Tax predictions for the 2025 Spring Statement

The upcoming Spring Statement will fall on 26 March 2025, and therefore outside of Labour’s anticipated timetable. More importantly, in the context of the prevailing domestic and global economic challenges, and pressures on the government to comply with its self-imposed fiscal rules, the Statement may include the announcement of tax developments which are rather more significant than “minor policy changes” (alongside significant non-tax announcements aimed at balancing the government’s books, including reform of the welfare system).

In this briefing, we set out our predictions for some of the key tax developments which could be included in the Spring Statement announcements.

Tax rises – It is possible the government could consider raising taxes in order to generate more fiscal headroom, despite previous assurances that major tax policy announcements will be made only once a year, at the Autumn Budget. Any such announcement is likely to be unpopular, especially given the anticipated significant negative impact of the rise in employer NICs from 6 April 2025, both on employers and, indirectly, employees.

The Chancellor could extend the freeze of income tax and NICs thresholds, which is currently due to end in April 2028 (as confirmed in the 2024 Autumn Budget). This would generate future tax revenues without immediately impacting taxpayers, and would technically be consistent with Labour’s election manifesto promise not to increase taxes on working people (although, depending on future inflation, such taxpayers would be likely to pay significantly more tax, through the effect of fiscal drag).

Amending previously announced tax changes – It is possible the government could use the Spring Statement to tweak some of its more controversial recent tax policy announcements. For example, Labour could respond to recent protests by farmers and reverse the changes to agricultural property relief, which are due to come into effect on 6 April 2026. The government could also consider offering some relief in relation to the employer NICs increases from 6 April 2025, such as raising the secondary threshold or further increasing the employment allowance. Such amendments could be targeted, for example at employers in the charity sector.

However, the government is unlikely to want to reduce anticipated tax revenue in this way, and reversing previously announced changes would contradict the government’s commitment to tax policy stability.

Carried interest – Following a post-election call for evidence by the Treasury, the government announced significant changes to the taxation of carried interest at the 2024 Autumn Budget. From 6 April 2025, the special carried interest CGT rate of 28% will be increased to 32%, and from 6 April 2026, all carried interest (whether of a capital or revenue nature) will be treated as profits of a deemed trade and fall within a revised tax regime wholly within the UK’s income tax framework. Carried interest meeting certain conditions will be “qualifying” carried interest which will benefit from preferential computational rules.

At the 2024 Autumn Budget, the Treasury launched a consultation (which ran until 31 January 2025), on introducing additional conditions to access the qualifying carried interest regime. The options explored in the consultation were an aggregate minimum co-investment requirement and a minimum holding period between a carried interest award and its receipt.

The government may use the Spring Statement to publish a response to the recent consultation, confirm whether it intends to proceed with introducing any additional qualifying conditions, and announce the design of any such conditions. This could be accompanied by a technical consultation on draft legislation implementing the new carried interest tax regime.

Our briefing on the carried interest tax changes in the 2024 Autumn Budget can be found here. We have also published a briefing comparing the tax treatment of carried interest in multiple jurisdictions, including the UK, which can be found here.

Diverted profits tax, permanent establishment and transfer pricing – The Conservative government ran a consultation, in summer 2023, on the reform of UK law in relation to transfer pricing, permanent establishment and Diverted Profits Tax. Our briefing on the outcome of this consultation can be found here.

The Labour government’s Corporate Tax Roadmap, published at the 2024 Autumn Budget, confirmed the government’s commitment to launch, in Spring 2025:

• a second-round consultation on reforms to the UK’s rules on transfer pricing, permanent establishments and Diverted Profits Tax, including the potential removal of UK-to-UK transfer pricing; and
• consultations on potentially lowering the thresholds for exemption from transfer pricing and introducing a requirement for multinationals to report cross-border related party transactions to HMRC.

The government may use the Spring Statement to launch these consultations, which have the potential to significantly reform UK tax law in these areas.

Other consultations – The government’s Corporate Tax Roadmap also contained commitments to launch consultations in Spring 2025 on:

• a new process that will give investors in major projects increased advance certainty about the tax that will apply; and
• lead options for widening the use of advance clearances in relation to research and development (R&D) reliefs.

These consultations, which will hopefully lead to developments that will increase certainty for taxpayers and encourage investment, may be launched as part of the Spring Statement.

Conclusion

It is clear that, in this Spring Statement, the Chancellor must weigh any desire to increase tax revenue in order to mitigate the government’s economic challenges and help the government to adhere to its fiscal rules, against the need to encourage economic growth, the government’s manifesto promise not to increase taxes on working people, and the government’s commitment to stability in relation to tax policy, with major tax policy changes being announced just once each year, in the Autumn.

Regardless of whether any significant new tax changes are announced at the Spring Statement, it is likely the government will use this opportunity to announce developments which are in line with existing government tax policy. These developments may be significant for businesses, providing further details in relation to the government’s tax plans in key areas, such as advance clearances, transfer pricing and carried interest.

Contacts

If you would like to discuss any of the areas discussed in this briefing, please do not hesitate to get in touch with any of the Eversheds Sutherland contacts below.