Tax changes in April 2025
Tax changes in April 2025
From April 2025, a number of tax changes will come into force affecting businesses and individual taxpayers.
Firstly, Road tax will be rising for different vehicles sizes. For the first time, all electric vehicles will have to pay road tax with large rises in vehicle excise duty (VED).
New electric cars will be charged £10 for the first year’s tax, up from £0, while those priced under £40,000 (when new) will be charged £190 per year from the second year.
The most expensive EVs costing over £40,000 will be charged £600 per year from the second year, including the £410 ‘expensive car supplement’.
Non-EV road tax rates will rise across the board in line with inflation, with some substantial hikes.
All cars emitting between 1-50 g/km of CO2, which includes most plug-in hybrids, will see the first year tax bill rise to £110. Currently hybrids in this band pay zero VED in the first year, while petrol and diesel cars pay £10.
New cars emitting between 51-75g/km of CO2 will see car tax increase from £30 (or £20 for hybrids) to £135.
The flat rate car tax for petrol and diesel cars registered after 1 April 2017 will go up to £195 from £190.
However, the first-year charge will rise significantly: new petrol and diesel cars that previously faced a first-year charge of £220 will rise to £440.
The RAC have commented that ‘Hybrid cars no longer qualify for a discount and if your vehicle had a list price which exceeded £40,000 when it was first sold then you may also be liable for the “luxury car tax” fee, which adds £425 to the vehicle’s annual VED costs,’.
Stamp duty land tax (SDLT) rates return to non-discounted levels which removes the favourable tax break and triggered a rush of property transactions before the end of March 2025.
From 1 April, the stamp duty threshold will drop from £250,000 to £125,000, the threshold for first-time buyers will fall from £425,000 to £300,000 – and the maximum value of property to benefit from the first-time buyer threshold goes down from £625,000 to £500,000.
Income from furnished holiday lets (FHL) will be treated the same as long-term lets from 1 April for companies and 6 April for individuals, trusts and partnership, meaning that an FHL will no longer be eligible for beneficial capital allowances treatment, while eligibility for existing reliefs will cease.
Hike in late payment penalties for unpaid tax liabilities for VAT will be more than doubling from the current 4% to 10% for payments 31 days or more late. A less severe increase from 2% to 3% for payments up to 30 days late. These changes take effect from 1 April 2025.
On capital gains tax (CGT), rates went up at the Budget last autumn so this is merely a reminder that current rates in force are 18% and 24%.
In addition, as of 31 October 2024, second home owners and landlords have to pay an additional premium on SDLT of 5%.
One piece of good news is that the temporarily discounted 24% CGT rate on sales of residential properties did not end on 31 March 2025 as had originally been expected when the last government introduced the temporary rate in April 2024. This means that CGT rates are equalised across asset classes, depending on income tax band. As of October 2024, CGT rates are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.
Dividend allowance remains unchanged at £500 per tax year. Tax rates on dividend income were also unchanged at 8.75% for basic rate taxpayers, 33.75% for higher rate and 39.35% for additional rate.
National minimum wage rates increase from 1 April, up by 6.7% for the majority of workers paid this. The standard rate for workers aged 21 and above, known as the national living wage rate, rises to £12.21, up by 77p an hour from £11.44, while the 18-20 rate is being slowly equalised and goes up to £10 per hour. For apprentices aged under 19 and those over 19 in first year of apprenticeship, and workers under 18, the rate will be £7.55 per hour.
For corporation tax, the 25% rate is unchanged as is the 19% rate for those with profits under £50,000. The (now permanent) full expensing allowance means companies should receive up to a 25% in-year tax deduction for capital expenditure on significant proportions of their plant and machinery.
Company car tax is increasing for 2025-26 tax year. Rates on EVs will be 3%, gradually rising 1% per year to 9% by 2030. Petrol and diesel cars will face benefits in kind rates of between 25% and 37% depending on the vehicle. Cars in the 80 to 84 g/km CO2 bracket will pay 22%, rising to 26% for 100 to 104, and the highest rate of 37% for 170 plus. Benefits in kind tax is paid by any employee or director paid more than £8,500 per annum.