Ahead of Rachel Reeves’ Autumn Budget last year, the nation was braced to deal with the “harsh light of fiscal reality”, and tax hikes for many were duly introduced across the board.
While more changes could be announced in the Spring Statement on 26 March, how will the current policies impact you in April?
“It’s unlikely to be a happy new tax year”, according to Sarah Coles, head of personal finance for Hargreaves Lansdown.
Coles said: “Far more people risk missing out as the clock ticks forward into the new year than stand to gain from any changes being introduced.
“The most striking squeeze is likely to come from something that’s not changing at all – as income tax thresholds remain stuck for yet another year.”
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She added: “It means the new tax year will usher in new challenges for all sorts of people, but while there’s nothing we can do to stop it, you can protect yourself from the impact of some of the changes.”
Here’s how the 2025/26 tax year will impact your finances.
Employers and employees
National Insurance contributions (NICs) for employers rose by 1.2% to 15%, and the threshold for when businesses need to pay this also fell from £9,100 to £5,000 per year. The Employment Allowance for small businesses was also increased to £10,500, but the NIC changes will likely be bad news for many workers, according to Coles.
“It’s going to make it more expensive to employ people, and while some businesses will take a hit to the bottom line, others will let staff go.
“Some may wear the cost for now, but choose not to bring in pay rises as quickly as they otherwise might”, she said.
Staff pay rises
Income tax thresholds will yet again stay the same, as they have for five years, and will continue to be at their current level until April 2028.
This decision by the Government was designed to stop people from being dragged into higher tax brackets. But if you get a pay rise, the knock-on effects could leave you worse off – not just regarding your pay packet, but in other ways too.
Coles said: “It’s not just the tax on earnings that’s affected. When you start paying a higher rate of tax, your personal savings allowance shrinks, from £1,000 for basic-rate taxpayers to £500 for higher-rate taxpayers, and disappears altogether for additional-rate taxpayers.
“You also pay a higher rate of capital gains tax when you cross into paying a higher-rate tax, and your dividend tax rate rises as you cross each income band.”
She added: “The best way to protect savings from income tax is to hold them in an ISA. You can pay up to £20,000 before midnight on 5 April, so there’s a chance to take advantage in the current tax year.
“This is particularly valuable for higher earners who have a smaller savings allowance, and pay a higher rate on the excess.”
Pensioners with private pensions
If you do not rely on the state pension to pay for your day-to-day life, you’re unlikely to benefit from the rise announced last year.
Over-65s will see a £470 boost to their retirement fund from April, and the triple lock will also remain the same for the length of time Labour are in power.
From April, the state pension will rise by 4.1%, in line with earnings growth, which means pensioners will be entitled to £176.45 per week.
Meanwhile, those on higher pension incomes are hit by frozen income tax thresholds, which pushes more of them into paying more tax. There are already around eight-and-a-half million taxpayers over the state pension age – around a quarter more than before these thresholds were frozen, Hargreaves Lansdown data shows.
Shaun Moore, tax and financial planning expert at Quilter, said: “Pensioners are often among the worst hit by frozen tax allowances, because they typically will be getting their income from a number of different investments, and therefore lean heavily on CGT and dividend allowances to help create a retirement income in addition to their pension.
“However, the Government has made it very difficult to avert being taxed very heavily on these types of investments. It is vital that people look across the spectrum of financial products that provide tax efficiency and use them in the right way and at the right time to try to prevent their income from being eroded by tax.”
Stocks and shares ISAs
Capital gains tax (CGT) levels rose from 10% to 18% for basic-rate taxpayers. This increased from 20% to 24% for higher- and additional-rate taxpayers.
Coles said: “To add insult to injury, this comes after the previous Government took a scythe to the tax-free allowances. It means more people will pay this tax at a higher rate.
“You can protect against capital gains tax and dividend tax by investing in a stocks and shares ISA.
“If you have existing investments outside an ISA and the available allowance, you can use share exchange (Bed and ISA) to move them into the ISA and protect them from tax. Take care not to exceed your capital gains tax annual allowance of £3,000 in the process, though.”
Coles also suggested one way to shield your earnings from CGT hikes if you’re married or in a civil partnership and your partner pays a lower rate of tax is to transfer income-producing assets into your partner’s name. It means you can take advantage of both your tax allowances.
Homebuyers
There has been a dash this month to beat the stamp duty deadline on 31 March, with 25,000 homebuyers set to miss out. After this, most homemovers who are not buying their first property will pay an extra £2,500 on their purchase.
That’s due to the average house price falling under the £300,000 threshold to pay the duty, while for those stepping onto the property ladder for the first time, the threshold to make the payment will drop from £425,000 to £300,000.
The maximum price of a property benefitting from this discount will fall from £625,000 to £500,000. Meanwhile, for second-steppers and beyond, the threshold will fall from £250,000 to £125,000.
Property investors
Landlords already have to pay around £7,000 when buying a new property after stamp duty rose to 5% in the Autumn Budget.
However, those who are letting out the property to holidaymakers will also lose the chance to use “the more generous furnished holiday lettings tax regime” and will be subject to tax in the same way as other landlords.
Coles said: “It underlines just how unfriendly the tax system is for property investors”.
Non-doms
The non-dom tax regime was scrapped by Reeves last autumn. It means that if you have lived outside the UK for at least 10 years, there will be a four-year exemption period, but after that, all your earnings outside the UK will be subject to tax here.
Coles said: “Among other things, it removes a significant inheritance tax break for those who have been in the UK for 10 of the last 20 years.”
While the winter fuel duty was removed for millions of over-65s, there is a brighter outlook for pensioners and workers on lower incomes in the new tax year.
If you rely on your state pension as the bulk of your income, you will feel the benefit of the state pension rise and will not see your salary dented by the frozen tax thresholds.
For workers on the National Living Wage, there will be a 77p boost from 1 April to £12.21 per hour if you are aged over 21.
Rates for younger people have risen too, closing the gap for 16-17-year-olds up by 18% to £7.55 per hour. This is part of the Government’s plan to move towards a single minimum wage.
