Newsletter – April/May 2025
Property costs – back to the future on duty
The cost of stamp duty on a residential property in England and Northern Ireland has gone up from 1 April 2025. All property purchases are affected, although landlords and first-time buyers might be able to reduce the charge.
The increased stamp duty cost is a result of the temporary nil-rate threshold of £250,000 reverting back to the pre-23 September 2022 level of £125,000. The first-time buyer discounts have also fallen back to where they previously were.
Although the stamp duty cost for Scottish and Welsh landlords has recently gone up, there are no threshold changes for residential property purchases generally.
Landlords
The reduction of the stamp duty threshold from £250,000 to £125,000 means an additional cost of £2,500 for anyone purchasing a property costing £250,000 or more, with the extra £125,000 of the purchase price now brought into charge taxed at 2%.
Landlords in England and Northern Ireland experience this rise on top of the 2% surcharge increase that came in for purchases from 31 October 2024 onwards. Landlords will have seen their stamp duty cost on, for example, a £400,000 property purchase go up from £19,500 (pre-31 October 2024) to £27,500 (pre-1 April 2025) to £30,000 (currently) – a more than a 50% increase.
Two ways in which more adventurous landlords can drastically reduce the amount of stamp duty payable are by buying mixed-use property (such as a shop with a flat above it), or commercial property and then obtaining planning permission to convert the property into residential use.
Both suggestions work equally well in Scotland and Wales. Note, however, that conversion is a complex area, and expert advice is recommended. In both cases, duty will only be charged at non-residential rates, so, for that £400,000 purchase, the cost will be reduced to £9,500 in England and Northern Ireland – a saving of £20,500.
First-time buyers
Following the threshold reductions, first-time buyers in England and Northern Ireland now only benefit from complete stamp duty exemption on property purchases costing £300,000 or less (previously £425,000).
For purchases costing between £300,000 and £500,000, duty at the rate of 5% is paid only on the excess over £300,000. No relief is available if the purchase price exceeds £500,000 (previously £625,000).
Those purchasing at prices just over £500,000 should try and negotiate a discount. For example, a £1,000 reduction on a property originally priced at £501,000 will save £5,050 in stamp duty.
Employment rights changes roll in
Employers need to be on top of the recently introduced statutory entitlement to neonatal care leave and pay, plus increased rates of minimum wage. Looking further ahead, the Employment Rights Bill will have serious implications once enacted.
Neonatal care
The new statutory neonatal care leave and pay entitlement applies from 6 April 2025.
Neonatal care leave applies when an employee’s baby is admitted into neonatal care up to the age of 28 days, staying for a continuous period of at least seven days. Up to twelve weeks of leave can be taken depending on the length of stay in neonatal care. Employers should be aware that this is a day-one employment right.
Neonatal care pay only applies if the employee has been employed for 26 weeks. The weekly rate is £187.18 (or, if lower, 90% of earnings).
Smaller employers can recover 108.5% of the cost, with other employers claiming 92%. Most employers will want to give time off as soon as they are aware of a neonatal care situation, but that will mean managing the seven-day requirement if the employee is not already on leave.
Minimum wage
The new minimum wage rates from 1 April 2025 have brought in substantial increases, especially for younger workers and apprentices. Employees will welcome the uplift, but many employers will struggle with the additional cost, especially those in the hospitality sector. In annual terms, the increase for full-time employees aged 21 and over is £1,400.
In addition to increasing hourly rates, employers need to be careful that minimum wage entitlement is correctly calculated. For example, payments which don’t count towards minimum pay include tips and gratuities, allowances on top of basic pay (such as working unsocial hours) and any premium element (such as working overtime or bank holidays).
Employment Rights Bill – zero-hours contracts
A zero-hours contract can be a flexible option for both employer and employee, but there are concerns that this flexibility is too often one-sided in the employer’s favour.
Under legislation included in the Employment Rights Bill, the employer will have to offer a worker a guaranteed hours contract, based on the hours worked over a reference period –expected to be twelve weeks, but could be longer.
- Workers will have to be paid for any shifts that are cancelled, moved at short notice or curtailed.
- Although the changes are not expected to be implemented until 2026 at the earliest, employers should be reviewing their employment practices and prepare well in advance.
Businesses in the hospitality sector – such as a seaside restaurant taking on temporary staff over the summer months to meet increased demand – will have particular issues. There is going to be an exception where there is a genuine temporary work need, but no details have yet been provided.
Employers who try to manipulate their employment practices to avoid the zero-hours provisions could leave themselves open to a claim, and the use of agency workers is not an answer given a recent amendment to the Bill extending the new measures to agency workers.
Employment Rights Bill – day one rights
Some employment rights are currently only available after an employee has worked for a qualifying period:
- Protection from unfair dismissal requires two years of continuous employment.
- Paternity leave is only available after 26 weeks of employment, with unpaid parental leave requiring a year.
When the Bill is implemented, such rights will be available from day one of employment. Not surprisingly, employers are concerned that in future they will be unable to easily dismiss those employees whose performance is not up to par. However, the Bill does provide for an initial probationary period during which the rules for fair dismissal will be less onerous.
