From April, millions of UK households will face a renewed strain on their finances as a series of tax changes subtly increase bills and pull more Britons into higher tax brackets. Despite the lack of attention-grabbing declarations, the new tax year will introduce a range of 'stealth' hikes that could significantly diminish net income, experts say.
Emma Wall, Chief Investment Strategist at Hargreaves Lansdown, warned: 'Don't be lulled into thinking that a quiet Spring Statement means a quiet tax year. Tax rises are coming. From April 6, a bunch of rule changes come into force that will mean handing over more of your hard-earned money to the taxman in 2026/27. It's a series of small changes that will add up and quietly erode your wealth.'
Investors will experience a 2 percentage point increase in the tax they pay on dividends. The basic rate will rise from 8.75% to 10.75%, while the higher rate ascends from 33.75% to 35.75%. The additional rate remains steady at 39.35%. With the dividend allowance already reduced to a mere £500, more savers will be affected—especially those holding shares outside tax wrappers.
The tax relief on Venture Capital Trusts (VCTs) is being reduced. The upfront income tax relief will drop from 30% to 20% from April 6—a significant cut that could undermine the attractiveness of these higher-risk investments. Entrepreneurs planning to sell their businesses face a heftier tax bill if they wait. The rate of Capital Gains Tax under Business Asset Disposal Relief (BADR) will increase from 14% to 18% from April.
Perhaps the biggest impact comes from frozen income tax thresholds—fixed at 2021/22 levels until at least 2031. As wages increase, more workers will be pulled into higher tax brackets—a process known as 'fiscal drag'. The 40% threshold remains at £50,270, while the 45% additional rate kicks in at £125,140. There is also the notorious 60% tax trap affecting those earning between £100,000 and £125,140, where the personal allowance is gradually withdrawn.
Despite the impending increases, experts say there is still a brief window to lessen the impact. Key strategies involve fully using ISA allowances to protect investments from dividend tax, and increasing pension contributions to lower taxable income. Investors contemplating VCTs might also wish to act before April 5 to secure the higher 30% relief—although experts warn against investing solely for tax purposes. The Treasury has defended the changes, saying VCT changes aim to offer a better balance in the level of tax relief given to them compared to other schemes.
