What changes to tax will April 6th usher in?

April 6th is the first day of the 2025/26 tax year and, as a consequence of Rachel Reeves’s first budget, a number of changes to UK taxes will kick in, but are you aware of the level and scope of the changes?

Income tax

Whilst it is true that Dear Rachel is keeping to her promise of not actually putting up the current rates of income tax for the group in society she has deemed to be ‘working people’, nevertheless she is maintaining the freeze on income tax and NI thresholds, which is effectively a tax rise by another name because of the effect of ‘fiscal drag’.

(Fiscal drag is a terms in economics and is defined as: “the deflationary effect of a progressive taxation system on a country’s economy. As wages rise, a higher proportion of income is paid in tax”.)

The freeze was first introduced in 2022 and Dear Rachel has said that it will end on 5th April 2028, with all personal thresholds increasing in line with inflation thereafter. However, there was a sting in the tail of this seemingly positive announcement, as she added the caveat ‘subject to public finances at the time’. In other words, if her much vaunted fiscal rules are in danger of being breeched, she will once again, kick this particular can down the road.

The OBR (Office for Budget Responsibility) has predicted that by April 2028, over 8 million additional taxpayers will have been dragged into higher tax bands as a direct result of the frozen thresholds.

If the Chancellor was actually serious over her promise to protect ‘working people’, she should increase the tax thresholds in line with inflation, and with immediate effect. If this happened and was backdated to the introduction of the freeze in 2022, your personal allowance would now be £15,810 and the 40% higher rate threshold would have increased to £63,650 (over £13,000 higher than its current rate).

Continuing the freeze means that millions of low-paid and part-time individuals are paying tax for the first time at 20%; many more millions are now paying tax at 40% on an increasing percentage of their income, The freeze also has negative implications for other taxes, such as Capital Gains Tax, Dividend tax and a number of allowances, such as your personal savings allowance and marriage allowance.

• Example A: A middle manager earning circa £65, 000 pa, currently pays over £3,600 in additional tax because of the fiscal drag effect of not putting up income tax thresholds in line with inflation.
• Example B: An experienced UK nurse earns circa £38,000 p.a. pays £650 in additional tax because of the fiscal drag
  

Stamp Duty (SDLT)

If you’re planning to move home in the near future, wef 1st April, it will be far more expensive, as the temporary stamp duty holiday (England and NI) will end. From 1st April, moving home will mean paying stamp duty on property purchases exceeding a £125,000 threshold, rather than the current £250,000.

The direct result will be a rise in stamp duty bills of at least £2,500, and it get worse! Because whilst the rates are not changing, the thresholds effectively are, as the 2% starting rate of SDLT rises to 5% over £250k. Also, the threshold for first-time buyers is being reduced by £125k down to £300k from the current £425,000. The rate for anyone buying a second home, or a buy-to-let property has already risen by an additional 2%.

Council Tax

In her October budget the Chancellor was faced with the issue of how to cover the steep rises in the cost Social Care, a cost paid for by government but with the money administered by local Councils.

So, what did our wonderful Chancellor do? To avoid breaking her self-imposed fiscal rules she decided not to give local authorities any more money and instead said she would allow Councils in England to raise council tax by up to 5% each year to cover the Social Care costs, which nearly all Councils immediately did.

She also said that the requirement to hold a local referendum first for any rises that were needed in excess of 5%, would now be waived, subject to approval by HMG. It will therefore not surprise you to learn a number of Councils immediately requested a 10% increase, with all applications now approved.

Accountant’s view

My normal attitude to the various brickbats that everyone faces in life, is that the cup is half full, however my normally positive outlook is being severely tested at the moment. Nothing with a price tag attached seems to be going down, whether it be taxes or living costs, everything is rising, including energy, water and pretty much all household bills. So, with the Euro Millions lottery, approaching €200M, I might just buy myself a lucky dip lottery ticket and dream of better things to come.