Major reforms to the UK tax system are set to take effect from April 2026, introducing significant adjustments that will impact both individuals and businesses. While the start of a new tax year often brings opportunities like refreshed holiday entitlements and final ISA contributions, this round of changes presents particular challenges for many.
Dividends Tax Rate Increase
Rowan Harding DipFPS, a financial planner at Path Financial, highlights that many of the upcoming changes primarily target business owners and corporate entities. For those with earned income from running their own businesses, the dividend tax rate will rise by 2% from April 2026. The basic rate will increase to 10.75%, while the higher rate will jump to 35.75%. The dividend allowance remains unchanged at £500, following reductions in previous years.
Harding warns that smaller business owners, who already face substantial tax burdens, are likely to feel the implications acutely. She notes, "They may not be able to afford, necessarily, to run their businesses with an increased cost," potentially leading to more small businesses closing. Despite this, she expresses hope for the continued vitality of UK entrepreneurship.
National Minimum Wage Rise
In a positive development for low-income earners, the National Minimum Wage will see increases across various age groups. Apprentices and those under 18 will see their rate rise from £7.55 to £8 per hour. For 18-20-year-olds, it will leap from £10 to £10.81, and for individuals aged 21 and over, it will increase from £12.21 to £12.71.
Harding emphasises the importance of this increase, stating, "It's really important that you do get that increase, because ultimately, even with that increase, that amount of money for most people is a really hard amount of money to live off." However, for business owners, especially those with small enterprises, this rise represents a significant cost that will also affect National Insurance contributions.
Changes to Business and Agricultural Property Relief
The Government plans to cap reliefs for business and agricultural assets exceeding £2.5 million, resulting in an effective inheritance tax rate of 20% for those affected. Harding suggests that impacted individuals should consider reviewing their wills or restructuring assets to account for this change.
She elaborates, "Most people would think, 'If you've got £2.5m in agricultural or business property, then you're probably doing pretty well for yourself'. So it's perhaps going to be a very small portion of people impacted by this, but you will get people who are in the farming industry being very uncomfortable and upset." The issue is compounded by the fact that agricultural assets are often land-based, essential for farming operations.
Business Asset Disposal Relief (BADR) Adjustments
While the £1 million cap on Business Asset Disposal Relief remains, the Capital Gains Tax for qualifying proposals will increase to 18%, up from 14%, for those exiting a business. Harding explains, "It's going to be quite a chunky amount of tax when you're talking large sums of money." This change primarily affects individuals with high levels of assets, as the general population is unlikely to have £1 million in business assets.
Additionally, the existing 100% relief on Qualifying Alternative Investment Market Shares will decrease by 50%, resulting in a permanent 20% inheritance tax liability. These shares are often used as vehicles to mitigate inheritance tax for high-asset individuals.
Scrapping of Working from Home Allowance
One of the most notable changes is the complete abolition of the working from home allowance. Currently, employees can claim tax relief on £6 per week for costs associated with working from home. While this amount may seem modest, Harding notes that "over a year that can add up," making its removal a significant loss for many remote workers.
Making Tax Digital Rollout
The implementation of Making Tax Digital introduces a new framework for sole traders and landlords with qualifying gross income profits of £50,000, reducing to £30,000 in April 2027. This system requires digital submissions every quarter, shifting more administrative burden onto taxpayers. Harding remarks wryly that it means "more life admin for people and a bit less for HMRC." Individuals are advised to verify their registration requirements on Gov.uk.
Overall, these tax changes from April 2026 represent a comprehensive overhaul with wide-ranging effects, from increased costs for businesses to the loss of personal allowances, underscoring the need for careful financial planning in the coming years.
