How to plan for the new tax year

With the new tax year approaching, individuals, investors, business owners and landlords face a landscape shaped by frozen thresholds, rising rates on investment income, significant shifts in inheritance tax reliefs, and the arrival of making tax digital (MTD). This session explored upcoming tax rate and allowance changes, practical planning opportunities, reforms to inheritance tax, property actions, and MTD preparation.

Key takeaways:

• There are no changes to headline income tax rates, but personal allowance and other tax thresholds remain frozen until 2030/31, pulling more people into higher tax brackets over time.
• From April 2026 there will be a 2% increase in dividend tax rates. This affects individuals receiving dividend income from investments and business owners who draw income via dividends. The £500 dividend allowance remains but is now too small to keep many people out of tax.
• From April 2027, income tax on savings interest above the personal savings allowance will increase by 2%. The allowances remain £1,000 for non and basic‑rate taxpayers, £500 for higher‑rate taxpayers, and £0 for additional‑rate taxpayers. It is worth considering the tax efficiency of holding large cash balances and exploring alternative tax‑efficient options such as ISAs, gilts, and offset mortgages.
• Review your allowances to ensure you’re maximising your entitlement. Consider ISAs, junior ISAs, capital gains tax (CGT) annual exemption, pension annual allowances and savings allowances. Tax‑efficient wrappers such as ISAs help shield savings from upcoming rate increases on savings income.
• The business asset disposal relief (BADR) rate is increasing. Formerly known as entrepreneurs’ relief, the special BADR rate on the first £1 million of lifetime qualifying gains is increasing from 14% to 18% from April 2026. This reduces the benefit available to business owners selling all or part of their business. If you are planning to sell a business, completing the transaction before April can save 4% effective CGT, although time is short.
• For business owners affected by the new business relief cap, gifting shares or restructuring ownership before April may move value out of the estate. Establishing trusts before the new rules begin can also avoid entry charges of up to 10% on amounts above £2.5 million.
• Employee ownership trust (EOT) disposals are now taxed. Previously, disposals to an EOT could be tax free but now the effective CGT rate is 12%. This is still lower than the standard 24% rate but is a major shift from the former 0% treatment.
• Pension contributions offer some of the most powerful mitigation opportunities. They reduce taxable income, attract tax relief at your marginal rate, and can help restore personal allowance for those earning between £100,000 and £125,140. They can also help keep income under key thresholds, such as the £100,000 limit for tax‑free childcare and the £60,000–£80,000 child benefit taper. Using carry‑forward allowances from the previous three tax years allows individuals to maximise contributions before the earliest year drops off each April.
• Gift Aid is a useful tool: higher earners can claim additional tax relief and may backdate claims for up to four years.
• Pensions will be brought into the estate and will no longer be a primary IHT planning tool from April 2027. Spending or gifting assets during one’s lifetime reduces the taxable estate. Individuals can gift £3,000 per year tax‑free, carry forward unused allowances, or make regular gifts out of surplus income, which immediately fall outside the estate if they form a consistent pattern. Larger gifts are potentially exempt but must survive seven years to escape IHT; insurance can be used to cover the risk during this period.
• Where individuals want to retain control of assets, life insurance policies written into trust can provide funds on death to meet the IHT bill without forcing beneficiaries to sell property or other assets.
• From December, qualifying business relief investments are exempt from IHT after two years and now benefit from a £2.5 million limit per person, helpful given that pensions will lose their IHT advantages from April 2027.
• Think about your risk profile when looking at investment opportunities. Some low tax options can be volatile and may take a long period to return a gain, if at all.
• MTD for income tax self‑assessment is being implemented from April. MTD will apply to individuals who have trading income over £50,000 and/or property income over £50,000. The income threshold is based on gross income, not profits. Those pulled into the system will be required to submit quarterly updates to HMRC.
• Property owners and landlords should start reviewing their mortgage arrangements six months before the end of their current deal. Mortgage rates are currently based on expectations of Bank of England rate cuts; if inflation remains high and cuts are delayed, rates could rise immediately. Locking in a rate early protects you if rates increase, while still allowing you to follow rates downward if they fall.
• Landlords with multiple properties can consolidate borrowing into one portfolio mortgage. This reduces administrative burden and can significantly cut fees.
• Property owners can also utilise an offset mortgage, which links savings to mortgage debt, reducing interest costs tax‑efficiently. By keeping cash in the offset account, interest is charged only on the net balance, providing a flexible and tax‑free way to lower borrowing costs.