Making Tax Digital expands
Self-employed individuals and landlords with qualifying income – total income from self-employment and property letting – over £50,000 will have to keep their financial records and file quarterly returns to HMRC using MTD from 6 April 2026.
Qualifying income
Qualifying income for 2026/27 will be the amount shown in your 2024/25 tax return, which you have to submit by 31 January 2026. Whether or not HMRC writes to you now or after receiving your tax return, you should keep a check on your income to give you plenty of time to choose the right MTD-compatible software and integrate it with your existing accounting records.
Establishing qualifying income for 2024/25 will be more complicated if your business accounting date is not 31 March or 5 April, so now may also be a good time to align your accounts with the tax year.
- If your income is above £30,000 and up to £50,000 you will have to join MTD from 6 April 2027.
- For people with income above £20,000 and up to £30,000 the joining date will be 6 April 2028.
This will leave only a few individuals outside digitisation, at least for now. With some recent additions, the list includes:
- people who receive the married couple’s allowance (where at least one partner was born before 6 April 1935), or the blind person’s allowance;
- Lloyds underwriters;
- ministers of religion;
- non-UK resident foreign entertainers and sportspeople who have no other MTD qualifying income;
- people exercising a power of attorney.
Anyone who finds it impractical, for any reason, to use electronic communications or keep electronic records –will have to apply to HMRC for exemption.
There will also be a one-year deferral, until April 2027, for individuals who have to complete the supplementary tax form SA109, which covers residency status and remittance basis income under the ‘temporary repatriation facility’.
Other changes
The first three months of 2025 saw several announcements on MTD.
- Individuals with annual turnover from either self-employment or property below the £90,000 VAT registration threshold will be able to categorise items simply as income or expense without having to give a breakdown of the totals. There is one exception: a separate digital record will be needed for property finance costs.
- Users of MTD for income tax may have other income that has to be included in their self-assessment, such as dividends and interest. They will no longer be able to submit their tax return in HMRC’s separate online filing system but will have to report such income in their MTD End of Period Statement (EOPS), alongside any accounting adjustments to their quarterly reports. Like the tax return, the deadline for the EOPS will be 31 January.
- Joint property owners will only have to report quarterly a single figure for their share of the rental income. Total expenses can be left to the EOPS.
- If your business accounts run to 31 March, you will be able to start your MTD obligations on 1 April (instead of 6 April) in the first year of operating MTD. This will avoid year-end adjustments.
Residency and estate planning – all change
Inheritance tax (IHT) liability changed from 6 April 2025 and is now directly linked to a person’s long-term residence status. Although the new rules aren’t generally favourable for wealthy individuals moving to the UK, they do provide certainty for anyone who leaves the UK to live overseas, having lived here all of their life.
It is important to remember that assets situated in the UK will generally be subject to IHT regardless of a person’s long-term residence status.
There is little point in undertaking IHT planning if no, or only a minimal amount of, IHT is going to be payable anyway due to the availability of reliefs and nil-rate bands.
Leaving the UK
Before 6 April 2025, the only way to remove overseas assets from the charge to IHT was to acquire a new domicile. Merely living overseas for a long time was not sufficient because it was necessary to show that a person had severed their ties with the UK. This would have included cutting UK social connections, and making an overseas will and burial arrangements.
- From 6 April 2025, it is simply a matter of being non-resident for the required number of years; known as the IHT tail.
- Between three and ten years of non-residence are required, depending on how long a person has been resident in the UK. However, ten years are necessary for the typical retiree who has always been UK resident.
- Ensuring life assurance is written into trust will shield beneficiaries from the exposure to the potential IHT liability during the IHT tail.
Many retirees who have never acquired a new domicile may now be outside the scope of UK IHT on their overseas assets. If IHT would be payable on UK assets, moving wealth offshore could eliminate this potential liability. Of course, the IHT situation in the country of residence must also be considered.
Returning to the UK
Retirees who need to return to the UK, maybe for family or medical reasons, will also benefit under the new rules.
Previously, someone returning to the UK became subject to IHT on their worldwide assets fairly quickly if they were born in the UK. Now, anyone who has accumulated at least eleven years of non-residence can return to the UK for quite a few years before being caught.
Deeds of variation
Families have the opportunity to carry out post-death IHT planning using a deed of variation regardless of the deceased’s long-term residence status. With a deed of variation, the beneficiaries alter the way in which assets are distributed under the terms of the deceased’s will.
- Care is needed here because a deed of variation cannot be subsequently amended.
- The deed must be made within two years of death.
- For example, if a son or daughter inherits from a parent, they might prefer for the inheritance to go directly to their own children, maybe with the assets held in trust. This will avoid the potential IHT implications of the son or daughter making the gift directly.
If the deceased is not long-term resident in the UK, it might be appropriate to arrange for overseas assets to be held in trust rather than being inherited directly by long-term resident beneficiaries.
Vehicles updates for new tax year
Three years of static company car percentages have finally given way to increases, with rates going up over each of the years 2025/26 to 2029/30. The higher costs will particularly hurt drivers of fully electric cars and hybrids.
