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A series of ‘stealth’ tax increases will come into force from April 6 2026
From April, millions of households will face a further strain on their finances as a series of tax changes subtly increase bills and pull more people into paying higher rates.
Despite the lack of attention-grabbing announcements, the new tax year will introduce a range of “stealth” increases that could significantly diminish take-home income. From dividend increases to frozen thresholds, the changes will result in handing over more money to HMRC – unless savers and investors act swiftly before the April 5 deadline.
Emma Wall, Chief Investment Strategist at Hargreaves Lansdown, warned: “Don’t be lulled into thinking that a quiet Spring Statement means a quiet tax year. Tax rises are coming. From April 6, a bunch of rule changes come into force that will mean handing over more of your hard-earned money to the taxman in 2026/27. It’s a series of small changes that will add up and quietly erode your wealth.”
Here are the four key changes set to impact wallets:
Dividend tax hike
Investors will see the tax they pay on dividends rise by 2 percentage points. The basic rate will increase from 8.75% to 10.75%, while the higher rate climbs from 33.75% to 35.75%. The additional rate remains unchanged at 39.35%.
With the dividend allowance already reduced to just £500, more savers will be caught out – particularly those holding shares outside tax wrappers.
VCT tax break cut
Tax relief on Venture Capital Trusts (VCTs) is being scaled back. The upfront income tax relief will drop from 30% to 20% from April 6 – a substantial reduction that could diminish the attractiveness of these higher-risk investments.
VCTs, which back smaller UK companies, have been a favoured route for wealthier investors to generate income tax-efficiently.
Capital Gains Tax increase on business sales
Entrepreneurs preparing to sell their businesses face a heftier tax bill if they postpone. The rate of Capital Gains Tax under Business Asset Disposal Relief (BADR) will rise from 14% to 18% from April.
This means those departing a business or disposing of qualifying assets could witness a considerably larger portion of their profits going to the taxman.
‘Stealth income tax grab’
Perhaps the most significant impact stems from frozen income tax thresholds – fixed at 2021/22 levels until at least 2031. As salaries increase, more workers will be pulled into higher tax bands – a phenomenon known as “fiscal drag”.
The 40% threshold stays at £50,270, while the 45% additional rate begins at £125,140. There is also the notorious 60% tax trap impacting those earning between £100,000 and £125,140, where the personal allowance is progressively withdrawn.
How to fight back
Despite the approaching increases, experts maintain there is still a brief window to lessen the impact. Ms Wall said: “The good news is that there are steps you can take to reduce what you will have to pay. The even better news is that you still have a short window before 5 April to act.”
Key strategies include maximising ISA allowances to protect investments from dividend tax, and increasing pension contributions to decrease taxable income. Investors contemplating VCTs may also wish to act before 5 April to secure the higher 30% relief – though experts warn against investing solely for tax reasons.
The government has defended the measures. It says the VCT changes will balance relief with that offered to other schemes.
