Spring Budget 2025 - no significant tax changes

Chancellor Rachel Reeves' Spring Statement of March 26, 2025, addressed the UK's economic challenges and outlined measures to promote growth and stability.

The state of the economy

The UK's economic landscape remains fragile. The Office for Budget Responsibility (OBR) has downgraded the GDP growth forecast for 2025 to 1%, down from the previous estimate of 2%. This adjustment reflects ongoing economic challenges, including rising borrowing costs and stagnant growth.

Inflation is projected to average 3.2% in 2025%, with expectations of a decline to 2.1% in 2026.

Economic growth

To stimulate economic growth, the government plans to reform planning laws aimed at boosting GDP. Additionally, an extra £2.2 billion will be allocated to defense spending, reflecting a commitment to national security and potential economic stimulation through defense contracts.

Doubling down on the crackdown on fraud

The Chancellor announced intensified efforts to combat tax evasion and fraud, aiming to raise approximately £7.5 billion in revenue. This includes new laws to enhance the Department for Work and Pensions' powers to detect and prevent fraud, with an expected saving of £1.6 billion over the next five years.

Key Takeaways

Fortunately, there aren’t too many takeaways from this budget (phew!). We’ve highlighted the key points from the budget that are most likely to have a direct impact on you.

Making Tax Digital

• Expansion of MTD for Income Tax: Currently, MTD mandates digital record-keeping and quarterly reporting for sole traders and landlords with incomes over £50,000, effective from April 2026. This threshold will decrease to £30,000 by 2027. The latest announcement extends MTD requirements to those earning over £20,000 starting April 2028. ​

• Enhanced Penalties for Late Payments: The government plans to implement stricter penalties for late VAT and Income Tax Self-Assessment payments under MTD. The penalty structure will increase from 2% to 3% for taxes overdue by 15 days, from 2% to 3% at 30 days, and from 4% to 10% for taxes overdue beyond 31 days. ​

• MTD for Corporation Tax: The government plans to continue collaborating with stakeholders on the service design, with any mandatory implementation not expected before 2026 at the earliest.

Stamp Duty

• Threshold Adjustments: The Chancellor confirmed that the stamp duty holiday, which set the threshold at £250,000, will conclude on March 31, 2025. From April 1, 2025, the threshold reverts to £125,000, meaning properties purchased above this value will incur stamp duty charges.

• First-Time Buyers: For first-time buyers, the exemption threshold remains at £425,000 for properties valued up to £625,000.

National Living Wage Increase

A 6.7% increase in the National Living Wage is set to take effect next week (as announced in the Autumn budget last year), reflecting the government's commitment to supporting low-income workers.

High Income Child Benefit Charge (HICBC)

Alcohol Duties

The Chancellor announced that alcohol taxes will remain unchanged, providing relief to consumers and pub landlords. However, industry experts warn that pint prices might exceed £5 due to other rising costs from previous tax measures.

Welfare Reforms

The government announced a reduction in the welfare budget by £14 billion. This includes adjustments to Universal Credit, with an increase in the standard allowance but significant cuts to the health element. These changes are projected to impact approximately 3.2 million people financially.

Civil Service Reductions

Plans were unveiled to cut at least 10,000 civil service positions. The savings from these reductions are intended to be redirected to frontline services, such as policing.

Overseas Aid Reduction

The government plans to reduce overseas aid, aiming to save £2.6 billion by 2029-30. This move is part of broader efforts to address the fiscal deficit.

Housing Initiatives

Plans were unveiled to build 1.5 million new homes by 2030, with a peak of 305,000 homes annually. This initiative seeks to address housing shortages and is projected to contribute £6.8 billion to the GDP.

Future plans - a cause for concern?

Whilst not making commitments to any firm changes, the Chancellor did hint and some possible changes and noted that changes were required in a number of areas of tax, investment and spending.

Are Cash ISAs under threat?

Whilst there have been no confirmed changes to the Cash ISA limit, the Chancellor proposed a cap on annual contributions to cash ISAs at £4,000. This move seeks to encourage investments in equities to stimulate economic growth, but it may affect individuals who prefer the security of cash savings.

Inheritance Tax (IHT)

The government plans to review the inheritance tax gifting regime, potentially altering allowances that currently enable individuals to make tax-exempt gifts. Significant gifts are treated as Potentially Exempt Transfers, becoming exempt if the donor survives seven years. Changes could affect estate planning strategies.

Summary

Thankfully, we can relax after the announcements from the Spring Statement, with few of any particular note, and most of the focus being on fiscal policy changes to public financing and efficiencies to clawback savings improve economic growth.

If you’re in need of financial advice or support, Inform Accounting’s friendly team of experts are always here to help. Get in touch with us today.