2025/26 Tax Year-End Planning
The end of the 2025/26 tax year is upon us! This is a comprehensive reminder and summary of the key points to consider before the 5 April 2026.
It is fair to say that we are living in a period of volatility in terms of UK tax policy at the moment, with many tax changes announced to come in but also many more expected. It is a time to be conscious of your tax position, and importantly, seek experienced professional advice from a chartered tax advisor.
Income Tax
Increased dividend income tax rates
A 2% increase on the basic-rate and higher-rate of income tax applied to dividend income is coming into effect on 6 April 20206 – increasing the basic-rate from 8.75% to 10.75%, and the higher-rate from 33.75% to 35.75%. We have been proactively speaking to clients around completing distributions prior to 6 April 2026. If you haven’t already, this should be considered.
This increase will be reflected in the increase to the corporation tax rate for outstanding loans to participators (“the s455 charge”) – which will increase from 33.75% to 35.75%.
Additionally, from 6 April 2026, non-UK tax residents will no-longer benefit from a notional tax credit that often reduces the exposure to UK income tax on UK dividend income. All non-UK tax residents with UK dividend income should review their positions and consider dividend income being realised before 6 April 2026 where it is beneficial.
Income splitting
Married couples and civil partners should review their level of taxable income received in the year to make use of tax savings by structuring their affairs to ensure that both spouses use their personal allowances and basic rate tax bands (where applicable). Inter-spouse/civil partner transfers of income producing assets should be considered.
Consider changing ownership of a let property in the joint names of yourself and your spouse/civil partner as tenants in common. The rental income can then be divided between you according to the proportion of the property you each own giving the lower earning partner a larger interest, in order that the income may be taxed at the lower income tax rates.
This is even more important given the abolition of the Furnished Holiday Let regime on 6 April 2025, and the ‘fiscal drag’ created by the freeze on the personal allowance and income tax bands until April 2031.
Watch the stealthy 60% band
If you anticipate your taxable income falling within the £100,000 – £125,140 band you will pay maximum effective rate of income tax of 60%. Hence, it is best to be avoided where possible. You may wish to consider making pension contributions and/or gift aid donations to mitigate the exposure in 2025/26.
Also, note that if you (or your partner) have claimed child benefit, the amount will be restricted for those with taxable income between £60,000 and £80,000. Income in excess of the later amount effectively reduces the entitlement for Child Benefit to nil via the High Income Child Benefit Charge (HICBC). As with the 60% band (above), this band is best avoided where possible.
It is important to understand exposure to this HICBC to ensure that the liability is accurately declared to HMRC to avoid HMRC enquiries.
Use of a company
If you are higher or additional rate taxpayer structuring your business or investments through a limited company can significantly cut your tax bills rather than holding income producing assets where income will be taxed at much higher rate of tax. Corporation tax rates are currently at a maximum effective rate of 26.5% (given the marginal rate). If all of the income is not required (i.e. some can be held in the company) this option should be definitely considered.
This should also be considered in light of the proposed increased to income tax rates by 2% on all bands for property and interest income from 6 April 2027.
Pension contributions
Review whether you have utilised your annual allowance in the year, and whether you (or your limited company business) should seek to make use of any unused annual allowances from the previous three years – particularly that of the 2022/23 tax year (that will be lost after 5 April 2026). This is also particularly relevant where your income has increased in recent tax years resulting in the tapering (restriction) of the annual allowance.
You can also contribute up to £2,880 net (£3,600 gross) per year into a pension on behalf of your children or grandchildren. The funds will be protected from tax charges and cannot be drawn on until the child/grandchild is of retirement age. This can be a useful way to use the inheritance tax ‘Normal Expenditure Out of Income Exemption’.
Pension drawdown
Some may consider drawing down from their pension savings given the incoming proposed removal of the inheritance tax exemption for the majority of pension savings on death and the compounding of this with: the income tax liabilities of beneficiaries when the policy holder dies after reaching the age of 75; and the potential loss of the inheritance tax Residence Nil-Rate Band (RNRB) where otherwise the value of the Estate would not result in the tapering/restriction of the RNRB.
