2025 UK Budget

The Government will engage with stakeholders over the coming months to understand their views on where the tax policy making process works well, and what could be improved. In its pre-budget submission, the Institute highlighted the need to examine the current tax policy making process. The Government is also committed to a single major fiscal event per year. According to the Budget publications, the Government will simplify the tax system and will take this forward as part of its three strategic priorities for HMRC. It plans to engage with stakeholders before introducing a set of measures to simplify tax administration and improve taxpayer experience in Spring 2025. This will focus on reducing burdens on small businesses. The Government will meet stakeholders to understand the priorities for administration and simplification, ensuring that this work is driven by the views of taxpayers.

As previously announced VAT on private school fees will proceed as planned from 1 January 2025. On the duty side, the expected increase in fuel duty has been shelved, as recommended by the Institute in its pre-budget submission. VAT on private school fees From 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20 percent This will also apply to boarding services provided by private schools. The Government has now published a response to its recent technical consultation on this policy. To protect pupils with special educational needs that can only be met in a private school, local authorities and devolved Government’s that fund these places will be compensated for the VAT they are charged on those pupils’ fees. VAT treatment of private hire vehicles The Government is considering the responses to the consultation on the VAT treatment of private hire vehicle services, and the impact of a recent Court of Appeal judgment and will respond to the consultation in due course. Fuel duty The Government is freezing fuel duty and extending the temporary 5p cut for one year, at a cost of £3 billion. This will save the average car driver £59 in 2025/26. Alcohol duty The Government recognises the economic and cultural importance of British pubs and is committed to supporting smaller brewers. The Budget therefore reduced duty on qualifying draught products from 1 February 2025, which represent approximately 60 percent of alcoholic drinks sold in pubs, cutting duty on an average strength pint by a penny. However, alcohol duty on non-draught products will increase in line with Retail Price Index (RPI) inflation from the same date. The current temporary wine easement will end as planned on 1 February 2025. To support small producers, the Government will make the small producer relief more valuable and will also consult on ways to encourage small brewers to retain and expand their access to UK pubs, maximising drinkers’ choice and local economies, including through provisions to enable more ‘guest beers’. The Government also announced the end of mandatory duty stamps for spirits and will consult with industry to establish how it can better support the delivery of the spirit drinks verification scheme, which allows spirit producers to verify the geographic origin of their products. This will include the Government making an investment of up to £5 million “to support and look to reduce bureaucracy for existing and prospective producers who may wish to join”. Air passenger duty To ensure Air Passenger Duty (APD) revenues remain sustainable, all APD rates will increase in 2026/27. This equates to £1 more for those taking domestic flights in economy class, £2 more for those flying to short-haul destinations in economy class, £12 for long-haul destinations, and relatively more for premium economy and business class passengers. The higher rate, which currently applies to larger private jets, will rise by a further 50 percent in 2026/27. From 2027/28 onwards, all rates will be uprated by forecast RPI and rounded to the nearest penny. The Government is also consulting on extending the scope of the APD higher rate to capture all passengers travelling in private jets already within the APD regime. Vehicle excise duty To help drive the transition to electric vehicles (EVs), the Government is strengthening incentives to purchase EVs by widening the differentials in vehicle excise duty (VED) first year rates between EVs and hybrids/internal combustion engine cars. The Government recognises the disproportionate impact of the current VED expensive car supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars. Heavy goods vehicle (HGV) VED rates will increase in line with RPI from 1 April 2025 as will the HGV levy. Smoking duty The tobacco duty escalator of RPI +2 percent is being retained for the remainder of this Parliament and will increase duty by a further 10 percent on hand-rolling tobacco this year. These changes apply from 6pm on 30 October 2024. A new vaping products duty will be introduced from 1 October 2026 at a flat rate of £2.20 per 10ml vaping liquid, accompanied by an equivalent further one-off increase in tobacco duty to maintain the financial incentive to switch from tobacco to vaping. Soft drinks levy The soft drinks levy will increase so that it maintains the incentive for soft drinks manufacturers to reduce their sugar content. Rates will be announced in the preceding autumn fiscal event. Both the lower and higher rates of the Levy will increase each year over the next five years to reflect the 27 percent Consumer Price Index (CPI) increase between 2018 and 2024, in addition to an increase in line with the CPI each year from 1 April 2025. The Government will also review the current sugar thresholds and the exemption for milk-based drinks. Gaming duty The gross gaming yield bandings for gaming duty will be frozen from 1 April 2025 until 31 March 2026. The Government will also consult in 2025 on proposals to bring remote gambling (meaning gambling offered over the internet, telephone, TV and radio) into a single tax, rather than taxing it through a three-tax structure. This will aim to simplify, future-proof and close loopholes in the system.  

