https://www.blevinsfranks.com/uk-budget-2025-the-tax-measures/
UK budget 2025 – a summary of the tax measures for British expatriates
By Stephen Rankine, Financial Adviser, Blevins Franks.
UK Chancellor Rachel Reeves unveiled her 2025 budget on 26 November, including £26 billion worth of tax rises. There were no major announcements this year, but a number of smaller tax measures rolled out over the course of this parliament will significantly increase tax revenue for the government and increase the tax burden on taxpayers.
The new £26 billion in tax rises comes after the £40 billion announced last year. The Chancellor told the MPs that she was choosing a budget for “fair taxes, strong public services, and a stable economy”. She aims to deliver on the country’s priorities of cutting the cost of living, reducing NHS waiting lists and driving down borrowing and debt, and stressed that there would be no return to austerity and no reckless borrowing.
Ms Reeves explained that she is also asking “working people” to “make a contribution” but argued that she can keep that contribution as low as possible by ensuring that “the wealthiest contribute the most”.
The UK’s overall tax is now forecast to increase from 36.3% of GDP this tax year to 38.3% in 2030-31. The tax rises announced so far this parliament already amount to more than at any other time since 1970.
Income tax
The Chancellor maintained the current income tax rates and personal allowances – but instead has extended the freeze on income tax thresholds until 2030/31. The personal allowance remains at £12,570 until April 2031, and the higher rate and additional rate thresholds at £50,270 and £125,140, respectively.
The Institute for Fiscal Studies calculates that this move will generate an additional £12.7 billion per year in tax revenue in 2030/31. The freeze started in 2022 and could now create 5.2 million new taxpayers and increase the number of higher-rate payers by 4.8 million.
Savings and investments
Dividend and savings income
There will be an increase in the ordinary and upper rates of tax on dividend income by two percentage points from April 2026. Additionally, the tax rate on savings income will increase by the same amount the following year.
This will hurt savers, investors in shares, as well as company shareholders who take some of their earnings in dividends.
There were no changes to capital gains tax rates or allowances this year. Prior to the budget we saw speculation that the UK could introduce an exit tax, but nothing has been announced.
ISAs
The allowance for Individual Savings Accounts will remain at £20,000 across a cash and stocks and shares ISA.
However, with effect from April 2027, anyone aged under 65 adding new money to an ISA will be restricted to a maximum of £12,000 for the cash part. The balance will need to be invested in a stocks and shares ISA. Those aged 65 and over can continue to invest the full £20,000 in a cash ISA.
Pensions
The months leading up to the budget saw much debate about potential pension reforms, with the rumour about pension commencement lump sums (PCLS) being hit of particular concern for many. The Treasury ruled this out a couple of weeks before the budget, and on budget day Ms Reeves confirmed that she was not making changes to the tax-free lump sum or the tax reliefs for those paying into a pension.
Instead, the government will increase revenue by targeting pension sacrifice. From April 2029, the amount that can be sacrificed without paying employer and employee National Insurance Contributions will be capped at £2,000 per annum per employee.
Last year’s budget included the significant news that pension funds will fall within the scope of inheritance tax (IHT) from April 2027. There is no change here, and this unpopular reform will go ahead, but the government has been looking at how the IHT will be paid. We now know that personal representatives will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months, to enable the inheritance tax to be paid.
Property
Mansion tax
One budget rumour that is going ahead is the introduction of a new ‘mansion tax’. Officially called the High Value Council Tax Surcharge (HVCTS), it will be introduced in England from April 2028 and impact residential properties worth £2 million and over.
Landlords
Landlords have been in the firing line for taxation over a number of years, and they have been hit again this year. When these reforms are combined with previous ones – the restriction on mortgage interest, capital gains tax, inheritance tax changes, making tax digital, and the renter’s reform bill – property investment is becoming very unattractive in the UK.
From April 2027, the tax rate on rental income will increase as follows:
• Basic rate – from 20% to 22%
• Higher rate – from 40% to 42%
• Additional rate – from 45% to 47%
Automatic exchange of information for real estate
The UK intends to participate in a new international agreement to tackle tax evasion by automatically exchanging information on real estate, expected to start from 2029 or 2030. This new agreement will impact anyone who does not fully declare property owned and rental income received outside their country of residence.
Inheritance tax
Inheritance tax was a key target in the 2024 budget and many expected further changes this year. In the end though, the rules for Potentially Exempt Transfers (PETs) and lifetime gifts, and the seven-year rule, were all left untouched for now.
IHT nil-rate bands
However, as with the income tax bands, the inheritance tax personal nil-rate band and the residential nil-rate band will be frozen for another year. They are now scheduled to end in April 2031, as opposed to the 2030 announced last year.
Agricultural and business property reliefs
The forthcoming combined allowance for the 100% rate of agricultural property relief and business property relief will go ahead as planned, and will now be fixed at £1 million for a further year until April 2031.
When this reform was announced last year, the allowance was not transferable between spouses. The government has softened its stance here, and now any unused relief will be transferable between spouses and civil partners, including if the first death occurs before 6 April 2026.
Tax planning for British expatriates
Rachel Reeves’ second budget was almost as anticipated as her first, but it turned out to be much less dramatic. Nonetheless, and especially coupled with the 2024 announcements, UK taxpayers need to take notice. The combined measures create a much higher tax environment in the UK, especially for wealthier individuals and families. Higher income, savings and investments, pension funds have all been impacted, as has the legacy you plan to leave your heirs. And the Chancellor refused to rule out further tax rises in her 2026 budget.
If you live overseas or are planning to move abroad, you have more opportunity to reduce your tax burden. Certainly, it is advisable to re-evaluate the assets you keep in the UK, such as property, investments and even pensions, to establish how moving assets outside the UK could improve your position – the tax savings could be significant.
Wherever you live, take personalised, professional advice based on your specific circumstances and objectives.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice. Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.