Tax in Practice – March 2026

Tax Overhaul Hits Home

The Autumn Budget 2025, delivered under the new Labour government, introduced or confirmed a package of tax rises and administrative reforms that take effect predominantly from 6 April 2026, the start of the 2026/27 tax year. These stem from efforts to raise revenue without increasing headline income tax rates on wages, while extending the freeze on personal allowances and thresholds until 2030/31—a stealth mechanism that pushes more people into higher bands as incomes rise with inflation.

Individuals face immediate pressure on investment income. Dividend tax rates increase: the ordinary rate jumps from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%, while the additional rate holds at 39.35%. The £500 dividend allowance remains unchanged, meaning even modest portfolios will incur higher liabilities. This hits company directors who extract profits via dividends and retirees dependent on share income.

Employees lose tax relief for additional homeworking costs if required to work from home, ending flat-rate £6 weekly claims or actual expense deductions from 2026/27—potentially affecting around 300,000 people who previously offset bills for heating or broadband.

Businesses and the self-employed confront Making Tax Digital (MTD) for income tax, mandatory from April 2026 for those with combined gross income over £50,000 from self-employment and property (dropping to £30,000 in 2027). This demands compatible software for digital records and quarterly HMRC updates, replacing annual self-assessment filings with more frequent compliance. Agents worry about government plans for mandatory registration and sanctions for poor conduct, adding regulatory burden amid HMRC service strains.

Inheritance tax changes are particularly disruptive for family enterprises. From April 2026, the longstanding 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) give way to a £2.5 million lifetime cap per individual (transferable between spouses), with 50% relief on excess value. This ends full exemptions for many farms and unlisted businesses, raising effective tax on transfers and complicating succession planning—especially where land or shares exceed the threshold after years of growth.

Tensions abound: the government frames these as fairer contributions from wealthier groups and closing loopholes, yet critics highlight disproportionate impacts on productive assets like farms, potential forced sales, and administrative costs of MTD that could outweigh revenue gains for smaller operators. The changes coincide with other adjustments, such as reduced main-rate capital allowances writing-down from 18% to 14% and a new 40% first-year allowance for certain expenditure, but the net effect tightens the tax take.

With the tax year turning over in weeks from late February 2026, advisers and affected parties scramble to model impacts before rules lock in.