However, such a drawdown needs to consider factors such as the “stealthy 60% band” (see above).
Individual Savings Allowance (ISA)
Have you taken advantage of your ISA investment limit? You can currently invest up to £20,000. The income and capital growth on savings in an ISA is tax free. There is still time until 6 April 2026 for ISA subscription for the 2025/26 year.
From 6 April 2027, you will only be able to put up to £12,000 into a cash ISA – a consideration here.
Tax efficient investments
The qualifying limits for companies to qualify for the Enterprise Investment Scheme and Venture Capital Trust (VCT) schemes and the investment limits for the schemes will increase from 6 April 2026 so that they can apply to equity investments in larger companies.
This may be a driver for some to hold-off investment until post 6 April 2026 when a larger pool of investment opportunities may become available given these changes.
However, the VCT income tax relief will reduce from 30% to 20% from 6 April 2026, which may drive a decision to invest in VCTs before 6 April 2026. Clearly regarding VCT investment there will be a decision around prioritisation of maximising the income tax relief and the above point around potentially wider pool of investment opportunities.
Furnished Holiday Lets – Previously unclaimed tax relief on purchase, build and/or improvement
Whilst the favourable Furnished Holiday Let (FHL) regime was abolished from 6 April 2025, there is still an opportunity to claim the benefit of previously unclaimed tax relief in the form of capital allowances on expenditure incurred on purchases, builds and/or improvements of FHL properties before 6 April 2025. All FHL owners should seek advice as to whether they have maximised such claims and seek advice as to how any previously unclaimed capital allowances can be claimed.
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA)
It will be mandatory for some to comply with the new Making Tax Digital (MTD) for income tax (IT) regime from 6 April 2026.
The MTD for income tax regime will require the following:
- Maintenance of digital accounting records (in a software product or spreadsheet whilst also using adequate digital software);
- Quarterly submissions to HM Revenue & Customs (HMRC) within c1 month of the end of each quarter using digital software recognised by HMRC; and
- Submit a year-end tax return (similar to the current self-assessment tax return) after the end of the relevant tax year.
The MTD for IT regime will become mandatory from 6 April 2026 (the 2026/27 tax year – year to 5 April 2027) if your self-employment and/or property rental turnover/gross income is in excess of £50,000 in the 2024/25 tax year (year-ended 5 April 2025). This threshold will reduce to £30,000 from 6 April 2027.
We have been proactively corresponding with our clients about their exposure to this new regime for a while. But it is important all consider their exposure and seek advice from a Tax Advisor on the available options to comply with these new requirements, for further reading on MTD please read our article here.
UK tax residence
UK tax resident individuals are required to pay UK income and capital gains tax on their worldwide income and gains. For those wishing to be treated as non-UK tax resident it is vitally important to keep travel diaries and review the number of midnights of presence in the UK, ensuring to stay within the limits allowed by the Statutory Residence Test.
Please contact one our Tax Specialists if you would like to discuss any of this in greater detail.
Capital Gains Tax
Business Asset Disposal Relief (BADR)
The capital gains tax rate applied to capital gains qualifying for BADR will increase from the current 14% rate to 18% on 6 April 2026. Given that BADR is available to £1m of qualifying gains during lifetime (including any gains qualifying for its predecessor, Entrepreneurs’ Relief), the maximum impact is £40,000 per individual.
Whilst there are obvious commercial concerns around rushing disposals, where possible, transactions resulting in qualifying gains should be working towards finalising before 6 April 2026.
Investors’ Relief
The same is relevant to Investors’ Relief, however, the relief has had very little take-up/use since its inception.
Timing
Given the proximity to the tax year-end, if you are considering making disposals of chargeable assets it would be prudent to consider delaying exchange of contracts (the tax point) until the new tax year. By delaying the associated tax payment by a year you would benefit your cash flow.
Also see the below for the context of timing and the annual exemption.
Annual exemption
Have you made use of your 2025/26 Capital Gains annual exemption (£3,000 for individuals and £1,500 for trustees)? Additionally, consider making sales to utilise brought forward capital losses.
