2025 Spring Statement Initial Review

Greg Parrish • April 4, 2025
A pile of money and coins including a 20 pound note

Key Updates You Need to Know

Introduction

The Spring Statement 2025, delivered by Chancellor Rachel Reeves, has brought a mix of changes and challenges for individuals, small businesses, and entrepreneurs across the UK. While the government aims to balance fiscal responsibility with targeted investments, some of the announcements have stirred concerns about rising costs and limited relief.


For businesses, the freeze on VAT thresholds and an increase in employers' National Insurance contributions mean tighter financial pressures. Entrepreneurs face adjustments to Business Asset Disposal Relief, with the tax rate rising from 10% to 14% this year, and further increasing to 18% next year. Meanwhile, small business leaders expressed disappointment at the lack of tailored support amidst challenging economic conditions.


Individual taxpayers will see no new tax hikes, but welfare reforms, including cuts to the health element of Universal Credit and stricter Personal Independence Payment (PIP) criteria, could affect many households. The freeze on inheritance tax thresholds continues, highlighting the growing impact of rising property values on estates.


This year’s statement reflects the government's focus on cost control and long-term productivity, leaving many stakeholders considering their next steps to adapt effectively to these changes. Whether you’re a business owner, taxpayer, or entrepreneur, understanding these updates will be key to navigating the year ahead.

Summary of Spring Statement Key Points

Here's a summary of the key points from today's Spring Statement delivered by Chancellor Rachel Reeves:


  • Economic Growth Forecast: The Office for Budget Responsibility (OBR) has halved its growth forecast for 2025 from 2% to 1%, citing global economic challenges.
  • Welfare Reforms: Changes to the welfare system include an increase in the Universal Credit standard allowance over the next five years, but a reduction and freeze in the health element for new claimants.
  • Defence Spending: An additional £2.2 billion will be allocated to defence, focusing on advanced technologies and military housing improvements.
  • Housing Initiatives: A £2 billion grant aims to build 18,000 new social and affordable homes, although the government is likely to miss its manifesto pledge of 1.5 million homes by the next election.
  • Tax Evasion Crackdown: Investment in HMRC will target tax fraud, aiming to increase prosecutions by 20% annually and raise an additional £1 billion.
  • Public Sector Cuts: Plans to reduce administrative costs in government departments could lead to significant job cuts, with a focus on improving efficiency.


The statement reflects a mix of cost-cutting measures and targeted investments to address fiscal challenges while aiming to boost long-term productivity.  The most notable change is the increase in employers' National Insurance contributions, which will impact businesses significantly


Key Factors Effecting Small Businesses

Here are the key points from the Spring Statement 2025 that impact small businesses:


  • VAT Registration Threshold
    The VAT registration threshold increased from £85,000 to £90,000 for the 2025-2026 fiscal year.         This means businesses with annual taxable turnover below this amount are not required to register for VAT.
  • VAT Deregistration Threshold
    The VAT deregistration threshold also increased from £83,000 to £88,000 for the 2025-2026 fiscal year. This means that businesses with a 12-month taxable turnover over below this amount can deregister for VAT as long as they are not expecting to go above the threshold again for the foreseeable future.
  • National Living Wage Increase
    Starting April 1, the National Living Wage for those over 21 will rise by 6.7%, increasing employment costs for small businesses.
  • Tax Burden
    No new tax reliefs or funding boosts were announced, leaving small businesses to manage rising costs from previous tax hikes.
  • Borrowing Costs
    Despite inflation falling to 2.8%, there was no short-term support to ease borrowing costs for small businesses.
  • Employment Costs
    Higher national insurance contributions and wage increases are set to add financial pressure.
  • Missed Opportunities
    Business leaders expressed disappointment over the lack of targeted measures to support small employers during challenging economic times.


The statement has left many small businesses feeling overlooked, with concerns about rising costs and limited government support.


Impact on Individual Tax Payers

The Spring Statement 2025 has several implications for individual taxpayers:

  • No New Tax Increases
    The Chancellor confirmed that there are no additional tax hikes in this statement, maintaining the current rates for income tax and VAT.
  • Universal Credit Changes
    While the standard allowance for Universal Credit will increase over the next five years, the health element for new claimants will be cut by 50% and then frozen, potentially affecting those with disabilities.
  • Cost of Living
    With inflation forecasted to rise to 3.2% in 2025, individuals may face higher living costs without corresponding increases in tax relief.
  • Welfare Adjustments
    Stricter eligibility criteria for Personal Independence Payments (PIP) and other welfare reforms could impact those relying on government support.


The statement reflects a focus on fiscal responsibility, but some individuals, particularly those on welfare, may feel the strain.


Inheritance Tax

The Spring Statement 2025 did not announce any immediate changes to inheritance tax rates or thresholds. The nil-rate band remains at £325,000, with an additional £175,000 allowance for passing on a main residence to direct descendants. However, the freeze on these thresholds continues, meaning more estates may become liable for inheritance tax due to rising property values.


There is speculation about potential reforms in the future, such as increasing annual gifting allowances or introducing a lifetime cap on gifts. Additionally, pensions will become subject to inheritance tax starting in April 2027, which could significantly impact retirement planning.


Business Asset Disposal Relief

(formerly Entrepreneurs' Relief)


The Spring Statement 2025 introduced changes to Business Asset Disposal Relief (formerly Entrepreneurs' Relief):

  • Increased Tax Rate
    The relief rate has been increased from 10% to **14%** for disposals made on or after April 6, 2025.
  • Future Increase
    The rate will rise further to **18%** for disposals made on or after April 6, 2026.
  • Anti-Forestalling Rules
    Measures have been implemented to prevent taxpayers from locking in lower rates by timing disposals.


These changes aim to balance fiscal responsibility while still providing some relief for qualifying business disposals.


Conclusion

In conclusion, the Spring Statement 2025 highlights a challenging environment for small businesses and individuals. Rising costs, such as increased National Insurance contributions and higher wages, add financial strain on businesses, while the lack of targeted relief leaves many feeling overlooked. For individuals, welfare reforms and the continued freeze on key thresholds, like inheritance tax and VAT, underscore the importance of planning and adaptability in the months ahead. Navigating these changes will require thoughtful decision-making and proactive measures to ensure stability and growth in a landscape of economic uncertainty. Supporting you in making sense of these updates remains our priority.



Below is a Summary Comparison for you...


Summary Tax Table Comparison

Here's a summary table comparing the current tax rates announced in the Spring Statement 2025 to the previous levels:


A table showing the previous rate current rate and change

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