UK Budget Predictions 2025: Will Labour Increase Personal Tax Allowance for Working Families?

As the nation anticipates the UK budget predictions for 2025, the core question on the minds of working families is this: Will the government increase personal tax allowance? With the new Labour government expected to bring sweeping reforms, families, small businesses, and investors are hoping for relief amidst rising costs and a shifting economic landscape.

Background: The 2024 Political and Economic Landscape

Following years of stagnation and austerity from the previous government, the Labour Party now faces the monumental task of restoring economic stability. Public dissatisfaction with frozen tax thresholds, underfunded services, and lack of support for the average worker was a major factor in Labour’s victory. The Office for Budget Responsibility forecasts moderate economic growth, but challenges like inflation, wage stagnation, and interest rates persist.

Labour’s Economic Vision for 2025

The Labour Party, under a renewed manifesto to "Rebuild Britain", is expected to introduce policies that foster budget responsibility, boost public spending, and support working families. A cornerstone of their plan includes addressing the fiscal drag caused by frozen personal allowance and tax bands, essentially taxing people more without raising nominal rates.

Income Tax and Personal Allowance Adjustments

Personal Tax Allowance: A Lifeline for Working Families?

One of the most anticipated questions in the UK budget predictions 2025 is whether the Labour government will increase the personal tax allowance. Currently set at £12,570, the threshold has remained frozen, pulling more lower-income workers into higher tax brackets through fiscal drag. Raising this allowance could provide immediate relief to families struggling with the increased costs of living.

Potential Adjustments to Income Tax Bands

Labour is likely to review:


  • The basic rate (currently 20 per cent)
  • The higher rate (40 per cent)
  • The additional rate (4 per cent)


Any shift in these brackets, especially linked to inflation or median income growth, would significantly affect take-home pay.

Fiscal Drag and the Freezing of Tax Thresholds

Fiscal drag has been dubbed a “stealth tax” that erodes real incomes. Under current policy, thresholds for income tax, national insurance, and pension credit eligibility are frozen until 2028. This erodes value and pushes taxpayers into higher brackets as wages grow, even if their standard of living does not improve. Labour might move to unfreeze or raise these thresholds, counteracting this effect.

National Insurance Contributions and Salary Sacrifice Schemes

Reforms to national insurance contributions (NICs) are expected to align with Labour’s pledge to make the tax system fairer. This could include:


  • Adjustments to employee NIC thresholds
  • Expansion of salary sacrifice schemes for transport, pensions, and green benefits



These changes could improve net pay for middle-income earners and promote financial incentives for environmentally friendly behaviour.

Capital Gains Tax and Residential Property

Labour is considering levelling the playing field between income and capital gains by increasing the capital gains tax (CGT) rate or narrowing allowances. This could significantly affect:


  • Buy-to-let landlords
  • Second-home owners
  • Residential property investors


We may also see reform of carried interest and treatment of business assets, aimed at high-net-worth individuals and non-UK residents.

Inheritance Tax Threshold and Business Assets

The inheritance tax threshold has remained static, affecting middle-class families disproportionately. Labour may look to:


  • Increase the nil-rate band from £325,000
  • Restrict relief on business assets
  • Address loopholes around connected persons



This would reflect a broader strategy to ensure wealth is taxed more progressively.

National Living and Minimum Wage Adjustments

Labour is expected to increase both the national minimum wage and the national living wage to support lower-income workers. The increases may be tied to median earnings rather than inflation, ensuring real-terms growth.

Wage Type 2024 Rate Projected 2025 Rate
National Minimum Wage (21+) £11.44 £12.20 to £12.50
National Living Wage £10.42 £11.50 and above

Such increases could also influence employment allowance policies to help small businesses adapt.

Reforms in Private School Fees and VAT

One controversial yet likely policy is to apply VAT on private school fees. This would align private education with other luxury services and generate significant revenue.


Effects May Include:

  • Increase in school fees
  • Greater enrolment in state education
  • Expansion of boarding services provided by public schools


This aligns with Labour’s vision of equitable education funding.

