What Do You Pay Taxes For in the UK in 2025?

Introduction to the UK Tax System

The British tax code is one of the most comprehensive in the world, yet it remains logical and accessible with proper guidance. Kommersant UK explains the main taxes in force in 2025, their characteristics, and the deadlines for filing tax returns.

Discover what taxes you pay in the UK in 2025, including income tax, VAT, and council tax. Learn about the FIG regime, tax rates, and filing deadlines with HMRC.

General Provisions and Key Concepts

The UK tax system operates on three levels: central government, devolved governments, and local government. Central government is primarily funded by income tax, National Insurance contributions (NICs), VAT, corporation tax, and fuel duty. Local government relies on central government grants, council tax, and charges like on-street parking fees. Many taxes are progressive, meaning higher earners pay higher rates.

HM Revenue and Customs (HMRC) is an independent body responsible for administering and collecting direct and indirect taxes. In the 2023/24 tax year, UK tax revenues reached approximately £800 billion, reflecting steady growth.

Taxpayers are classified as residents or non-residents. Residents are taxed on UK income, with specific exemptions for foreign income under the new Foreign Income and Gains (FIG) regime introduced in April 2025. Non-residents pay tax only on UK-sourced income.

The FIG regime, which replaced the non-domicile system, affects how foreign income is taxed. New residents (non-UK resident for 10 years prior) can claim a four-year exemption on foreign income and gains. To determine your tax residency status, take the Statutory Residence Test annually. Once confirmed, you must file a tax return by the specified deadlines.

Income Tax

Income tax accounts for about 30% of UK tax revenue and is progressive, with rates depending on income levels. For 2025/26, the tax-free personal allowance is £12,570 (subject to government adjustments). Rates typically range from 20% to 45% for higher earners. Scotland sets its own income tax rates, which may differ slightly from those in England, Wales, and Northern Ireland. Check HMRC’s Income Tax page for details.

Social Insurance Contributions

National Insurance contributions (NICs) are the second-largest revenue source, funding the NHS and social security. Paid by employees, employers, and the self-employed, NIC rates depend on income and employment type. For example:

• Class 1 (employees): 12% on weekly earnings between £242 and £967, and 2% above £967 (2025/26 thresholds).

• Class 2 (self-employed): Applies to annual profits above £6,725.

• Class 4 (self-employed): Applies to profits above £12,570.

Full NIC rates are available on HMRC’s NICs page.

Property Taxes

The UK ranks high globally in property taxes, contributing about 12.5% of total revenue. There are two main types:

• Stamp Duty Land Tax (SDLT): Levied on residential properties over £250,000 and non-residential properties over £150,000 in England and Northern Ireland. Scotland uses the Land and Buildings Transaction Tax, and Wales has the Land Transaction Tax. Calculate SDLT using HMRC’s online calculator.

• Council Tax: Set by local councils based on property value, funding services like waste collection. Rates vary by municipality.

  
  

Wealth Taxes

Wealth taxes, including capital gains tax (CGT) and inheritance tax (IHT), account for around 4% of GDP.

• Capital Gains Tax: Levied on profits from selling assets like property or shares, with rates of 10–28% for individuals and 25% for companies in 2025. The tax-free allowance is £12,300 for individuals and £6,150 for trusts.

• Inheritance Tax: Applies at 40% on estates above £325,000. The rate drops to 36% if over 10% of the estate is donated to charity. Spouses or civil partners can inherit tax-free.

  
  

The FIG regime affects IHT for new residents, exempting foreign assets for the first four years of residency. Long-term residents (10 out of 20 years in the UK) are taxed on worldwide assets.

Value Added Tax

VAT applies to most goods and services at a standard rate of 20%. A reduced rate of 5% applies to specific sectors (e.g., energy). Businesses with a taxable turnover above £90,000 must register for VAT. A full list of taxable goods and rates is on HMRC’s VAT page.

Tax Return Deadlines in the United Kingdom

The UK tax year for individuals runs from 6 April to 5 April, while companies typically use 1 April to 31 March. Tax return deadlines are:

• 31 October: For paper submissions.

• 31 January: For electronic submissions.

You’ll need a Unique Taxpayer Reference (UTR), found in HMRC documents or online. Residents must notify HMRC of tax status changes by 5 October after the tax year ends.

Late filing incurs penalties:

• Within 3 months: £100 fine.

• Over 3 months: £10 daily penalty plus £100.

• 6 months late: £300 or 5% of tax liability (whichever is greater).

• 12 months late: Up to 200% of tax liability in severe cases.

  
  

For expert tax advice, contact Foundry Accounting.