US Families | UK Families | Announcements | March 28, 2025

Spring Statement Update 2025

Earlier this week, Chancellor Rachel Reeves delivered her 2025 Spring Statement – an update on the public finances and outline of policy and spending changes which are deemed necessary in order to ensure stability and drive growth and investment within the UK economy in an increasingly uncertain global environment. With the changes announced today, Reeves has assured the government remains on track to meet its stability and investment rules (that day-to-day costs can be met by tax revenues and debt as a measure of GDP is falling in the 5 year period ahead) set out during the Autumn Statement last October.

Separate from the Statement, which did not focus on tax changes, the Finance Act 2025 gained Royal Assent on 20 March 2025 which cements the changes previously announced in the Autumn Budget back in October 2024 with respect to the elimination of the Non-Dom regime as of 6 April 2025 as well as increases to capital gains and stamp duty land tax rates.

We have summarised the information we believe to be most relevant below:

Growth, Employment and Debt

• The Office for Budget Responsibility (OBR) expects the UK economy to grow by 1% this year (a revision down from a previous 2% forecast).
• As a result of the changes announced in today’s statement, the OBR has upgraded their growth forecast for next year and thereafter to the following:
  • 1.9% – 2026
  • 1.8% – 2027
  • 1.7% – 2028
  • 1.8% – 2029
• Inflation is expected to average 3.2% in 2025 with a forecasted reduction to 2.1% in 2026. Inflation is expected to reach its target of 2% from 2027 onwards.
• The unemployment rate is forecast to be as follows:
  • 4.5% – 2025
  • 4.3% – 2026
  • 4.2% – 2027
  • 4.1% – 2028 and 2029
• Net financial debt is forecasted to be 82.9% of GDP in 2025-26 and 83.5% in 2026-27, before falling to 82.7% in 2029-30.

Defence, Welfare and Public Services

• The government will spend 2.5% of GDP on defence by 2027, which will be achieved through the reduction of overseas aid spending to 0.3% of gross national income.
• An additional £2.2bn will be made available to the Ministry of Defence in 2026, reflecting the need to be agile in a ‘changing world’.
• A minimum of 10% of the defence equipment budget will be spent on investment in technology and equipment with manufacturing jobs to be introduced throughout the country.
• The government announced a focus on reforming the welfare system to reduce cost but maintained a commitment to protect the most vulnerable. Welfare spending as a share of GDP will fall in the coming years.
• The Universal Credit standard allowance will increase from £92 per week in 2025-26 to £106 per week in 2029-30.
• The health element of the Universal Credit will be frozen for existing claimants at £97 per week until 2029-30 and for new claimants will be reduced to £50 a week in 2026-27 and then frozen until 2029-30.
• The government will introduce a £3.25bn transformation fund to support reform of public services and bring down the costs of running the government with a commitment to reduce administration costs by 15% or £2.2bn by the end of 2029-30.

Business

• Secondary Class 1 employer National Insurance Contributions will increase by 1.2%, taking the rate from 13.8% to 15% from April 2025. The salary threshold at which companies pay the secondary threshold will also be lowered, from £9,100 to £5,000 per year.
• A lifetime limit of £1m will continue to apply to Business Asset Disposal Relief (BADR). Current Capital Gains tax rates will increase from the current 10% to 14% in TY2025-26 and increase further to 18% in TY2026-27.
• VAT is now assessed on private school fees. The Finance Act removes the exemption on the supply of private school fees, vocational training and, board and lodgings when supplied by a private school or similar institute.

Personal Taxes, Pensions, Savings and Investments

• The main rate of Class 1 employee National Insurance Contributions will remain at 8% on earnings between £12,570 and £50,200 per year.
• As a reminder, the Personal Allowance threshold of £12,570 remains unchanged as does the Higher Rate Income Tax Band of £50,270.
• The threshold in which the Additional Rate Income Tax Band begins to apply continues to be £125,140.
• Income tax bands will remain frozen until April 2028 with personal tax thresholds increasing with inflation thereafter.