Corporation Tax and Business Rates Relief

To support small businesses, Labour may maintain or slightly raise corporation tax while offering targeted business rates relief. The party has shown interest in simplifying VAT registration and creating incentives for green and digital businesses.

Stamp Duty and Property Market Outlook

Stamp duty may undergo reforms to assist first-time buyers and stimulate the residential property sector. Adjustments could include:



  • Raising the nil-rate band
  • Targeted support in low-growth regions
  • Incentives for energy-efficient homes

Pension Contributions, Tax Relief, and Lifetime Allowance

Labour might restore the lifetime allowance on pensions or introduce a cap again. Expected reforms include:


  • New limits on tax-free cash
  • Changes in pension contributions tax treatment
  • Simplifying pension credit qualification


These measures aim to sustain the basic state pension and promote long-term saving.

Addressing Tax Avoidance and Offshore Wealth

Combatting tax avoidance is high on Labour’s agenda. Policies may involve:



  • Greater transparency for non-UK residents
  • Reforming the tax treatment of offshore trusts
  • Enhanced reporting on business assets and income flows

Public Spending and Government’s Commitment to Services

Expect significant public spending in:


  • NHS and social care
  • Education
  • Green infrastructure



Funding will be supported by raising revenue through adjusted taxation and reduced avoidance, ensuring the government’s commitment to rebuilding public trust.

Office for Budget Responsibility and Budget Responsibility Targets

The Office for Budget Responsibility (OBR) will play a vital role in ensuring transparency. Labour may enhance its powers to audit all major budget announcements, reinforcing fiscal credibility.

Budget Announcements Timeline: Spring and Autumn Statements

Watch for major announcements during:


  • Spring Statement – March 2025
  • Autumn Budget – November 2025



Draft legislation, especially on fuel duty, tobacco duty, and new vaping duty, will be introduced incrementally.

Frequently Asked Questions (FAQs)

  • 1. Will the personal tax allowance rise in April 2025?

    Labour has hinted at reviewing the personal allowance. While a confirmed rise is not certain, it is highly likely as part of their support for working families.

  • 2. How will capital gains tax be affected?

    The rate may rise to narrow the gap with income tax, particularly on residential property and business assets.

  • 3. What is fiscal drag, and why does it matter?

    Fiscal drag refers to stagnant tax thresholds that pull more earners into higher brackets due to inflation. It is effectively a hidden tax increase.

  • 4. Will private school fees become more expensive?

    Yes, as VAT may be applied to these fees, making boarding services provided more costly.

  • 5. What support will small businesses receive?

    Reforms in business rates relief, corporation tax, and employment allowance are expected to support smaller firms.

  • 6. Will NICs thresholds change?

    Yes, to reduce the burden on low-income earners and align NICs with broader tax system reforms.

Conclusion

The UK budget predictions 2025 signal a major fiscal shift under Labour, with a likely focus on increasing personal tax allowance for working families, tackling inequality, and ensuring budget responsibility. While some higher earners and investors may see higher taxes, these changes aim to build a fairer, more sustainable future. Contact 10CA for more updates. 

Company tax returns and accounts have gone digital

By Charlie Flockhart • April 21, 2026
HMRC and Companies House have confirmed that from 1 April, all businesses must use compliant, commercial software to file their company’s tax returns. As of 31 March, the free joint online service, commonly known as the CATO portal, from these two Government bodies has been removed and you must now use software to file company tax returns to HMRC. For the time being, you will still be able to file annual accounts at Companies House using third-party software, WebFiling services or paper filing. The decision has been made to end this service as it is “outdated and no longer aligns with modern digital standards”, according to Companies House. This change is in line with the introduction of the Economic Crime and Corporate Transparency Act, which implemented “enhanced corporation tax requirements and changes to UK company law.” It also follows on from a major IT security breach at Companies House, identified in March 2026, that exposed the WebFiling system and allowed some users to potentially access and amend the details of other companies. Although the breach has now been resolved and security strengthened, it has raised concerns about the reliability of GOV.UK One Login service.  Can you still amend previous returns using the free service? HMRC and Companies House have confirmed that now that the free filing service has closed, company directors will have to use commercial tax software if they need to make changes to a previously submitted Corporation Tax return or refile a rejected return. From now onwards, any previously filed financial information will no longer be available in the system, as it has not been retained and will need to be entered again. HMRC has said that, for amendments, it will also be acceptable to send a paper return to the Corporation Tax Services office. If you have previously filed financial accounts with Companies House and you want to make changes or corrections, this will also need to be done via commercial software or by sending paper accounts to Companies House via post. Are there any exceptions to this new rule? Companies can file a paper Corporation Tax return only in limited circumstances, such as if they wish to submit it in Welsh or can demonstrate a valid, reasonable excuse to HMRC. Otherwise, returns must be filed online using commercial software. If you are affected by this change and need help choosing and utilising commercial software to complete your Corporation Tax return, please speak to our team.