Each spouse or civil partner has their own capital gains tax annual exempt amount. Further, assets can be transferred between spouses and civil partners at value that gives neither a gain nor a loss position to ensure that each spouse utilise their annual exemption amount.
Maybe more importantly, have you already used it in the year and are considering a further disposal, in which case, you may consider waiting to dispose of the asset after 5 April 2026 when the annual exemption and basic-rate income tax band renews (for the purposes of the 18% capital gains tax rate).
Negligible value
Review whether any assets have become of negligible value i.e. became worthless since their acquisition. If so, a capital loss (or even loss deductible against your taxable income in the right circumstances) could be claimed.
Main residence
Review whether a Principal Private Residence (PPR) relief election can, and if so, should be made where you use more than one property as a residence. If an election has been made, or consider whether the election, if made, is on the most appropriate property.
Business Asset Rollover Relief
This is a relief where gains realised on certain qualifying business assets can be deferred (“rolled into”) acquisitions of qualifying assets within 3 years, (or one year before) selling the previous asset. The end of the tax year is a useful point to consider this relief and the time limit.
We consider the capital gains tax rate(s) to still be relatively low and therefore, whilst speculative, can see the rates rising in the future, which is a consideration when deferring any chargeable gain. However, if the intention is to retain the new asset (providing it is in the category of “non-depreciating assets”) for the long-term, this may not be a concern.
EIS Deferral Relief
Similar to the above relief, where a chargeable gain is realised on any asset and a qualifying EIS investment is made, it is possible to defer the gain into the qualifying EIS shares up to the level of the investment. As with Business Asset Rollover Relief, there is an investment window for the EIS investment of 1 year before the gain is realised and 3 years after.
Echoing the above comments, we consider the capital gains tax rate(s) to still be relatively low and therefore, whilst speculative, can see the rates rising in the future, which is a consideration when deferring any chargeable gain. It is possible to keep deferring gains in to EIS investments, but there are obvious investment decisions here that would need to take priority over merely benefitting from this relief.
Please contact one of our dedicated Tax Specialists for advice on these topics.
Inheritance Tax and Estate Administration/Succession
Wider scope of inheritance tax
Given the fiscal drag created by the frozen inheritance tax Nil-Rate Band and the Residence Nil-Rate Band, an increasing number of estates are being subject to an inheritance tax liability. This coupled with inheritance tax changes such as the restriction to Business Property Relief and Agricultural Property Relief, the removal of 100% Business Property Relief for AIM shareholdings, and of much wider application, the removal of the inheritance tax exemption for pension death benefits from 6 April 2027 that currently applies to the majority of pension savings.
The end of the tax year is a useful point to consider your current inheritance tax exposure and seek advice.
There are many available mitigation planning opportunities for inheritance tax exposure, but it is key to understand your exposure and seek experienced, practical advice.
Business Property Relief and Agricultural Property Relief
As we have been proactively advising our clients since before the announcement of the cap to 100% relief claims, the updated £2.5m cap on 100% relief claims for either relief is effective from 6 April 2026. It is welcomed that any unused cap is now transferable between spouses and civil partners, which makes Will planning simpler in most cases.
Many clients prefer to gift into formal trusts, as opposed to gifting assets directly to individual recipients, given the practical benefits of maintaining control over the assets and mitigating the risk of the assets being subject to any divorce (or bankruptcy) proceedings the relevant beneficiaries may be party to in the future, amongst other risks. There is the ability to make gifts into a formal trust with a value in excess of the £2.5m cap/allowance tax-free before 6 April 2026 – which could be extremely valuable.
Given that beneficiaries of shares in unquoted trading companies and interests in trading partnerships, or death estates holding such assets, may need to sell the shares/interests to settle the inheritance tax liabilities, thought should be given to obtaining corporate legal advice to ensure that the governing documentation, (Articles of Association and shareholders’ agreements for limited companies, and partnership agreements for partnerships) are robust and enable shares/interests to be acquired smoothly. Additionally, the business or other partners/shareholders may want to consider insuring the lives of shareholders/partners to ensure funds are available to acquire the relevant shares/interests.
Trustees of trusts owning assets qualifying for 100% BPR and/or APR should consider their options given that the assets will be subject to inheritance tax charges in the future.
