The 2025/26 UK tax year ticked over on April 6, 2025. Here we summarise this year’s tax rates and allowances, who is affected by the domicile reform and how, and look ahead to forthcoming tax changes.
Income taxes
The income tax personal allowance is frozen until April 2028 and remains £12,570. It is tapered by £1 for every £2 of income above £100,000, until it is reduced to nil.
The income tax thresholds and tax rates for non-savings non-dividend income are unchanged for England, Wales and Northern Ireland taxpayers (Scotland has different bands and rates):
Basic rate (up to £37,700): 20%
Higher rate (£37,701 – £125,140): 40%
Additional rate (over £125,140): 45%
Tax rates and allowances for savings income and dividends remain unchanged for 2025/26.
Capital gains tax
While there is only one capital gains tax related change this tax year, there have been tax increases over the last couple of years.
- The main rates of capital gains tax for non-real estate assets increased from 10% to 18% and 20% to 24% from 30 October 2024.
- The CGT rate for personal representatives and trustees also rose to 24% in October.
- The capital gains tax annual exempt amount was cut from £12,300 in 2022/23 to £3,000 from April 2024.
- Where assets qualify for Business Asset Disposal Relief and Investors’ Relief, CGT increased to 14% on 6 April this year and will be 18% from April 2026.
Pensions
Pensions allowances remain unchanged at:
Money purchase annual allowance minimum: £10,000
Annual allowance: £60,000
Lump sum allowance: £268,275
Lump sum and death benefit allowance: £1,073,100
Overseas transfer allowance: £1,073,100
Overseas transfers were hit by an autumn budget reform, when the exemption from the 25% Overseas Transfer Charge was removed from most EU/EEA transfers with immediate effect. This significantly impacted expatriates wishing to move their pension funds out of the UK, though alternative solutions can be found in some cases.
The biggest change for pensions will take effect on April 6, 2027, when pension funds will start to form part of your estate for inheritance tax purposes. With another two years to go, there is time to look for strategic financial planning solutions, particularly for expatriates. If you meet the new long-term residence criteria, you will only be liable for IHT on assets within the UK.
Inheritance tax
Inheritance tax rates (generally 40%) and allowances (£325,000 nil rate band and £175,000 residence nil rate band) are unchanged. The 2024 budget extended this budget freeze to 2030.
From April 2026, the combined agricultural property relief and business property relief will be restricted to the first £1 million on qualifying assets. For anything over £1 million, relief will be 50% instead of 100%. IHT relief on AIM shares will also be restricted to 50% from April 2026.
Domicile replaced by long-term residence
The infamous domicile system, which applied to inheritance tax liabilities for UK nationals living abroad, and income and capital gains tax for people moving to the UK, ended on April 5, 2025.
It has been replaced by a new long-term residence system. Now –
- All longer-term UK residents (resident for 10 out of the last 20 years), including foreign nationals, pay tax on worldwide income and gains (previously non-doms only paid tax on a remittance basis).
- Anyone arriving in the UK, whether a UK or foreign national, who has been non-UK tax resident for the 10 previous years, benefits for a 100% relief on most overseas income and gains for their first four tax years of residence.
- British expatriates who have been tax resident outside the UK for at least 10 years are only subject to UK inheritance tax on assets located within the UK. This is more favourable than the adhesive domicile system – and a call to action for expatriates to consider whether to dispose of UK assts. In certain circumstances the 10 years of residence can be reduced to a shorter time frame.
- The long-term residence regime also replaces domicile for trusts. Non-UK settled assets will only be excluded property at times where the settlor is not classified as a long-term resident. Separate rules apply for individuals that are already deceased.
Stamp duty land tax (SDLT)
The stamp duty nil rate band for residential purchases was cut from £250,000 to £125,000 from April 1, 2025. For those buying a second property, the SDLT rate has increased from 3% to 5%. This also applies to expatriates who own a main home in Portugal and are buying a second home or investment property in the UK.
Tax planning
British expatriates who retain assets in the UK, including pensions, are impacted by some of these tax measures. Seek personalised cross-border advice for clarification and to establish what steps you can take to improve your position.
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.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
