjustments will be made. The due dates for paying tax will be unchanged.

Agents and taxpayers should take action now to prepare for this major change and consider signing up voluntarily to testing in 2025/26 which is subject to a number of eligibility conditions. Agents should also plan ahead and consider the impact on their practice and the steps needed to prepare both their business and their clients.

Leontia Doran is UK Tax Manager and Tax NI Subject Lead for Student Education with Chartered Accountants Ireland. Email: leontia.doran@charteredaccountants.ie