WHAT’S NEW FOR THE 2026 TAX YEAR!
With a change in the Government in the Summer of 2024, the Autumn Budget, and tax announcements in the recent Spring Budget, as well as measures announced by the previous Government, there are several tax changes that came into effect at the weekend, impacting both businesses and individual taxpayers.
As a refresher, and consolidation of the changes, we have summarised the main ones that we believe will impact our client base below.
INCREASE IN EMPLOYERS NATIONAL INSURANCE CONTRIBUTIONS (“NIC”)
One of the biggest changes announced in the Budget was the 1.2% increase in employers NIC, which impacts all employers.
At the same time, the employment allowance has been increased to £10,500 from £5,000, together with the £100,000 threshold having been removed, expanding the allowance to benefit more employers, but for the majority not significant enough to mitigate the increase. Please make sure you claim the employer allowance, which must be claimed, it is not an automatic and it surprises us, how many clients miss the allowance. For employers with a certain level of apprentices, an employer doesn’t have to pay employers NIC on these individuals, so review your workforce.
Salary sacrifice is a way that the NIC increase can be mitigated, further details can be found HERE.
LATE PAYMENT INTEREST RATE & PENALTIES INCREASE
HMRC interest rates for late payments will be increased by 1.5% for all taxes from 6 April 2025, which means a rate of 8.5% will be due in future. The rate is calculated at base rate plus 4%, up from the current plus 2.5% premium.
Late payment penalties have also increased to 10% from current 4% effective from 1 April 2025. The slowest payers will face a more than doubling in the current penalty rate. Penalties for late payments of income tax under self-assessment will be increased, with those failing to pay within a month facing a 10% penalty, more than double the current rate. This regime will also be applied to VAT late payment penalties.
We have contacted our clients who we are aware have outstanding tax payments, but if we have missed you, or you have missed our email, we would advise that, where you can, you take action to settle your liabilities (many previously delayed paying tax, as it had been cheaper to borrow from HMRC by non-payment, rather than a commercial lender), or if you can’t pay, contact HMRC for a payment plan.
BENEFICIAL LOAN INTEREST (AKA OVERDRAWN LOAN ACCOUNTS)
HMRC has increased the ‘actual official rate’ for beneficial loan arrangements from 2.25% to 3.75% from 6 April 2025, the highest rate since 2014, when interest is calculated using the ‘precise method’. This is the interest charged to calculate the benefit in kind charge, on an interest free loan, a shareholder, director, or close relative may take from their company.
However, the rate for loans repaid using the ‘averaging method’ for 2025-26 tax year has not been confirmed, currently at only 2.25%, making loans calculated under this method, very favourable when compared to the Bank of England base rate of 4.5% and the cost of commercial loans from banks. (We are sure HMRC will catch this area up at some point).
CAPITAL GAINS TAX – BUSINESS ASSET DISPOSAL RELIEF
For shareholders who hold qualifying shares or assets, the Business Asset Disposal Relief (BADR) available on the sale where a chargeable gain arises (commonly referred to as the 10% tax rate) has increased by 4% from the previous 10% at the weekend, to a standard rate of 14%, before increasing again in April 2026 to equalise with the main lower rate of 18% Capital Gains Tax.
The lessor known relief, Investor’s Relief, also increases in the same way.
FURNISHED HOLIDAY LETS
Announced by the previous Government, taxable profit arising from the rental of Furnished Holiday Lets (FHL) will be treated the same as long-term lets from 6 April for individuals, Trusts and Partnership. This means an FHL will no longer be eligible for full tax relief re financial costs and the restrictions applying as they have done for a number of years in respect of the normal rental market, and the beneficial Capital Allowances treatment has ended.
More details re the changes can be found at our news article HERE.
ELECTRIC CARS
The Benefit in Kind for company cars is calculated based on the car's C02 emissions and the list price of the vehicle, the higher the emissions, the higher the percentage to give the taxable benefit. For electric cars (zero emissions), has been fixed at 2% for several years, this increased to 3% at the weekend, and will increase each year by 1%.
In addition, electric cars registered on or after 1 April 2025, will have to pay road tax, as zero-emission cars incurring the lowest first-year rate at £10 until 2029-30. However, the charge increases, with a supplemental tax on vehicles priced over £40,000, commonly referred to as the ‘luxury car tax,’ although its official name is the ‘Expensive Car Supplement.’
Under the Expensive Car Supplement, any car that costs more than £40,000 registered after 1 April 2025, will pay an additional £425, whether it is zero emission or not.
DOUBLE CAB PICK-UPS
The tax treatment for double cab pick-ups has now changed, from the previous favourable tax treatment as a Commercial Vehicle, to Company Car Treatment.
This means the Government will treat double cab pick-up vehicles with a payload of one tonne or more as cars for certain tax purposes, the Benefit in Kind charge being calculated based on emissions, and many being diesel, paying the diesel 4% surcharge in addition to the normal taxable benefit calculation. More details can be found HERE.
NON-UK DOMICILES
For Non-UK Domiciles, the Remittance Basis rules have been abolished and switched to a system based on Tax Residence. Therefore, individuals who have been able to avoid/mitigate Income Tax, and Capital Gains on Offshore Income not brought in to the UK, will now pay tax on their Worldwide Income.
A new temporary repatriation facility for previous remittance basis users will also be introduced. This means Non-UK Domiciles with historic untaxed Foreign Income and Gains (“FIG”) arising prior to April 2025 will be able to pay reduced tax as a one-off payment on some or all that FIG. A Capital Gains Tax (CGT) re-basing for disposals made on or after 6 April 2025 on personally owned assets held since at least 5 April 2017 will also be available.
For Inheritance Tax purposes, if someone is UK Resident for Income Tax purposes in the UK for 10 out of those 20 years, then they will be treated as being a long-term resident for Inheritance Tax and taxed accordingly on the value of their worldwide assets.
Those impacted by the changes, should review their position, as to whether the repatriation facility should be used, based on their long-term future plans, as to staying in the UK.
BUSINESS PROPERTY RELIEF/AGRICULTURAL RELIEF
Not a change for April 2025, but if missed the announcement, Inheritance Tax planning needs to be considered. Business Property Relief is the tax relief that protects qualifying business assets from Inheritance Tax. From April 2026 the relief will be capped at a lifetime allowance of £1m, and any value above the £1m cap will be subject to Inheritance Tax at 20%.
The same rules will apply to assets that qualify for Agricultural Relief.
These changes are under consultation, and when more details are known, we will provide more details.
Should you need to discuss any of the tax changes, please do not hesitate to contact the offices.
