UK Tax Changes for Business Owners

2025–2027 Will Reshape the Landscape for UK Entrepreneurs. Significant changes are on the horizon for UK business owners—from higher National Insurance contributions (NI) to tighter inheritance tax (IHT) reliefs and new rules on pension taxation. With multiple reforms coming into effect between April 2025 and April 2027, now is a crucial window to review how your business and personal finances are structured.

National Insurance Contributions Rise

From April 6, 2025, the Employer NI rate increased from 13.8% to 15% on most employee earnings. The secondary threshold, the point at which employers begin paying NI, is frozen at £5,000 until 2028, after which it is expected to rise in line with the Consumer Price Index (CPI).

Although the Employment Allowance (allowance allowing eligible employers to reduce their National Insurance liability) has increased to £10,500 (effective April 2025), the removal of the previous £100,000 eligibility cap means more small and medium-sized businesses can now benefit. However, single-director companies and employers of domestic staff (such as nannies or housekeepers) remain excluded.

For qualifying businesses, the employment allowance can offset up to £10,500 of NI liability each year—effectively erasing contributions for smaller employers whose total payroll does not exceed around £70,000 plus £5,000 per employee.

Strategic planning opportunities:

Review remuneration structures—consider the optimal mix between salary, dividends, and employer pension contributions, which remain exempt from NI.
Introduce or enhance salary-sacrifice arrangements, especially for pensions or bonuses, as the higher NI rate increases potential savings for both employer and employee.
Employ a spouse or family member (where justified by genuine work performed) —this may also open eligibility for the Employment Allowance and reduce overall NI liability.

For business owners with multiple entities, it may be worth reviewing payroll allocation to maximize the use of employment allowances across companies.

Inheritance Tax Reliefs Under Review

The government has announced plans to restrict Business Relief (BR) and Agricultural Relief (AR) for Inheritance Tax from April 2026. While details are still emerging, this could limit the ability of business owners and farmers to pass on assets tax-efficiently to the next generation.

Now is the time to ensure that your ownership structures, shareholder agreements, and succession plans are aligned to current reliefs—before these valuable exemptions are narrowed.

Pension Funds and IHT from April 2027

Under current law, most unused pension pots and death benefits may be left to loved ones without forming part of the deceased’s estate for purposes of Inheritance Tax (currently chargeable at 40% attributable to any chargeable estate above the various nil rate bands). Currently the UK’s Inheritance Tax “nil rate band” (zero percent cap) is £325,000 per person (plus there is an additional Principle Private Residence “nil rate band” of £175,000 per person). In the context of global tax systems, this is certainly higher than some European systems though considerably less than others such as the United States, which currently stands at $13.99 million federal estate and gift tax.

From April 2027, unused pension funds upon death will become subject to Inheritance Tax, when the member [NF1] dies after this date. This change applies to all registered pension schemes, including Qualifying Non-UK Pension Scheme (QNUPS), and to annuities with guaranteed periods or capital protection, except where the income passes directly to a surviving spouse.

Key implication: The implications of these changes are that pensions will no longer serve as a completely IHT-free vehicle for passing wealth to the next generation. For many clients, this fundamentally changes long-standing estate planning strategies.

The Window for Planning

For high-net-worth business owners, this is a rare and valuable opportunity to act before the rules tighten. Reviewing your corporate structure, remuneration strategy, pension holdings, and estate planning over the coming months can lock in existing reliefs and optimize long-term tax efficiency.

In particular:

Review pension death benefit nominations and ownership of business assets.
Consider intergenerational planning—including trusts or family investment companies—while reliefs remain available.
Take advantage of corporate pension contributions to reduce exposure to increased NI contributions.

Once these changes take effect, the options available for flexible tax planning will be narrower, more complex, and potentially more costly to unwind.

Summary

Rising payroll costs, frozen thresholds, and the gradual erosion of traditional reliefs mean 2025–2027 will reshape the landscape for UK entrepreneurs. Acting now—with a comprehensive review of your remuneration, pensions, and estate structures—can preserve flexibility and protect wealth for the next generation.

Please contact us for more information on how we can support your UK entrepreneurship journey, estate protection, tax mitigation, and legacy planning before the window for optimization closes.

This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/ and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.