Capital allowances - New rules for a new tax year

By Charlie Flockhart • April 21, 2026
Capital allowances continue to provide an effective method for businesses to reduce their tax bills, by providing incentives for investment in eligible expenditure – typically plant and machinery. Historically, these reliefs have been subject to change and the 2026/27 tax year is no different, as the Government moves to alter two key reliefs – Writing Down Allowance (WDA) and a new First-Year Allowance (FYA).  Reduction of the Writing Down Allowance The WDA will be reduced from 18 per cent to 14 per cent on the main pool of qualifying plant and machinery assets. This change has been introduced on two different dates, starting with companies subject to Corporation Tax on 1 April and followed shortly thereafter by those subject to Income Tax, such as sole traders and partnerships, from 6 April. Businesses with large brought forward main pool expenditures are expected to lose the most from the reduction in the main rate of WDA. In the long-term, the change may also reduce incentives for investment in second-hand assets and cars, which benefited under the previous rules. The new First-Year Allowance To offset some of the impact of the reduction in WDA, a new 40 per cent FYA on main rate expenditure, primarily still covering plant and machinery, will now be available. This new FYA is intended to encourage investment in areas where other FYAs don’t allow, in particular, assets bought by unincorporated businesses and leases. Sole traders and partnerships will, for the first time, be able to get additional support at the point of investment, which means that more businesses will be able to reduce their tax bill in the same year as their investment. This is expected to give a quick cashflow boost to those affected and provide additional support for future investments. However, it is important to note that this FYA does not support investment in second-hand assets, cars or leased assets in other countries. Finally, the Government has also confirmed that small business owners will continue to benefit from tax relief on electric vehicles, as the 100 per cent FYA for zero-emission vehicles and charge points has been extended until 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax. This gives businesses greater certainty when planning ahead, while also providing a strong financial incentive to invest by reducing tax bills upfront. Want to make more of capital allowances? If you think you may be eligible for capital allowances, either due to the changes outlined in this article or more generally, then it is important that you claim the tax relief available to you. If you would like help reviewing the current capital allowances that your business can claim, please get in touch.

Government abolishes work-from-home relief

By Charlie Flockhart • April 21, 2026
Directors and employees claiming work-from-home tax relief will no longer be able to claim it from the start of the new tax year – 6 April 2026. Why is this relief being taken away? The Chancellor announced the removal of the work-from-home relief as part of her latest Autumn Budget. The main reasoning given for the abolition is that it will support the nation’s deficit reduction. HMRC has also said that it no longer believes it is fit for purpose or easy to police. Who could claim work-from-home relief? Work-from-home relief has been utilised by homeworkers since the early 2000s, helping them offset some of the costs of heating, lighting, broadband and other home-office expenses required to complete their jobs. The relief allowed employees and directors to claim a flat rate of £6 per week or a deduction for actual costs. However, those who do not claim the flat fee were required to provide evidence of the exact costs, such as an invoice or bill. Eligibility for the relief only applied to individuals who had no other choice but to work from home. For instance, where the business did not have an office or the daily commute was not feasible. Individuals who simply preferred to work from home did not qualify. Is there any relief still available for home workers? The only remaining tax-free support will be reimbursements made directly by employers. This applies only where the payments relate to demonstrated additional household costs and where the costs are incurred wholly, exclusively and necessarily for employment duties. For anyone still claiming work-from-home relief, it is worth reviewing your position now to understand how this abolishment will impact your take-home pay.