What’s New in the 2025/26 Tax Year?

As we are at the start of the new tax year since 6 April 2025, it’s a great time to get familiar with the latest changes that may affect your finances—whether you’re a business owner, self-employed, or simply managing your personal income. Here’s a round-up of the most notable updates for the 2025/26 tax year in the UK.

1. Income Tax Thresholds & Rates

While the personal allowance remains frozen at £12,570, some changes in tax bands could impact your take-home pay:

• Basic Rate (20%): Still applies to income between £12,571 and £50,270.
  
• Higher Rate (40%): Kicks in from £50,271 to £125,140.
  
• Additional Rate (45%): Applies to income over £125,140.
  

Note: Because of inflation and wage increases, more people may drift into higher tax bands—also known as “fiscal drag.” It’s worth reviewing your salary and pension contributions.

2. Dividend Allowance Cut (Again)

If you take dividends, especially as a company director, this one’s key:

• The tax-free dividend allowance has dropped to £500 (from £1,000 last year).
  This means more of your dividend income will now be taxed at:
  
  • 8.75% (basic rate)
    
  • 33.75% (higher rate)
    
  • 39.35% (additional rate)
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3. Capital Gains Tax (CGT) Allowance Shrinks

• The CGT annual exempt amount is now £3,000 (down from £6,000).
  
• Property and asset sales are more likely to incur tax—especially relevant for landlords and investors.
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4. National Insurance Updates

Following the Chancellor’s Autumn Statement in 2024, Class 1 employee National Insurance contributions (NICs) have been reduced again to help working individuals:

• The main rate for employees is now 6% (down from 8% in 2024).
  
• The self-employed Class 4 NICs rate is now 6%, with Class 2 NICs fully abolished.
  

This means slightly higher take-home pay for most workers.

5. Pension & Savings Changes

• The Annual Allowance for pensions remains at £60,000.
  
• The Lifetime Allowance (LTA) has been officially scrapped, continuing the freedom for higher earners to save more without tax penalties.
  
• ISA limits remain unchanged at £20,000, but there’s increased flexibility in transferring and partial withdrawals.
  

6. Making Tax Digital (MTD) for ITSA on the Horizon

If you’re self-employed or a landlord earning over £30,000 a year, MTD for Income Tax Self Assessment (ITSA) is due to begin in April 2026.

Use this year to:

• Get comfortable with digital record-keeping.
  
• Trial compatible software.
  
• Speak with your accountant about preparing early.
  

What Should You Do Next?

• Review your salary, dividends, and pension contributions.
  
• Plan ahead for CGT and dividend tax.
  
• Make use of ISAs and allowances while they’re still available.
  
• Speak to your accountant about how the changes affect your personal or business finances.
  

Need help navigating the 2025/26 tax year?
We’re here to break it down, make it make sense, and help you save where you can.

📞 Get in touch with our team to review your financial plans and stay one step ahead.