As we approach 2025, both individuals and businesses must stay informed about the latest tax updates and keep their accounts up to date.
Keeping abreast of these changes ensures compliance, helps optimise tax positions, and supports effective financial planning.
Organising financial records
The turn of a new year is a fantastic opportunity to make new plans, in all aspects of life, and taxes are no different.
Effective tax preparation hinges on keeping well-organised and current financial records, which become more critical as tax regulations evolve.
For business owners, whether operating as a limited company or a sole trader, it’s essential to meticulously track all business expenses, including office supplies, rent, utilities, and professional services, using a robust accounting system to manage VAT returns and corporate tax filings.
Landlords should maintain detailed records of rental income and related expenses such as mortgage interest, property repairs, insurance, and management fees, while also tracking property improvements for capital gains tax purposes.
Sole traders must ensure they keep comprehensive records of all business-related income and expenses, including receipts, invoices, and travel expenses.
Adjustments to Business Asset Disposal Relief rates
Business owners reliant on Business Asset Disposal Relief (BADR) can be relieved, as the expected abolition of this relief has not occurred.
However, an increase in rates over the next two years will necessitate proactive tax planning to mitigate their effects.
Starting in April 2025, the BADR rate will rise from 10 per cent to 14 per cent, and by April 2026, it will increase further to align with the lower Capital Gains Tax rate of 18 per cent.
Currently, the relief is valued at £140,000, representing the difference between the current 10 per cent rate and the standard 24 per cent rate. However, this will reduce to £100,000 from April 2025 and £60,000 from April 2026, assuming no additional changes.
These modifications will bring BADR more in line with the general Capital Gains Tax regime, aligning with the Government’s goal of balancing entrepreneurial tax benefits with the necessity for a fair tax contribution.
The staged nature of these changes allows business owners time to re-evaluate their strategies.
For those contemplating selling their business, now is the time to review potential sales and consider if acting earlier might reduce their tax obligations.
This is especially pertinent for business owners approaching retirement or planning significant changes, as the timing of a sale can significantly affect the financial results.
Postponing a sale until after the new rates are implemented could lead to a considerably higher tax bill, potentially affecting long-term financial objectives.
Conversely, early preparation can position you optimally to maximise reliefs and minimise liabilities. Business owners should assess how these changes influence their broader financial strategy.
Upcoming Changes to Business Property Relief (BPR)
Effective estate planning requires staying updated with the rules surrounding Business Property Relief (BPR) and Agricultural Property Relief (APR).
Here’s a brief overview of the existing rules, valid until 5 April 2026, and the significant changes set to take effect from 6 April 2026.
BPR currently offers 100 per cent relief on:
Proposed Changes from 6 April 2026
While the nil-rate and residence nil-rate bands continue offering up to £500,000 relief per person, there will be adjustments to BPR:
These changes necessitate proactive adjustments in estate planning strategies to optimise relief utilisation.
Income Tax Rates
The UK Government is continuing to freeze income tax thresholds, meaning that personal income tax rates will remain the same, but as inflation rises, you may find yourself pushed into higher tax bands.
The basic rate remains at 20 per cent, the higher rate at 40 per cent, and the additional rate at 45 per cent, which applies to earnings over £125,140.
Importance of consulting a professional
The complexity of recent changes in tax law can make filing taxes challenging, especially if you’re self-employed or own a business.
Consulting with a tax advisor or accountant will help you navigate the nuances of tax regulations in 2025 and beyond and ensure you’re not missing out on any available tax relief.
Contact our team if you need guidance on tax regulations, as a new year will inevitably bring new rules and changes that you and your business will need to keep on top of.
