Latest Tax Updates for 2025: What You Need to Know

As we enter the second quarter of 2025, businesses and individuals alike need to stay informed about the latest changes to tax laws in the UK. Whether you're a small business owner, freelancer, or simply someone looking to optimize their personal tax situation, understanding the current tax landscape is crucial. At Gymraeg Consulting, we're here to keep you updated on the latest tax changes that could impact you.

1. Income Tax Thresholds and Rates

One of the most significant changes to UK tax laws in 2025 is the update to income tax thresholds. Here’s a quick breakdown of what you need to know:

Personal Allowance: The tax-free personal allowance remains at £12,570 for most individuals, meaning you won't pay income tax on earnings below this threshold.

Basic Rate: The basic income tax rate for earnings between £12,571 and £50,270 stays at 20%.

Higher Rate: If you earn between £50,271 and £150,000, the income tax rate remains at 40%.

Additional Rate: For income over £150,000, the tax rate remains at 45%.

However, keep in mind that the personal allowance begins to taper off once you earn over £100,000, and it is completely eliminated if your income exceeds £125,140.

2. Corporation Tax Changes

For businesses, the latest updates on corporation tax could have a significant impact on profitability and tax planning.

Corporation Tax Rate: Starting from April 2025, the corporation tax rate will rise to 25% for businesses with profits over £250,000. However, businesses with profits of £50,000 or less will pay a smaller rate of 19%. There is a tapered rate for businesses whose profits fall between £50,000 and £250,000.

R&D Tax Credits: The UK government has enhanced the Research & Development (R&D) tax credit system for small and medium enterprises (SMEs). If your company is involved in innovation and development, now is the time to take full advantage of this incentive to reduce your corporation tax bill.

3. National Insurance Contributions (NICs)

National Insurance rates have undergone some important changes in 2025, particularly for employees and employers.

Employees: The primary NIC rate for employees is still set at 12% for earnings between £12,570 and £50,270. Earnings above this threshold are subject to a 2% NIC rate.

Employers: Employers will continue to pay 13.8% on employee earnings above £9,100.

Class 2 and Class 4 NICs for the Self-Employed: The government has announced a freeze on Class 2 and Class 4 NICs for the self-employed. If you’re a freelancer or contractor, this may impact your take-home pay and tax planning.

4. Capital Gains Tax (CGT) Adjustments

Another notable change in 2025 concerns Capital Gains Tax (CGT), which could affect how individuals and businesses handle the sale of assets such as property, stocks, or shares.

The annual exempt amount for CGT remains at £12,300. However, the government has signaled that this exemption amount may be reduced in future years, so it's wise to plan accordingly.

Tax Rates on Gains: For basic-rate taxpayers, CGT remains at 10% on most assets (except residential property, which remains at 18%). For higher-rate taxpayers, the rate increases to 20% (or 28% for residential property).

Property Sales: If you sell a residential property, you may be subject to higher rates of CGT unless the property was your primary residence for the entirety of the ownership period. Make sure you understand the rules around private residence relief to minimize your tax liability.

5. Inheritance Tax (IHT) and Estate Planning

While the inheritance tax thresholds remain largely unchanged in 2025, there are some important considerations when planning your estate:

The IHT threshold remains at £325,000, with an additional £175,000 if the estate includes a home that is passed to direct descendants (children or grandchildren).

Keep in mind that gifts made more than seven years before death may be exempt from IHT. Additionally, annual gift allowances of up to £3,000 remain available.

Trusts and IHT: If you have significant assets, using trusts can be an effective way to reduce inheritance tax exposure. The rules around trusts have not changed significantly, but careful planning is essential to ensure that your assets are distributed as intended.

6. Making Tax Digital (MTD)

The UK government is continuing its roll-out of the Making Tax Digital (MTD) initiative, which requires businesses to keep digital records and submit VAT returns through compatible software. The MTD for income tax is set to expand in 2026, meaning businesses will need to submit quarterly updates for income tax, rather than annual returns.

What this means for you: If you're a business owner, it’s time to start preparing for MTD compliance. Working with a knowledgeable accountant can help you transition smoothly to digital tax reporting.

Final Thoughts:

Tax laws are constantly evolving, and it’s essential to stay on top of the latest changes to avoid unnecessary penalties and ensure you're optimizing your tax situation. At Gymraeg Consulting, we're dedicated to providing expert advice and guidance on all things tax-related.