Tax year end is upon us, and changes in taxation are afoot as a consequence of the last two Budgets. David Downie, Technical Consultancy Manager at Aberdeen Adviser has put together a useful timeline in what’s happening and when.
Keeping track of what is changing, and when, is critical for paraplanners when formulating recommendations. The summary below sets out a timeline of some of the new measures due to be implemented in each tax year, enabling planners to identify which clients may be affected and when action may be required.
From 6th April 2025
CGT: The rate of Business asset disposal relief (BADR), formerly known as entrepreneurs’ relief, increased from 10% to 14% on the first £1,000,000 of gains on qualifying business disposals
This is the first step in a two-step increase. There will be a further increase to 18% in 2026. Those thinking of disposing of their business may wish to do this before 6 April 2026 to pay a lower rate on any gains.
NICs: The rate of employer NICs increased from 13.8% to 15%. At the same time the Secondary Earnings Threshold – the point at which employers start paying NICs on an employee’s earnings – reduced from £9,100 a year to £5,000 a year. This threshold will remain frozen until April 2031.
Non-doms: The concept of domicile for tax purposes was abolished on 6 April 2025. It also sees the remittance basis replaced by a new Foreign Income and Gains (FIG) regime which is determined by UK residency rather than domicile.
IHT will now apply on worldwide assets where someone is deemed to be a long-term resident. This is typically where someone has been resident in the UK for more than 10 years in the last 20 years. These rules replace the domicile test.
From 6th April 2026
Income tax: The personal allowance remains at £12,570 and is frozen until April 2031.
Both the higher and additional rate thresholds remain at 2025/26 levels and will remain frozen until April 2031. As pay increases, more people will be dragged into higher tax brackets. Additional pension contributions could keep taxpayers below the critical thresholds.
The dividend ordinary rate and upper rate will increase to 10.75% (currently 8.75%) and 35.75% (currently 33.75%) respectively. There will be no change to the additional rate which remains at 39.35%.
Business owners who normally take their profits in the form of dividends may get more value by funding their pension with an employer contribution. The dividend allowance is unchanged at £500 pa.
In Scotland, the thresholds for basic rate and intermediate rate will increase by 7.4% (to £16,537 and £29,526 respectively), meaning taxpayers will pay the 19% starting rate on more of their earnings. All other thresholds are unchanged.
Investors in VCT schemes will see upfront income tax relief reduce from 30% to 20% from April 2026. Those contemplating an investment may wish to do so ahead of the rate cut.
CGT: Business asset disposal relief will increase again from 14% to 18% on the first £1,000,000 of gains on qualifying business disposals during an individual’s lifetime.
IHT: Agricultural and business property relief will no longer be fully relievable at 100%. Qualifying business and agricultural assets will only be relievable at 100% on values up to £2,500,000 (originally this was set at £1,000,000). Anything over this will be relieved at 50%.
In a further change to the original announcement, any unused part of this allowance will be fully transferable between spouses and civil partners, allowing up to £5,000,000 of qualifying assets to pass to other family members, in addition to the nil rate band.
The new £2,500,000 allowance will not apply to AIM shares and other shares not listed on a recognised stock exchange, which will now only be relievable at 50%.
The option to pay Inheritance Tax by equal annual instalments over 10 years interest-free will be extended to all property which is eligible for agricultural property relief or business property relief.
From April 2027
IHT on Pensions: On death, most unused pensions and lump sum benefits become subject to IHT. The main exceptions are lump sum death in service benefits and pension funds inherited by a spouse or civil partner.
Income tax: Tax on savings income (e.g. deposit interest) will increase by two percentage points in each tax band. Savings income falling in the basic, higher and additional rate bands will therefore be taxed at 22%, 42% and 47% respectively. The increases will also apply to chargeable event gains on investment bonds which are taxed as savings income.
The rates of tax on property income will also increase to 22%, 42% and 47%, depending on whether such income falls in the basic, higher or additional rate bands.
The income tax ordering rules will change meaning that the personal allowance must be set against earned income and pensions before dividend income, savings income and property income. It will no longer be possible to utilise the allowance in the most tax efficient way.
ISAs: Only individuals aged 65 and over will be able to save the full £20,000 into a Cash ISA. For those under 65, £20,000 can still be invested in an ISA each year, but the amount going into a Cash ISA limit will be capped at £12,000, with the balance available only for investment into a Stocks and Shares ISA.
From April 2028
Mansion tax: A new High Value Council Tax Surcharge will be imposed on properties worth £2 million or more. The surcharge will start at £2,500 and will rise in stages until it reaches £7,500 for properties worth more than £5 million. It is expected that 99% of homes will not be affected by this change. More details will follow a public consultation in 2026.
A similar charge is also to be applied in Scotland. Two new council tax bands will be created for properties valued between £1 million and £2 million, and those valued over £2 million. Ultimately the rates charged will be decided by local authorities.
From April 2029
NICs and salary sacrifice: The National Insurance (NI) exemption for pension contributions made by salary sacrifice, irrespective of when the sacrifice arrangement started, will be limited to £2,000 a year. This means that both employees and employers will have to pay NI on any salary sacrificed over this amount.
Employer contributions that are not part of a sacrifice arrangement will continue to be free from NICs, and all pension contributions will still be exempt from income tax subject to the normal rules.
Summary
The overall effects of these changes will be that many clients will pay more tax. Paraplanners can help ensure that planning is undertaken with the knowledge of future tax changes and ensure any extra burden is minimised.
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