The increase in the cap and the ability to transfer unused cap between spouses/civil partners is welcomed, however, the below are key points to note:
- Many business owners and qualifying asset owners are under the misapprehension that their asset qualifies for 100% relief when it doesn’t – either not qualifying at all, qualifying for a reduced rate of relief or some element of the value not qualifying for any relief. These are particularly complex areas requiring specialist tax expertise. We’d recommend seeking the advice of a tax specialist to ensure that there are no surprises here, and if the entire value of the asset(s) do not qualify for 100% relief, that planning is carried out to maximise the position.
- Assets can cease to qualify for 100% APR and BPR for many reasons, which leads to a sizeable increase in an individual’s exposure to inheritance tax – a future sale of those assets, for example, when the value ceases to qualify on the signing of the sale documentation, or a change in the use of an asset. If such changes are possible, we would recommend seeking advice and implementing planning in order to mitigate the impact of losing the benefit of 100% relief in the future.
To read further information on APR and BPR please see are previous article here.
Pensions
See the ‘Pension drawdown’ section above.
Values in your pension fund at your death will pass to your nominated beneficiaries. We always strongly suggest that you check that you have made the relevant nomination(s) with the fund provider and that these are up-to-date. The above-mentioned inheritance tax changes will be a catalyst to review nominations that are in place.
Wills
The end of the tax year is a useful point to consider your succession/estate administration strategy.
Is you Will up to date? Review the terms of your Will and consider whether it needs updating. Consider making a Will if you have not made one to avoid the otherwise set manner in which your estate is distributed (and other reasons it is important to have a Will).
Our expert estate administration and probate specialists in our sister legal business RRL Wills, can assist here.
Lasting Powers of Attorney
If you do not already have Lasting Powers of Attorney in place, it would also be advisable to consider putting in place a Lasting Power of Attorney (LPA) for Property & Financial Affairs. An LPA is a legal document which enables you to appoint trusted individuals to act as attorneys, to assist you with your financial affairs should you require assistance in future, either due to physical or mental incapacity. Without an LPA if you become unable to manage your assets or make day-to-day decisions, through accident or illness, your assets will be frozen and no-one (including your spouse or civil partner) will have authority to manage your finances or make personal choices on your behalf.
You can also put in place an LPA for Health & Welfare appointing trusted individuals to make decisions in relation to social and medical matters should you be unable to make those decisions yourself.
Our solicitors in our sister legal business, RRL Wills, can assist here.
VAT
Registration threshold
Whilst not aligned with the tax year, the tax year-end is a useful point to ensure that you are recording your VATable income on a rolling 12 month basis, to track whether your VATable income in each 12 month period to the £90,000 VAT registration threshold.
Corporation Tax (and Tax for Businesses)
Capital allowances changes
From 6 April 2026, the main rate of capital allowance writing down allowances will reduce from 18% to 14%. A new permanent first-year allowance of 40% was introduced on 1 January 2026– which in practice, is only of benefit if the Annual Investment Allowance (AIA) or Full Expensing isn’t available – which won’t be common. Many clients in the SME market using the AIA.
The decrease in the main pool writing down allowance will impact businesses with sizeable main pool balances.
There are still some timing considerations around expenditure here – particularly for items that won’t qualify for the AIA or Full Expensing.
Corporation tax late filing penalties
Corporation tax return late filing penalties are increasing from 1 April 2026 – broadly, each of the current penalties will double.
Carbon Border Adjustment Mechanism (CBAM)
The CBAM will be introduced on 1 January 2027, which will apply to the importation of certain goods (initially including: iron and steel, aluminium, cement, fertilisers, electricity and hydrogen) into the UK. We’d suggest checking any liability for the CBAM on supply chains well in advance of the 1 January 2027.
Mandatory payrolling benefits
For employers providing benefits-in-kind (BIKs) to employees, ‘payrolling benefits’ will become mandatory from 6 April 2027. Discussions with your payroll provider should now take place to ensure that a plan is made to ensure compliance from 6 April 2027.
Please contact your Tax Advisor to discuss these topics in further detail.
