HMRC has confirmed that total UK tax receipts reached £938.8 billion in the 2024 to 2025 tax year, marking a 9.3% increase on the previous year.
The figures, published in HMRC’s annual bulletin, reflect a combination of rising incomes, higher asset values and policy decisions, including the continued freeze on tax thresholds and recent changes to employment and investment taxes.
While headline tax rates have largely remained unchanged, the overall tax burden is increasing, with the effect that individuals and small businesses are paying more tax across a wider range of income and assets.
What is driving the increase in tax receipts?
A significant proportion of the increase is being driven by fiscal drag. Income tax thresholds have remained frozen since April 2021 and are expected to stay unchanged until at least 2031. As wages rise, more individuals are pulled into higher tax bands, increasing the overall tax burden without any formal rate changes.
Income tax receipts rose to £330 billion, representing a 9% annual increase and almost a 50% rise since the threshold freeze began, reflecting not only wage growth but also the widening scope of taxation across earnings, savings and investments.
Capital gains tax receipts have also increased sharply, rising by 62% to £22.2 billion. This suggests that investors who previously deferred disposals following reductions in the annual exemption and higher rates are now crystallising gains, bringing forward tax liabilities.
Inheritance tax and long-term wealth exposure
Inheritance tax receipts reached just under £8.5 billion, continuing a long-term upward trend. The freeze in the nil rate band has allowed rising property and investment values to bring more estates into scope each year.
Further changes are already planned. From April 2027, pensions are expected to be included within taxable estates, which is projected to increase the number of estates subject to inheritance tax and raise average liabilities. For affected families, this alters estate planning assumptions that have historically treated pensions as outside the inheritance tax net.
Wider tax pressures on work and business
The overall increase in tax receipts aligns with wider international data showing a rise in the UK’s “tax wedge”, which measures the total tax burden on labour, including employer contributions. Changes to employer National Insurance contributions and labour costs form part of this picture, alongside wage increases and policy reforms.
For small businesses, this has several practical consequences:
- Higher employment costs linked to National Insurance and wage increases
- Greater payroll tax exposure as salaries rise into higher bands
- Increased compliance pressure as HMRC focuses on revenue collection
Sectors with tighter margins, particularly those reliant on lower-paid workforces, may feel these pressures more acutely.
Practical implications for taxpayers and SMEs
The current environment places greater emphasis on proactive tax planning. As more income and gains fall within the tax net, individuals and business owners need to review how income is structured and how assets are held.
For business owners, salary and dividend strategies, as well as the timing of asset disposals, may affect overall tax efficiency.
For individual taxpayers, key areas to consider include pension contributions, which can reduce taxable income while attracting relief, and the use of ISAs to shield savings and investment returns from tax.
Inheritance tax planning is also becoming more relevant earlier in life, particularly given the continued freeze in thresholds and future changes to pension treatment.
Outlook
With thresholds remaining frozen and further policy changes already scheduled, the trajectory suggests continued growth in tax receipts over the coming years.
In practical terms, more people and more income streams are being brought within scope. That shift is likely to continue, making regular review of tax position an increasingly important part of financial and business planning.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
