UK Budget 2025

• Capital allowances: a reduction in the main rate of writing down allowances from 18% to 14% from April 2026 and a new 40% first year allowance for main rate allowance expenditure not qualifying for full expensing incurred from 1 January 2026
• Listing relief: a new three year relief from 0.5% SDRT on transfers of securities of a company listed on a UK regulated market from 27 November 2025 – for more detail click here
• Property income tax: new separate rates of income tax for property income with effect from April 2027 – for more detail click here
• Carried interest: a 60 day grace period for non-UK resident investment managers to perform investment management services in the UK - for more detail click here
• Energy profits levy: replacement of the levy with a new permanent Oil and Gas Price Mechanism – for more detail click here
• Soft drinks industry levy: expansion to sugary milk and milk-substitute products and lowering of sugar threshold – for more detail click here.

Listings relief

Stamp holiday for IPOs

Income tax on property income

The government has announced the creation of new separate rates of income tax for property income, including a new property basic rate of 22%, with effect from April 2027.  This represents an increase from the current basic rate of income tax at 20%.  The real estate investment sector will be watching with interest how this change is applied to withholding regimes.  Non-resident landlords and investors in UK REITs are both currently subject to withholding at 20% on payments of property income/property income distributions.  It is likely that these rates could be increased to 22%, affecting after-tax returns for individual landlords and for individual and non-UK resident corporate investors in UK REITs. In addition, devolved governments in Scotland and Wales will have the ability to set property income tax rates in line with their current income tax powers, so that different rates could apply in respect of individuals resident in Scotland and Wales.

Government confirms 60 day grace period for non-UK resident investment managers to perform investment management services in the UK

From 6 April 2026 the revised tax regime in relation to individuals performing investment management services will bring carried interest into the charge to income tax. Under the revised regime, the amount of carried interest subject to income tax and NICs will be adjusted by a multiplier of 72.5% where qualifying conditions are met, delivering an effective tax rate of 34.075%.

The government has confirmed today that it will implement limitations on the territorial scope of the revised regime such that any investment management services performed in the UK by a non-UK resident individual will not be subject to UK tax where the individual spends fewer than 60 days in the tax year performing investment management services in the UK. In addition, a non-UK resident investment manager may be entitled to relief under a double tax treaty if they do not have a fixed place of business in the UK.

Following the consultation on the draft legislation published in July 2025, we understand that a number of changes have been made, with the revised draft legislation due to be published next week.

Soft drinks industry levy: the ‘milkshake tax’

One expected measure, announced on 25^th November, is the so-called 'milkshake tax' which will extend the Soft Drinks Industry Levy (“SDIL”), the UK’s tax on high sugar pre-packaged drinks, to sugary milk and milk-substitute products such as certain flavoured milks and ready-to-drink coffees. The threshold also will be lowered to 4.5g of sugar per 100ml.  A lower 4g sugar threshold was initially proposed in a consultation earlier in 2025 but has been rejected following industry feedback on the difficulties of reformulating drinks below this threshold.  Whilst the Treasury estimates that the reforms will raise £130m, the Government is encouraging drinks manufacturers to use the 2-year implementation period to reformulate their recipes below the revised threshold, meaning the measures may fail to produce the revenue anticipated – as was the case when SDIL was first introduced in 2018. The changes are due to come into force from 1 January 2028.

Replacement of Energy Profits Levy with the Oil and Gas Price Mechanism

As announced in the Autumn 2024 budget, the Energy Profits Levy (EPL) will end on 31 March 2030 (or earlier if oil and gas prices fall below a certain threshold under the Energy Security Investment Mechanism). It will be replaced by a permanent tax called the Oil and Gas Price Mechanism (“OGPM”) which will only apply during periods of high oil and gas prices. The rate of OGPM will be 35%.

It will apply to upstream oil and gas companies operating in the UK/UKCS (broadly, companies which are subject to Ring Fence Corporation Tax) on the realised price the company receives for disposal of oil and gas above the relevant thresholds.  There will be two thresholds, one for oil and one for gas, which will apply per financial year. The thresholds for 2026/2027 will be $90 per a barrel for oil and 90p per a therm for gas. The thresholds will be adjusted going forward using the Consumer Price Index. There will be no additional deductions for exceptional costs which companies may suffer during periods of high prices.  The government opted for a revenue-based model (RBM) over a profit-based one, saying that RBM is better at linking the tax liability to exceptional market conditions.

The details are yet to be worked out. The response document says that the government’s ambition is for the tax to apply on a transaction-by-transaction basis (which would broadly require the thresholds to be applied to each transaction individually). However, the government acknowledges that this approach presents practical challenges, in particular in relation to tracking hedging outcomes. The government will work with the sector to iron out the details before publishing draft legislation.

Authored by Laura Hodgson.