New Tax Year Changes: What You Need to Know from 6 April
The new tax year commences on April 6, bringing a series of adjustments to the UK's fiscal system that will affect holiday allowances, ISA deadlines, and broader tax structures. For many, these changes may pose significant financial challenges, particularly for business owners and employees. We consulted Rowan Harding DipFPS, a financial planner at Path Financial, to delve into the specifics of the upcoming modifications and their potential impacts.
Dividends Tax Rate Increase
Harding highlights that many of the forthcoming changes primarily target business owners and corporate entities. The dividend tax rate will rise by 2% from April, with the basic rate increasing to 10.75% and the higher rate to 35.75%. The dividend allowance remains unchanged at £500, following reductions in previous years. Harding notes that smaller business owners, who already bear substantial tax burdens, are likely to feel the brunt of this increase. She expresses concern that this could strain their operations, potentially leading to business closures, though she hopes the UK's entrepreneurial spirit will endure.
National Minimum Wage Boost
In positive news for low-income workers, the National Minimum Wage will see increases across various age groups. For apprentices and those under 18, the rate will rise from £7.55 to £8 per hour. For 18-20-year-olds, it jumps from £10 to £10.81, and for individuals aged 21 and over, it increases to £12.71 from £12.21. Harding emphasizes that even with these hikes, many will still find it challenging to manage living costs. However, for small business owners with employees, this represents a significant expense that will also affect National Insurance contributions.
Business and Agricultural Property Relief Caps
The Government is implementing caps on reliefs for business and agricultural assets exceeding £2.5 million, resulting in an effective inheritance tax rate of 20%. Harding advises those impacted to review their wills or restructure assets accordingly. While this change targets individuals with higher asset levels, it may disproportionately affect those in the farming industry, where land ownership is essential for operations. She explains that although the policy aims at wealthier individuals, it could create discomfort in agricultural sectors.
Business Asset Disposal Relief (BADR) Adjustments
Harding outlines that the Capital Gains Tax for qualifying proposals under BADR will increase to 18% from 14%, while the £1 million cap remains. This adjustment could lead to substantial tax liabilities for those exiting businesses with high-value assets. She clarifies that the general population is unlikely to hold £1 million in business assets, so the impact will be limited to wealthier individuals. Additionally, relief on Qualifying Alternative Investment Market Shares will decrease by 50%, resulting in a permanent 20% inheritance tax liability, affecting strategies for mitigating inheritance tax.
Abolition of Working from Home Allowance
The working from home allowance, which currently permits claims of £6 for associated costs, will be completely abolished. Harding points out that while this amount may seem small, it can accumulate over a year, representing a loss for remote workers. This change reflects broader shifts in workplace policies and tax deductions.
Introduction of Making Tax Digital
Harding wryly notes that the rollout of Making Tax Digital will increase administrative tasks for individuals while streamlining processes for HMRC. This new system requires sole traders and landlords with qualifying gross income profits of £50,000 (reducing to £30,000 in April 2027) to report income tax online every quarter. Eligible individuals should check Gov.uk to determine if they need to register, as this marks a significant shift in tax reporting requirements.
