The 2025/26 UK tax year ticked over on 6 April 2025. Most thresholds and allowances remain frozen and most tax rates remain the same, with the capital gains tax increase imposed from 30 October 2024. The key reform this year is the abolishment of the domicile regime, which has been replaced by a long-term residence system.
Here we summarise this year’s tax rates and allowances, who is affected by the domicile reform and how, and look ahead to tax changes planned from April 2026 and 2027. The Chancellor’s Spring Statement 2025 included very little in terms of tax changes, so these reforms were introduced or confirmed by her Autumn Budget last year.
Income taxes
The income tax personal allowance and thresholds are frozen until April 2028, so the personal allowance remains £12,570. For higher earners, 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:
| Basic rate | Up to £37,700 | 20% |
| Higher rate | £37,701 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scotland has different rates and tax income bands, and there the lower thresholds have increased a little this tax year.
Employer National Insurance contributions increased to 15% from 6 April this year, and the per-employee threshold (the secondary threshold) reduced to £5,000.
Tax rates and allowances for savings income and dividends remain unchanged for 2025/26.
Capital gains tax (CGT)
While there is only one capital gains tax related change this tax year, there have been notable tax increases over the last couple of years.
- The main rates of capital gains tax increased from 10% to 18% and from 20% to 24% with effect from 30 October 2024. This applies to non-real estate assets (these rates already applied to property).
- The CGT rate for personal representatives and trustees also rose to 24% at the end of October.
- The capital gains tax annual exempt amount has been cut from £12,300 in 2022/23 to £3,000 from April 2024.
- Where assets qualify for Business Asset Disposal Relief and Investors’ Relief, the CGT rate increased from 10% to 14% on 6 April this year and will be 18% from April 2026.
Pensions
There are no changes to the pensions allowances this tax year. They remain:
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 a reform announced alongside the budget on 30 October 2024, when the exemption from the 25% Overseas Transfer Charge was removed from most EU/EEA transfers with immediate effect. This had a significant impact on expatriates wishing to move their pension funds out of the UK, though alternative solutions can be found in some cases. If this applies to you, please don’t hesitate to contact us to explore the options for achieving your objectives.
That said, the biggest change for pensions will take effect on 6 April 2027, when pension funds will start to form part of your estate for inheritance tax purposes. For many people pensions are one of their biggest assets, so this reform will be felt by hundreds of thousands of families. With another two years to go, there is time to look for strategic financial planning solutions. This particularly applies to expatriates, since if they meet the new long-term residence criteria, they will only be liable for IHT on assets within the UK.
Inheritance tax (IHT)
Inheritance tax rates (40% or 36% where 10% is left to charity) and allowances (£325,000 nil rate band and £175,000 residence nil rate band) are all unchanged. The 2024 budget extended this nil rate band freeze to 2030.
From 6 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%. Likewise, IHT relief on AIM shares will also be restricted to 50% from April 2026.
Domicile replaced by long-term residence
While this reform won’t affect most UK taxpayers, it is a major shift for foreign nationals living in the country (‘non-doms’) as well for British expatriates.
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 5 April 2025.
It has been replaced by a new long-term residence system, with 10 years being the key number. 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 much more adhesive domicile system, and is 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 with effect from 1 April 2025.
For those buying a second property, or any property that is not their main home, the SDLT rate has increased from 3% to 5%. This higher rate also applies to expatriates who own a main home in their country of residence and are buying a second home or investment property in the UK.
Personalised advice
If the domicile reform affects you, or you wish to improve your inheritance tax position or protect your wealth from future tax measures, get in touch with Blevins Franks. With offices in the UK, as well as Spain, France, Portugal, Cyprus, Malta and Monaco, we are well placed to advise you wherever you live, and our specialist cross-border knowledge proves invaluable to British expatriates and those planning to relocate.
Contact Blevins Franks today
