New year, new tax rules – preparing your tax strategy for 2025
Released On 10th Mar 2025
As 6 April 2025 approaches, businesses must start preparing for a new tax year, in which several key tax changes will come into force.
Announced in last year’s Autumn Budget, these new tax rules and rates could have a significant impact on your personal and business finances.
Understanding and preparing for these changes is, therefore, essential for effective tax planning in 2025.
Business Asset Disposal Relief (BADR)
A major change for businesses this year is the reduced rate of relief for BADR.
While the anticipated abolition of BADR did not materialise, the rates will increase over the next two years, requiring proactive tax planning to relieve the impact.
While business owners currently pay tax at 10 per cent on the first £1 million of qualifying gains under BADR, this rate will rise to 14 per cent from 6 April 2025, with a further increase to 18 per cent from 6 April 2026.
For those disposing of a business worth £1 million or more, this could mean an increase of up to £40,000 in tax liability under the new 14 per cent rate.
To prevent tax loopholes brought on by this phased approach, the Government has introduced anti-forestalling laws.
The anti-forestalling rules will apply the BADR rate in application at the time a section 169Q Taxation of Chargeable Gains Act 1992 (TCGA) election is made.
This makes using some suggested methods for maximising the existing rate, such as loan notes, difficult, as the tax rate is taken at the point of election, not when the loan note was received.
Therefore, for the current rate to apply to the loan, the election must be made before the 12-month anniversary of the Self-Assessment deadline for the year in which the loan note is received.
This means that individuals must finalise s169Q elections before the end of the tax year to benefit from the 10 per cent rate. Missing this deadline could mean you face the higher 14 per cent rate.
If you are planning to sell a business over the next 12 to18 months, you may wish to accelerate this transaction to benefit from the current rate.
This is particularly relevant for business owners nearing retirement or planning a major transition, as the timing of a sale can greatly influence the financial outcome.
Restructuring the business or transferring ownership to a spouse or partner before disposal can help spread the tax liability and make better use of the available tax-free allowances. This requires careful legal and financial planning to ensure compliance and avoid unexpected complications.
In some cases, it may be worthwhile considering a sale to an Employee Ownership Trust (EOT). Although this comes with some strict conditions, it can enable shares to be sold without any Capital Gains Tax (CGT) liability.
Agricultural Property Relief (APR) and Business Property Relief (BPR)
The Autumn Budget has introduced significant changes to APR and BPR under Inheritance Tax (IHT), effective from April 2026.
Under the new rules, 100 per cent tax relief on agricultural and business assets will be capped at £1 million per individual, with relief 50 per cent thereafter.
The reforms aim to balance the support for family businesses with the need for increased contributions from wealthier estates.
However, for farming families, this could have a significant impact on how farmland and assets are passed between generations.
For example, a farming couple can only protect the first £3 million of assets for their beneficiaries.
This is because they each have an APR allowance of £1 million (or £2 million combined) plus the existing nil-rate and residence nil-rate bands, which allow a couple to pass on up to £1 million tax-free.
It is important to seek advice now to ensure your estate and its wealth are protected.
You may wish to consider restructuring how your assets are held to manage increased liabilities and potentially move assets between relatives.
IHT on qualifying assets not fully covered by APR or BPR will need to be paid in 10 equal instalments from April 2026.
Assessing the liquidity of your estate to manage instalment payments is essential, especially for property-rich but cash-poor estates.
In some cases, it may be possible to start the early disposal of assets to ensure the estate has the means to meet a larger-than-expected tax bill.
Making Tax Digital (MTD) for Income Tax
By 2026, individuals with income above £50,000 will need to comply with MTD for Income Tax (IT). This threshold will drop to those with income above £30,000 by 2027.
Although MTD is a phased extension and transition, taxpayers must start considering it now.
The transition will require significant upgrades in record-keeping, and the task of seamless data integration will fall on taxpayers, with little support from HM Revenue & Customs (HMRC).
Businesses must upgrade their software and educate themselves on MTD to avoid last minute compliance issues.
Employment tax
From April 2025, the rate of Employer National Insurance Contributions (NIC) will increase from 13.8 per cent to 15 per cent. Additionally, the current salary threshold for Employer NIC – £9,100 – will be reduced to £5,000.
Businesses should review their current workforce and salary bands to mitigate the impact of these higher tax obligations.
Utilising alternative staffing methods (such as outsourcing or part-time roles) could lessen the tax liability.
Companies must also calculate the potential impact on financials so that they can adjust budgets and forecast cost cutting measures.