2025/26 to 2027/28
All company car percentages have increased by 1 percentage point from 6 April 2025, subject to the overall maximum percentage of 37%.
- The percentage for fully electric cars and hybrids (CO2 emissions of 1 to 50 g/km) that can do 130 or more fully electric miles is now 3%.
- The maximum percentage of 37% applies where CO2 emissions are 155 g/km and over.
Diesel cars which do not meet the Real Driving Emissions 2 standard are subject to a surcharge of 4%. All new cars sold since January 2021 meet the standard. For 2026/27 and 2027/28, percentages for lower emission vehicles will generally increase by a further 1 percentage point each year.
2028/29 and 2029/30
Looking further ahead, the changes are somewhat more dramatic:
- There will be a 2 percentage point increase each year for fully electric cars, meaning a 9% percentage charge for 2029/30. For a higher-rate taxpayer provided with a fully electric company car with a list price of £60,000, the annual tax cost will go up from £720 for 2025/26 to £2,160 for 2029/30.
- The charge for hybrid company cars with CO2 emissions of 1 to 50 g/km will no longer be based on their electric range. There will instead be a single percentage charge of 18% for 2028/29 (rising to 19% for 2029/30). On 6 April 2028, the drivers of the most efficient hybrids will therefore face an overnight increase from 5% to 18%.
And if that was not enough, the 37% maximum percentage will go up to 38% for 2028/29 and then to 39% for 2029/30. Other percentages, apart from the above, will also have 1 percentage point increases for each of these two years.
100% first-year capital allowances
The 100% allowance for fully electric cars and charging points has been extended by twelve months to 31 March 2026 (5 April 2026 for unincorporated businesses).
Double cab pick-ups
These normally have two rows of seats and four passenger doors. From 6 April 2025, a double cab pick-up with a payload of one tonne or more is classed as a car – rather than a goods vehicle – for company car purposes. However, the previous tax treatment can continue to be applied for pick-ups owned or leased before this date.
Off-payroll rules impact of company threshold changes
Medium-sized companies becoming small, as a result of changes in the monetary size thresholds for micro, small and medium-sized enterprises from 6 April 2025, will have to wait two or three years before they are relieved of the burden of reporting under the off-payroll working rules.
From 6 April 2025, a company qualifies as small if it satisfies at least two of the following criteria:
- turnover not more than £15 million (previously £10.2m);
- balance sheet total not more than £7.5m (previously £5.1m);
- not more than 50 employees (no change).
The off-payroll working rules apply to workers who provide their services to a client through a personal service company. If the client is a small company outside the public sector, the worker’s own company is responsible for deciding employment status. Otherwise the client must do so.
Consistency required
Where a company that has been medium newly meets the qualifying conditions for being small, it will qualify as small for business reporting purposes only if it meets the conditions in two consecutive financial years. Under a transitional provision a company will be treated as having qualified as a small company in any previous year in which it would have done so under the new criteria.
Delayed qualification
However, for the purposes of off-payroll working a company’s size is determined by reference to its previous financial year end and is then set for the duration of a tax year. The effect is that the earliest a previously medium-sized company can qualify as small for off-payroll working is 6 April 2027 in most cases.
So companies that were large or medium until 5 April 2025 must continue to ensure they comply with the off-payroll working rules for medium and large companies until they are no longer considered medium or large. No transitional arrangements have been provided.
Changes to income tax reporting requirements
Reporting requirements for income tax are set to change over the next couple of years.
The biggest change is the rollout of Making Tax Digital for income tax self-assessment (MTD for ITSA) starting on dates from 6 April 2026 to 6 April 2028, depending on level of income.
Adjustment calculator for CGT
Some Budget announcements came too late to be incorporated into the 2024/25 tax return. The increase to capital gains tax (CGT) rates – from 10% to 18% basic rate and from 20% to 24% higher rate – applies to disposals from Budget Day, 30 October 2024. Taxpayers who have disposals taxable at the new rates and complete their return online will have to use a separate HMRC calculator to arrive at an ‘adjustment figure’.
For trustees and personal representatives, a new adjustment box will be added to the return pages and a similar calculator will be provided.
Until then, HMRC has asked trusts and estates that have non-residential CGT disposals after 30 October 2024 to wait until the new 2024/25 return form is published in April.
More detail on dividends
For the 2025/26 tax return directors who receive dividends from close companies will have to identify the dividends received from each company, giving its name and registered number and the highest percentage of share capital held in the year. And unincorporated businesses will have to give the date of commencement or cessation, if in that tax year.
News round up
Employee hours
The controversial proposal that employers should report the exact hours worked by each employee as part of their real-time reporting process has been shelved. The government has recognised that the requirement would have been unduly complex, costly and burdensome for businesses.
Side-hustle threshold
HMRC is planning to raise the self-assessment reporting threshold for side hustles from £1,000 to £3,000. Although the actual £1,000 tax exemption is not changing, those with tax to pay will be able to use a new, simpler online reporting service.
Free joint filing ends
Companies House and HMRC are closing their free joint online filing service on 31 March 2026. Thereafter, any unrepresented companies without an accountant will need to use third-party software to file their company tax returns and accounts with HMRC.