The 2025 UK budget presented by Chancellor Rachel Reeves on 26 November introduced several significant changes to tax law, particularly affecting internationally mobile employees (IMEs) and their employers. While the budget may not have matched the 2024 budget’s dramatic overhaul of domicile rules, it still brought noteworthy developments. The Office of Budget Responsibility (OBR) added a touch of drama by prematurely releasing their forecast online, just before the official announcement in the House of Commons.
The Finance Bill 2025/26 is still in draft form, subject to changes that may impact the aforementioned points. Other relevant announcements include:
Sam Westlake
Steph Carr
BDO in United Kingdom
Key Tax Law Changes
- Personal Allowances and Income Tax Thresholds Frozen: The government has decided to freeze personal allowances and income tax thresholds until April 2031. This move, known as "fiscal drag," will likely increase the tax burden on individuals, affecting both their overall tax rate and employer costs under tax equalisation policies.
- Adjustments to Overseas Workday Relief: Changes to the Section 690 process for foreign income and gains (FIG) regime users will limit overseas workday relief through UK PAYE to 30%, aligning with statutory limits. This adjustment, effective 6 April 2026, will not impact existing 2025/26 notifications or future applications for non-resident employees.
- Abolition of Voluntary Class 2 NIC: From 6 April 2026, voluntary Class 2 national insurance contributions (NIC) will be abolished. Individuals working abroad will need to pay the higher voluntary Class 3 contributions, provided they meet a residency or contributions requirement for the previous 10 years.
- Reduction of NIC Relief for Pension Contributions: Starting April 2029, NIC relief for employee contributions to salary sacrifice pension schemes will be reduced. Only the first GBP 2,000 of sacrificed contributions will be exempt from Class 1 primary and secondary NIC, impacting IMEs on outbound secondments from the UK.
International Competitiveness
The government plans to consult on enhancing its tax regime to remain competitive internationally, alongside immigration reforms effective from November 2025. These reforms include high potential individual, innovator founder, and global talent visas. The aim is to support internationally mobile individuals in establishing themselves and their businesses in the UK. Potential changes to the FIG regime might be required as part of this, although the scope of the planned enhancements remains uncertain.
Additional Announcements
The Finance Bill 2025/26 is still in draft form, subject to changes that may impact the aforementioned points. Other relevant announcements include:
- Freezing Class 1 NIC thresholds and rates until April 2031
- Establishing new income tax rates for property and savings income from 6 April 2027, with an additional 2% compared to main income tax rates
- Increasing dividend tax rates for basic and higher rate taxpayers from 6 April 2026
- Expanding workplace benefits relief to cover reimbursements for eye tests, home working equipment, and flu vaccinations from April 2026
- Expanding enterprise management incentive (EMI) company eligibility thresholds from April 2026
- Increasing the national living wage and the national minimum wage from 1 April 2026
- Draft legislation on mandatory payrolling of benefits in kind from April 2027
- Delaying the implementation of employee car ownership schemes (ECOS) into benefit in kind rules to 6 April 2030, with transitional arrangements applicable until April 2031
Sam Westlake
Steph Carr
BDO in United Kingdom