• The Capital Gains Tax Allowance will remain at the current £3,000.
• The tax rates applicable to capital gains on asset sales other than property increased from 20% to 24% from 30 October 2024 for Higher and Additional Rate taxpayers (the 10% rate for Basic Rate taxpayers increased to 18%).
• The capital gains tax rate assessed on carried interest from April 2025 will be increased from 28% to 32%.
• The capital gains tax on the sale of a second residential property remains at the current 24% rate for Higher and Additional Rate taxpayers (the 18% rate for Basic Rate taxpayers will also remain unchanged).
• Stamp Duty Land Tax (SDLT) for second homes increased by 2% to a rate of 5% effective on exchange of contracts after 30 October 2024.
• The furnished holiday lettings (FHL) regime will be eliminated from 6 April 2025.

• The Dividend Tax Allowance will remain at the current £500. Dividend tax rates will remain as follows:
  • Basic Rate – 8.75%
  • Higher Rate – 33.75%
  • Additional Rate – 39.35%

• The Annual Allowance for Adult ISA’s and Junior ISA’s will remain at £20,000 and £9,000, respectively.
• The government is looking at options for reforms to ISA’s to get the ‘balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.’
• As a reminder, the current Annual Allowance for pension contributions is £60,000 with tapering of the Annual Allowance beginning at £260,000. The Money Purchase Annual Allowance as well as the minimum tapered allowance, remains at £10,000.
• UK pension transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) that is based in the EEA or Gibraltar are now subject to the same 25% overseas tax charge (OTC) rules that have previously been applicable on transfers to a non-EEA QROPS. Where an exception applies, but the transfer value exceeds the available overseas transfer allowance, the OTC will apply only to the amount exceeding the available overseas transfer allowance.

• The government previously confirmed its commitment to the State Pension Triple Lock for the duration of Parliament.
• The full State Pension will be £230.25 per week, or £11,973 a year in TY2025-26, representing a 4.1% rise in line with earnings growth.

• With respect to IHT, the current Nil Rate Band threshold of £325,000 will continue to remain frozen until April 2030.
• The current additional Residence Nil Rate Band of £175,000, available to individuals who pass on their UK real estate to a direct descendent of the deceased, will remain frozen and continue to taper away by £1 for every £2 where net estates are worth more than £2,000,000.
• Inherited pensions will be brought into the scope of inheritance tax from April 2027.
• Reform was previously announced on Agricultural Property Relief (APR) and Business Property Relief (BPR) with the introduction of a combined 100% relief limit of £1m from April 2026. Assets over this relief limit will receive 50% relief meaning an IHT rate of 20%.
• Alternative Investment Market (AIM) shares will also attract an effective IHT rate of 20%.
• The changes previously announced to inheritance tax APR and BPR outlined above were not included in the recent Finance Act 2025 but is expected to be in a future Finance Bill. However, the Act did expand the scope of APR to include land managed under an environmental agreement.

Non-Domicile Regime Changes

• The government will abolish the non-UK domicile tax regime and will replace it with a residency based tax regime from April 2025.
• All new arrivals from 6 April 2025, will be entitled to receive full tax relief on foreign income and gains (FIG) for the first four tax years that they are resident in the UK provided they have been a non-UK tax resident for the 10 consecutive years prior to arrival. All FIG earned during this period will be allowed to be brought onshore to the UK without an additional tax charge. An election will be needed on a UK self-assessment to receive this exemption.
• Any existing Non-Dom tax residents, who have been tax resident for fewer than four tax years as of 6 April 2025, will be entitled to benefit from full relief until the end of their fourth tax year of residence.
• There is no requirement for an individual to claim the FIG exemption in each of the first four tax years. Additionally, individuals can decide to make a claim on just foreign income or just foreign gains or both. Additionally, it is not necessary to claim relief on all sources of FIG. To the extent any claims are made, the individual will lose entitlement to claim the Personal Allowance and Capital Gains Tax Allowance for the applicable tax year. Additionally, the individual will lose the ability to receive relief in the UK on foreign losses earned during these years. Where individuals are looking to make pension contributions in the UK related to these years, an individuals adjusted net income for determining any annual allowance tapering will be determined as if the relief allowed by the claim had not been deducted.
• Overseas Workday Relief will be extended to a four-year period as opposed to the current three-year period. Income claimed under this relief will no longer need to remain in (or be paid to) an offshore account. The amount claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income.
• Individuals who have been tax resident in the UK for more than four tax years as of 6 April 2025 will be subject to UK taxation on an arising (worldwide) basis, meaning that all FIG will be taxed annually in the UK, similar to other UK domiciled or UK deemed domiciled individuals currently.
• The protection from tax on FIG arising within settlor-interested trusts will no longer be available for those settlors who do not qualify for the four-year FIG regime from April 2025. FIG that arose in protected non-resident trusts prior to April 2025 will not be taxed unless distributions or benefits are paid or deemed to be paid to UK residents who do not qualify for the four-year FIG regime. FIG which arose within the trust structure before April 2025 will be taxed on UK resident settlors or beneficiaries who do not qualify for the four-year FIG regime if these are matched to worldwide trust distributions received from April 2025.
• From 6 April 2025, all UK residents’ worldwide assets will be within scope of UK inheritance tax once they have been long-term resident in the UK, defined as being resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. Individuals will remain in scope for between three and 10 tax years after leaving the UK. The time the individual remains in scope after leaving the UK will be shortened where they have been resident in the UK for between 10 and 19 years.
  • Any non-dom or deemed domiciled individual who is non-resident in TY2025-26 or prior will only remain in the scope of UK IHT until their fourth year of non-residence.
  • The schedule is as follows:

• Subject to transitional points, the excluded property status of non-UK settled trusts will only be retained for IHT purposes at times where the settlor does not meet the definition of long-term resident in the UK. When a settlor meets the definition of a long-term resident, any assets they settled will be subject to IHT. This means that a trust will be exposed to a 10 year anniversary charge of 6% if the settlor meets the definition of a long-term resident on an anniversary date and if a reservation of benefit is retained on the trust, the trust can remain within an individual’s personal estate subject to IHT.
  • Existing non-UK assets within an excluded property trust settled prior to 30 October 2024 will benefit from transitional protections against the long-term residences rules.
  • Any additions or new settlements made on or after 30 October 2024 will be subject to the interest in possession and gift with reservation rules as they apply in accordance with the new long-term residence rules. If an existing interest in possession benefit ends, any new entitlement for another individual such as a spouse will be subject to the new long-term residence rules.
  • Those individuals who settle a trust at a time they were solely US citizen (and did not hold UK nationality) may be able to claim protection from IHT under the US-UK Estate Tax Treaty.
• Given the scale of the announced changes, the government will offer the following transitional arrangements for existing non-doms currently or previously taxed on the remittance basis:
• Capital assets owned as of 6 April 2025 have the opportunity to be ‘rebased’ to their market value as of 5 April 2017.
• Any untaxed FIG earned prior to 6 April 2025 will have the opportunity under a Temporary Repatriation Facility (TRF) for a three-year period from TY2025-26 to be remitted at a reduced rate of tax once remittance basis taxation has ended. The flat rate tax will be 12% for the first two years and 15% in the final year. Offshore structures (including unattributed FIG held within trust structures) will be within the scope of TRF in addition to personally held assets. If a UK resident settlor or beneficiary of a non-resident trust previously paid tax on the remittance basis and receives a benefit from the offshore trust structure during the three-year period, they can benefit from the TRF reduced rates as long as the benefit is able to be matched against FIG that arose within the settlement prior to 6 April 2025.
  • Individuals who designate amounts under TRF and pay tax on these amounts will not have a requirement to remit these funds to the UK during the three-year period. The funds can be remitted during a later tax year.
  • Designated amounts will automatically rise to the top of the mixed fund ordering rules and will always be treated as remitted to the UK in priority to any other amounts, regardless as to the year these amounts relate.
  • Designated amounts will be an amount net of foreign tax that may have been paid on the FIG. It will not be possible to claim a credit in the UK for that foreign tax.

These are just a few of the items outlined today along with confirmation of what was contained within the finalised Finance Act 2025. If you have any questions about the implications of these changes on you, please do not hesitate to get in touch.

Source of economic data:  The Office of Budget Responsibility; Source of budget information: Chancellor Reeves’s budget speech to the House of Commons and HM Treasury Policy paper published 26 March 2025 and Finance Act 2025.

Important Information

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• Nothing in this document constitutes investment, legal or fiscal advice and should not be construed as such.
• This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
• This document does not take into account the specific goals or requirements of any particular individual.
• MASECO gives no assurance or guarantee that the information is accurate or complete and it should not be relied upon as such.
• Information about tax changes is based on our understanding of the changes announced by the Chancellor. However, MASECO is not a tax specialist and we recommend that anyone considering investing seeks their own tax advice.
• The extent of the benefit (if any) of the measures announced in the Budget and summarised herein will depend on the individual circumstances of each client and may be subject to change in the future.

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