The new tax year brings a number of important changes to personal tax, business tax, and reporting requirements. The following is a summary of the key changes that may affect you.
Dividend Tax
There will be a 2% increase in the rates of income tax paid on dividends at the basic and higher rate of taxation. The rates of tax on dividends will increase to 10.75% at the basic rate and 35.75% for the higher rate. The additional rate will remain at 39.35%.
Directors' Loan Tax Charge
The tax charge on directors' loans made to participators by close companies will increase by 2% from 33.75% to 35.75% for loans made on or after 6 April 2026 under section 455 rules. This change will be particularly relevant for owner managed businesses where directors regularly use their loan accounts to manage cash flow. The rules apply where a director is a participator, meaning a shareholder, and the company is classed as a close company, typically one controlled by five or fewer shareholders.
The main and small profits rates of corporation tax remain unchanged at 25% and 19%.
Business Asset Disposal Relief
Business asset disposal relief, previously known as entrepreneurs’ relief, will see increased rates of 18% from 6 April 2026. This relief remains useful in reducing full capital gains tax exposure.
Business asset disposal relief must be claimed by the first anniversary of 31 January following the year of the qualifying business disposal. In practice, the self-assessment return includes the facility to make a claim when returning the chargeable gains for the year.
Frozen Tax Thresholds
The freeze on personal tax thresholds continues with no change until 2031, likewise for the inheritance tax cap. The personal allowance remains at £12,570, with higher rate tax at 40% kicking in from £50,271, and the 45% rate applying on earnings above £125,140. This creates a continual erosion of pay and income, reflecting the highest tax burden in decades.
In Scotland, there are changes due to a 7.4% rise in the basic tax threshold, while the higher, advanced and top rate thresholds for income tax will be frozen. The starter rate of 19% in Scotland now kicks in from £12,570 to £16,537, and the basic band from £16,538 to £29,526 for the 20% rate.
Inheritance Tax
Inheritance tax thresholds continue to be frozen. However, there are major changes for privately owned businesses and farmers with the overhaul of business property relief and agricultural property relief, eroding the 100% inheritance tax relief that applied under the previous rules.
Under the new rules effective 6 April 2026, the allowance for the 100% rate of inheritance tax relief will be set at £2.5 million on the combined value of property, with a 50% rate of relief thereafter. Over the threshold, inheritance tax will be paid at a reduced rate of 20% rather than the current 40%.
This means a couple will be able to pass on up to £5 million of agricultural or business assets between them, on top of the existing allowances such as the nil rate band. Unmarried couples will only qualify for the £2.5 million threshold, not the combined figure of £5 million. It is worth noting that under the new rules, inheritance tax can be paid over a 10-year period rather than the usual six-month window for estates.
Making Tax Digital for Income Tax
The first wave of mandatory quarterly reporting under Making Tax Digital for Income Tax starts from 6 April 2026, with registration now required for sole traders, landlords and self-employed individuals earning qualifying income of over £50,000 based on the 2024 to 2025 tax year. The first quarterly reporting deadline is 7 August 2026, with nearly 900,000 taxpayers affected in wave one.
Savings, Tax and Individual Savings Accounts
The personal savings allowance remains at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and nil for additional rate taxpayers. With higher interest rates, using tax-free savings products such as individual savings accounts is more important than usual.
From April 2027, changes to individual savings accounts will see the cash limit reduced to £12,000 to encourage investment in stocks and shares individual savings accounts. The higher £20,000 cash limit will be retained for those aged 65 and over.
Umbrella Companies, Recruitment Agencies and Pay As You Earn Liability
From 6 April 2026, new rules introduce a joint and several liability rules affecting recruitment agencies and umbrella companies. The umbrella company will retain primary responsibility for the deduction of Pay As You Earn and National Insurance contributions from the pay of their employees supplied to clients. If this does not happen, the responsibility to account for Pay As You Earn and National Insurance contributions will shift to the recruitment agency.
Small Employers Relief
Small employers’ relief has increased to 9% from 8.5%. Employers who qualify for the relief, having paid £45,000 or less in class 1 National Insurance contributions, can reclaim 100% of all statutory payments paid, plus an additional 9% compensation. This means small employers can now reclaim 109% from HMRC. The only exception is statutory sick pay, which cannot be reclaimed.
Venture Capital Trusts
The rate of income tax relief for venture capital trusts will reduce from 30% to 20%. Someone investing the full £200,000 allowance would see their maximum income tax relief reduced from £60,000 to £40,000.
However, there are some positive changes for companies that are scaling up, with thresholds for gross assets before allotting shares doubling from £15 million to £30 million, the annual investment limit for knowledge intensive companies doubling to £20 million and to £10 million for all other companies, while the lifetime investment limit increases from £20 million to £40 million.
Enterprise Investment Schemes
Annual limits applicable to enterprise investment scheme companies based in Great Britain will increase. The gross assets test before investment will double from £15 million to £30 million, and the gross assets test immediately following investment will increase from £16 million to £35 million. Investment limits for individual investors are unchanged.
Enterprise Management Incentives
Enterprise management incentive share option schemes will be available to independent quoted or unquoted companies with group gross assets of up to £120 million, increased from the previous limit of £30 million. These changes make enterprise management incentive schemes more accessible and attractive to larger companies, reducing administrative complexity.
Construction Industry Scheme
From 6 April 2026, contractors operating under the construction industry scheme will once again be legally required to submit a monthly return, even when no subcontractors have been paid. If HMRC suspects fraud has occurred related to the construction industry scheme, it will be able to immediately cancel the gross payment status of that taxpayer, with penalties of 30% of the lost tax applying. Construction companies with gross payment status who fail to spot fraud at any point in their supply chain could lose their gross payment status for five years.
State Pension
The new state pension rate rises by 4.8% to £241.30 a week, equivalent to £12,547.60 a year. This brings the state pension close to the tax-free personal allowance of £12,570. The chancellor has confirmed that from April 2027, pensioners in receipt of only the state pension with no other income will not have to pay income tax.
Child Benefit
Child benefit payments are increasing to £27.05 per week, equivalent to £1,406.60 a year for the eldest or only child, and to £17.90 per week, equivalent to £930.80 a year, for subsequent children. Child benefit is usually paid every four weeks directly into a bank account. The guardian's allowance is also uprated by 3.8%. The two-child benefit cap for parents in receipt of universal credit benefits is being removed.