This is how tax changes might affect you from April 6

For most of us, the start of a new tax year means holiday allowances being reset (woohoo) and it’s also the deadline to max out our ISA allowance for the year. But for some, more wide-ranging changes to the tax system that are coming in could potentially hit hard.

We spoke to Rowan Harding DipFPS, a financial planner at Path Financial, about what changes are set to kick in, and who they are most likely to affect…

The dividends tax rate

“A lot of the changes that are coming in really are more to do with business owners and businesses as an entity,” notes Harding. “So for somebody who does have some earned income, because they run their own business, the dividend (payments made by companies to shareholders) rate is going to increase by 2% from April.

“The basic rate will go up to 10.75%; the higher rate will go up to 35.75%. The dividend allowance remains the same at £500, which has decreased in previous tax years. So we’ll see what happens on that front.”

She says the “implications are definitely going to be felt by smaller business owners, sadly”, who arguably already pay a lot of tax. “They may not be able to afford, necessarily, to run their businesses with an increased cost,” says Harding. “There may be more smaller businesses that go under. Hopefully we still have this wonderful entrepreneurship that happens in the UK.”

National Minimum Wage increase

This is great news for those on the national minimum wage. For apprentices and under 18s, the National Minimum Wage will increase from £.755 to £8 an hour, for 18-20-year-olds it jumps from £10 to £10.81, and for ages 21 and over, it’s £12.71, up from £12.21. “It’s really important that you do get that increase, because ultimately, even with that increase, that amount of money for most people is a really hard amount of money to live off,” acknowledges Harding.

For business owners, especially small business owners with employees, however, it’s “probably one of the biggest costs”, and will have an impact on National Insurance contributions too.

Business property relief and agricultural property relief

The Government is going to cap reliefs, so anyone with business or agricultural assets that exceed £2.5m will see an effective tax rate of 20% when it comes to inheritance tax. For those affected, Harding says it may be “worth reviewing wills or structuring assets to take that into account”.

“Most people would think, ‘If you’ve got £2.5m in agricultural or business property, then you’re probably doing pretty well for yourself’. So it’s perhaps going to be a very small portion of people impacted by this, but you will get people who are in the farming industry being very uncomfortable and upset,” explains Harding.

Although changes are “aimed at those people who have a higher level of assets, the problem is, a lot of assets around agriculture are land-related, and you need land to farm.”

“There is still going to be a million pound cap, but [the Government] is going to raise the Capital Gains Tax for qualifying proposals to 18% (up from 14%) for exiting a business,” says Harding. “It’s going to be quite a chunky amount of tax when you’re talking large sums of money.”

She adds: “It’s really people who have high levels of assets [who’ll be affected], the general population is not likely to have £1m in terms of business assets.”

“The link in with that, is to do with the inheritance tax on Qualifying Alternative Investment Market Shares.” The current 100% relief “is going to decrease by 50%, so it’ll be a permanent 20% inheritance tax liability, and they’re often used as vehicles to help mitigate inheritance tax for individuals who have a high amount of assets.”

Working from home allowance

This is being completely abolished. Currently, you can “claim £6 for costs associated with working from home,” which doesn’t sound like a lot, “but over a year that can add up” says Harding.

Making Tax Digital

The introduction of Making Tax Digital means “more life admin for people, and a bit less for HMRC” says Harding wryly. It’s basically a new system for sole traders and landlords who earn £50k qualifying gross income profits, to report their income tax, “reducing in April 2027 to £30k”. For those eligible, reports will need to be done online, every quarter. Check if you need to sign up at Gov.uk.