2024 had its fair share of drama. Almost half the world went to the polls, geopolitical conflict intensified, while the global economy teetered, and then revived.

It has been one of the best years in recent history for stock market investors, but Labour Chancellor Rachel Reeves new broom has brought higher taxes for many. So what is 2025 likely to have in store for your finances?

2024 saw the inflation genie back in its bottle – at least for the time being. Central banks were sufficiently reassured to start to lower interest rates, which came down in Europe, the US and UK. In the UK, inflation had dropped below the Bank of England’s 2% target by September¹.

Few expect inflationary pressures to pick up significantly. The Office for Budget Responsibility (OBR)² believes the October 2024 Budget may prove mildly inflationary and projects a rise of 2.6% in the CPI in 2025 before falling back to target.

This will impact interest rates. The Bank of England has already cut rates twice, and two to three more cuts are expected in the year ahead.

That said, some economists are notably more optimistic. Goldman Sachs, for example, believes headline inflation will fall faster than currently expected giving the Bank of England more scope to cut rates³.

Stock markets are likely to be dominated by expectations around the new administration in the US.

Although global markets have welcomed Donald Trump’s victory, it is plausible that the combination of tax cuts, tariffs and deregulation proves inflationary, which may unsettle markets in the year ahead.

Equally, if tariffs provoke a trade war, that could also be destabilising.

Tax changes

The start of the 2025 tax year sees a number of tax changes outlined in the October Budget come into effect. It is worth noting, however, that many of the key tax changes have already taken effect.

The capital gains tax hike for share sales came into effect for disposals made on or after 30 October. This date also applies to the drop in the lifetime limit for investors’ relief from £10m to £1m. Equally, VAT on private school fees will come in from January onwards.

The new tax year (6 April) will see a swathe of new measures. Electric vehicles pay vehicle tax for the first time in the same way as petrol and diesel vehicles.

It will also see changes to the non-UK domiciled or ‘non-dom’ regime, which will be abolished and replaced with a new residence-based system.

New residents will be able to claim to not pay tax on their foreign income and gains during their first four years of residency providing they haven’t been resident in the previous 10 years. The rules are complicated, and existing non-doms will need to take advice.

Other changes affect businesses, such as the well-publicised shift in the main rate of employers’ National Insurance Contributions (NICs) from 13.8% to 15% and an increase in the minimum wage.

There will also be an increase in tax on carried interest, designed to target the private equity sector. The tax rate on carried interest returns will increase from 28% to 32% from the start of the new tax year, pending full reform of the regime in April 2026.

There are also changes to the level of stamp duty payable on property, but these take effect slightly earlier on 1 April.

The most notable change is the reduction of the zero-rate threshold, which will now only apply to properties up to £125,000, having previously been available for properties up to £250,000.

Properties with a purchase price of between £125,001 and £250,000 will now attract a 2% rate.

There are however some upsides to the new tax year. There will a 4.1% increase in the basic and new state pension. The full new State Pension will rise from £221.20 to £230.25 a week, an extra £470 a year.

However, for the most part, people are likely to see tax rises rather than tax cuts.

It remains as important as ever to use all the allowances available to you, from ISA and pension contributions, to annual capital gains tax and gifting allowance.

Please contact your financial planner before taking any action.