The draft Welsh government Budget was unveiled on 10 December.
The Welsh government is allocating an additional £1.5bn of expenditure in 2025/26 but, as noted by Mark Drakeford, the cabinet secretary for finance and Welsh language: 'This Draft Budget 2025/26 is not a panacea. It will not fix everything – nor should we expect it to. For many areas, the resource settlements are tight, and pressures remain. The overall financial climate in which we all operate remains challenging.'
Taxation
Taken together, Welsh Rates of Income Tax (WRIT), Landfill Disposals Tax (LDT) and Land Transaction Tax (LTT) will contribute around £4bn to the Welsh Budget in 2025-26.
View the full information and tax tables.
Income tax
The cabinet secretary proposed to set the Welsh rates of income tax for 2025/26 at 10p for the three income tax rates (basic, higher and additional), which will maintain parity of income tax rates for taxpayers in Wales with those in England and Northern Ireland. This means there will be no changes in 2025/26.
Land transaction tax
The higher residential rates of land transaction tax (LTT) are increasing by one percentage point across all bands in the draft Budget. These changes will come into force on 11 December. Those taxpayers who have already exchanged contracts will pay the former rates so long as they comply with the relevant transitional rules.
This change will result in the higher residential rates of LTT being set at, broadly, five percentage points above the main residential rates. This increase is estimated to raise an additional £7m in 2025/26, which will increase the funding available to invest in public services in Wales.
The current starting threshold for the main residential rates of LTT remains at £225,000, ensuring that around 60% of residential transactions are below the threshold for paying LTT.
In the new year, the cabinet secretary will lay draft regulations in the Senedd to make changes to the multiple dwellings relief (MDR) available on the purchase of two or more dwellings in Wales. These changes will ensure MDR claims will not be allowed where the subsidiary dwelling exemption (SDE) is applied, so taxpayers subject to the SDE would pay the main residential rates on the total consideration, without the benefit of MDR. This is a first step to improving the regime underpinning the purchases of more than one property in a transaction. Further work will be carried out to consider MDR relief within the LTT regime over the coming year.
Landfill disposals tax
The draft Budget proposes raising the standard rate of landfill disposals tax (LDT) from 1 April 2025, in line with the increase to the UK government’s equivalent landfill tax. This will ensure public services in Wales continue to benefit from the tax revenues, while minimising the risk of the movement of waste across borders.
Following a public consultation on the lower rate of LDT, it will be increased to £6.30 per tonne. This will set the lower rate at 5% of the standard rate, just under double the existing rate.
The unauthorised rate will remain at 150% of the standard rate.
The regulations required to put into effect these changes will be laid in the Senedd early in 2025.
Non-domestic rates
The Welsh government will cap the increase to the non-domestic rates (NDR) multiplier in Wales to 1% for 2025/26. This is lower than the 1.7% Consumer Prices Index (CPI) increase in September, which would otherwise apply from the default inflation of the multiplier in line with the CPI. Subject to approval of the required legislation by the Senedd, the provisional multiplier for 2025/26 is 0.568.
Capping the increase to the NDR multiplier to 1% is the maximum level of support affordable using all the consequential funding for Wales arising from decisions relating to the multiplier announced in the UK government’s Autumn Statement. It ensures all ratepayers who do not already receive full relief will benefit.
The government will provide a sixth successive year of support for retail, leisure and hospitality businesses with their NDR bills. Eligible ratepayers will receive 40% NDR relief for the duration of 2025/26. As in previous years, the relief will be capped at £110,000 per business across Wales.
In total, these measures will provide £85m of additional support for 2025/26. Combined with other fully funded permanent reliefs, which are worth £250m to businesses and other ratepayers every year, £335m will be invested in NDR support. Every ratepayer will benefit from this package.
Tax policy report
The fourth annual Tax Policy Report was also published on 10 December. It reports against the Welsh government’s Tax Policy Framework and Tax Work Plan 2021-26. It sets out progress on a range of activities, including taking forward the tax-related programme for government commitments on local government finance reform and the Visitor Levy Bill.
