Starting 6 April 2026, HMRC is implementing major structural reforms and rate hikes that affect millions of individuals, investors, and small business owners. Key changes include the mandatory start of Making Tax Digital for high earners and significant increases to dividend and business disposal taxes.

Personal and Investor Tax Changes

Dividend taxation has undergone notable changes, with rates adjusted across multiple tax bands. These increases affect shareholders and business owners who receive dividend income from their companies. The changes mean that the tax burden on dividend income is now higher than it was previously, so reviewing your dividend strategy and overall tax position is advisable.

Dividend Tax Increase: Rates for basic and higher-rate taxpayers are rising by 2 percentage points.

Basic Rate: 10.75% (was 8.75%).

Higher Rate: 35.75% (was 33.75%).

Additional Rate: Unchanged at 39.35%.

Note: The annual tax-free dividend allowance remains at £500.

Capital Gains Tax (CGT) on Business Sales: The rate for Business Asset Disposal Relief (BADR) and Investors’ Relief is increasing to 18% (from 14% in 2025).

Carried Interest: Previously taxed as capital gains, this will now be treated as trading profit, subject to Income Tax and National Insurance (NICs).

Inheritance Tax (IHT) Reform: A combined £2.5 million cap is introduced on 100% relief for Agricultural and Business Property Relief.

Assets exceeding £2.5m will receive 50% relief, resulting in an effective IHT rate of 20%.

AIM-listed shares no longer qualify for 100% relief and are now restricted to 50% relief.

Digital Reporting (Making Tax Digital)

Mandatory Digital Records: Sole traders and landlords with a gross annual income over £50,000 must now keep digital records and submit quarterly updates to HMRC using compatible software.

Phased Rollout: This threshold is set to drop to £30,000 in April 2027 and £20,000 in 2028.

Employment and Benefits

Homeworking Tax Relief: The flat-rate income tax relief for employees working from home (previously £6/week) has been abolished unless costs are directly reimbursed by the employer.

Company Cars: The benefit-in-kind (BiK) rate for electric vehicles (EVs) is rising from 3% to 4%.

National Insurance (NICs): Voluntary Class 2 contributions for those living abroad are being withdrawn; affected individuals must now pay the more expensive Class 3 contributions to maintain their State Pension record. [2, 13, 16, 17, 18]

State Pension and Thresholds

Triple Lock Increase: The State Pension is rising by 4.8%, taking the full new State Pension to £241.30 per week (£12,548/year).

Frozen Thresholds: Income tax personal allowances (£12,570) and higher-rate thresholds (£50,270) remain frozen until 2030-31, leading to “fiscal drag” as more people are pulled into higher tax bands by rising wages. [5, 12, 19, 20, 21, 22]

Would you like to check if your specific income level or business turnover requires you to sign up for Making Tax Digital this year?