We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
A reminder of key changes as announced in the last two Budgets
As the end of the 2025/26 tax year approaches, individuals and businesses should take advantage of available tax reliefs and prepare for upcoming changes from April 2025 onwards and into April 2026. Here are some of the key areas to focus on:
Changes implemented from April 2025
Furnished holiday lettings abolished
From 6 April 2025, the furnished holiday lettings (FHL) regime has been abolished. FHL properties now form part of standard rental property business, and the historical tax benefits – ie full relief on finance costs, capital allowances and CGT and IHT reliefs – are not available anymore.
Actions to consider:
- When preparing tax returns for 2025/26, ensure that the details are entered correctly on the property pages.
- If you have stopped FHL activities just before April 2025, you may still be able to claim BADR if sold within three years.
- Income from jointly owned property held by spouses or civil partners can be elected to be assessed based on the individual ownership proportions, rather than the default 50:50, provided the legal structure is correctly implemented. There are other non-tax implications to be considered but see the form 17 guidance in our article on claims and elections.
- From April 2025, carried-forward FHL losses are converted into standard property business losses, making them usable against general rental income.
Non-domicile tax regime abolished
From 6 April 2025, the UK’s long-standing tax regime for non-UK domiciled individuals was replaced. The reforms fundamentally changed how foreign income, gains, inheritance tax and trust structures are taxed for internationally mobile individuals.
The previous remittance basis, which depended on an individual’s domicile status, has been abolished. In its place, the UK now operates a residence-based tax regime.
Under the new rules, individuals who become UK tax resident and who have not been UK resident in any of the previous 10 consecutive tax years may qualify for full (100%) relief on foreign income and gains during their first four tax years of UK residence (the four-year foreign income and gains regime). After this four-year period, individuals are generally subject to UK tax on their worldwide income and gains as they arise.
Given the scale of these changes, careful planning around the point of transition has been essential. Many individuals have reviewed their residency status, asset ownership structures and trust arrangements to mitigate exposure to UK tax and inheritance tax under the new regime, and ongoing reviews remain important as circumstances evolve.
National insurance contributions: filling gaps for state pension
To qualify for the full state pension, individuals usually need 35 years of national insurance contributions (NICs). If there are gaps in your record, voluntary contributions may help boost your pension entitlement.
You can only pay voluntary contributions for the past six years. The deadline is 5 April each year. For example, you have until 5 April 2031 to make up gaps for the tax year 2024/25.
Business Asset Disposal Relief and Investors’ Relief
Business Asset Disposal Relief (BADR) and Investors’ Relief allow reduced CGT rates on the disposal of business assets or shares in trading companies. However, changes in CGT rates from April 2025 and 2026 have reduced the tax savings.
The reduced capital gains tax (CGT) rate for qualifying business disposals has been increased in stages: initially from 10% to 14% from April 2025, and further to 18% from 6 April 2026.
Clients planning disposals of business assets or shares in a qualifying trading company may wish to consider the timing carefully in order to secure the lower rates of tax before the changes come into effect.
Changes to be implemented from April 2026 and beyond
Agricultural and Business Property Relief
From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £2.5m of combined agricultural and business property.
Above this £2.5m allowance, impacted individuals will access 50% relief from inheritance tax on qualifying assets and will pay inheritance tax at a reduced effective rate of up to 20%, rather than the standard 40%. This tax can be paid in equal instalments over 10 years interest-free.
Read this ACCA article for detailed guidance and examples on how these changes will impact taxpayers.
National Insurance on pension salary sacrifice schemes
From April 2029 the amount of employee pension contributions made through salary sacrifice that is exempt from National Insurance contributions (NICs) will be capped at £2,000 per year.
Employees who contribute up to £2,000 into their pension each year via salary sacrifice can continue to benefit in full, but employee and employer NICs will be charged in the usual way on the amount above £2,000.
Making Tax Digital for Income Tax – MTD for ITSA
MTD for ITSA for quarterly reporting implementation is phased based on the qualifying income. Those with combined gross trading and property income of:
- over £50,000: Mandatory from 6 April 2026
- over £30,000: Mandatory from 6 April 2027
- over £20,000: Mandatory from 6 April 2028.
Individuals must keep digital records and use functional compatible software to submit quarterly updates and an End of Period Statement (EOPS) to HMRC.
Gross income will be assessed based on the tax return submitted for the year prior to implementation – for example, the 2024/25 return will determine MTD status for 2026.
Updated guidance on implementation and available exemptions can be found on the ACCA MTD hub. Practitioners need to start preparing now with their affected clients with software readiness. To sign up clients for MTD for ITSA, identity verification is required using methods such as the GOV.UK One Login app. Necessary items for sign-up include a Government Gateway user ID and password, National Insurance number, and details of income sources.
Income tax increases from April 2026 onwards
From April 2026, dividend tax rates will increase as follows:
- the ordinary rate rising from 8.75% to 10.75%
- the upper rate rising from 33.75% to 35.75%
- the additional rate remaining at 39.35%.
From April 2027, tax rates on property and savings income will also be increasing as follows:
- basic rate 20% to 22%
- higher rate rising from 40% to 42%
- additional rate rising from 45% to 47%.
As always, any consideration of dividends to be declared prior to the increased tax rates coming into effect must follow the strict legal guidelines under the Companies Act 2006.