A range of other measures also featured, included increases in certain stamp duty land tax rates from 31 October 2024. Stamp duty land tax (SDLT) The SDLT surcharge on acquisition of an additional dwelling increased from 3 percent to 5 percent from 31 October 2024. The 15 percent rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies increased by 2 percentage points to 17 percent from the same date. Those who exchanged contracts prior to 31 October 2024 are not affected by these rate increases. Van fuel and benefit charge and car fuel benefit Both of these will increase by the CPI from 6 April 2025. Plastic packaging tax To incentivise businesses to use recycled instead of new plastic in packaging, the Plastic Packaging Tax (PPT) rate for 2025/26 will increase in line with CPI inflation. To support the use of and investment in advanced chemical recycling technologies, businesses will be permitted to use a mass balance approach to evidence recycled content in chemically recycled plastic for the PPT. Landfill tax rates The previously announced adjustment to landfill tax rates from 1 April 2025, which maintains the incentive to manage waste more sustainably, will be implemented in order to maintain the real-terms value of landfill tax rates. To ensure they reflect up-to-date market and economic conditions, the Government will announce future landfill tax rates at the fiscal event immediately before, so that those applicable from 1 April 2026 will be announced at Budget 2025. Land remediation relief A consultation will be launched in Spring 2025 to review the effectiveness of land remediation relief and will consider whether the relief is still meeting its objectives and is good value for money. Rollover of 2021 business tariff suspensions Following feedback from businesses, the Government will maintain tariff-free imports to avoid unnecessary costs for UK businesses. This measure will extend, until June 2026, tariff suspensions on goods ranging from aluminium frames used by UK bicycle manufacturers to ingredients used by UK food producers. Alternative finance tax rules  Alternative finance tax rules will be amended to put certain tax consequences of alternative and conventional financing arrangements on a level playing field. This follows a consultation on tax simplification for alternative finance which the previous Government published a summary of responses to earlier in 2024. The changes apply UK-wide from 30 October 2024 and will be legislated for in Finance Bill 2024/25. Annual Tax on Enveloped Dwellings (ATED) The annual chargeable amounts for the ATED will increase by the September 2024 CPI figure of 1.7 percent in 2025/2026. This will be implemented via a Treasury Order. Private intermittent securities and capital exchange system - stamp taxes exemption The Government is committed to delivering the private intermittent securities and capital exchange system (PISCES), a new innovative market for trading private company shares. In line with that commitment, the Government announced that PISCES transactions will be exempt from Stamp Duty and Stamp Duty Reserve Tax. This exemption will be introduced via a similar timeline to the legislation which will establish the PISCES regulatory framework. Energy profits levy From 1 November 2024, the Energy Profits Levy (EPL) increased by 3 percentage points to 38 percent, the investment allowance was abolished, and the rate of the decarbonisation allowance was set at 66 percent, so that its cash value is maintained. To provide certainty and to support a stable energy transition, the Government will make no additional changes to tax relief available within the EPL regime and the levy will end on 31 March 2030. The Government will legislate for these measures in Finance Bill 2024/25. To support long-term stability and predictability in the oil and gas fiscal regime, the Government also plans to publish a consultation in early 2025 on how the taxation of oil and gas profits will respond to price shocks after the EPL ends. It will also continue to have regular engagement with the sector to understand the evolving context of oil and gas investment, supported by bi-annual fiscal forums. Relief for payments made into a carbon capture usage and storage decommissioning fund The Government will legislate in Finance Bill 2024/25 to provide relief for payments oil and gas companies make into decommissioning funds in relation to assets sold for use in carbon capture usage and storage, maintaining the tax treatment had these assets instead been decommissioned. This legislation will also remove receipts from the sale of these assets from the scope of the EPL. Consultation on scope 3 emissions The Government is consulting on new environmental guidance for assessing end use emissions related to oil and gas projects. This consultation seeks to provide stability for the oil and gas industry, support investment, protect jobs and ensure a fair, orderly and prosperous transition in the North Sea in line with climate and legal obligations. Climate change levy 2026/27  The main rates of the climate change levy (CCL) for gas, electricity, and solid fuels will increase in line with the Retail Price Index in 2026/27. The main rate for liquefied petroleum gas will continue to be frozen and the reduced rates of the CCL will remain at an unchanged fixed percentage of the main rates. Carbon price support 2026/27  Carbon price support rates in Great Britain will remain at a level equivalent to £18 per tonne of CO2 in 2026/27. Advance tax certainty for major projects A consultation will be launched in Spring 2025 to develop a new process that will give investors in major projects increased tax certainty in advance.