It's that time of year again. The government has announced the tax changes for 2025/26, and surprise surprise, most of them mean you'll be paying more tax.
Let me break down what's changing and what it means for your wallet.
Income Tax: The Big One
The income tax thresholds are staying frozen again. This is the government's sneaky way of increasing your tax bill without actually increasing tax rates.
2025/26 Income Tax Rates:
- Personal Allowance: £12,570 (frozen since 2021)
- Basic Rate: 20% on income £12,571 - £50,270
- Higher Rate: 40% on income £50,271 - £125,140
- Additional Rate: 45% on income over £125,140
What this means: If you got a 3% pay rise, you're probably paying more tax than last year even though the rates haven't changed. It's called fiscal drag, and it's brilliant for the Treasury, rubbish for you.
Scotland Still Different
If you live in Scotland, you've got your own rates:
- Starter Rate: 19% on income £12,571 - £14,876
- Basic Rate: 20% on income £14,877 - £26,561
- Intermediate Rate: 21% on income £26,562 - £43,662
- Higher Rate: 42% on income £43,663 - £75,000
- Advanced Rate: 45% on income £75,001 - £125,140
- Top Rate: 48% on income over £125,140
So if you're earning good money in Scotland, you're paying significantly more tax than someone in England. Lovely.
National Insurance: Some Good News
National Insurance rates stayed the same as the cuts from 2024:
- Employee NI: 10% on earnings £12,570 - £50,270
- Self-employed NI: 8% on profits £12,570 - £50,270
- Higher rate: 2% on earnings/profits over £50,270
Class 2 National Insurance for the self-employed was abolished completely, which saves about £180 a year if you're self-employed.
Capital Gains Tax: Ouch
This is where it gets painful. The CGT annual allowance has been slashed again:
- 2025/26 CGT Allowance: £3,000 (down from £6,000 in 2023/24)
- Basic Rate CGT: 10% (18% on property)
- Higher Rate CGT: 20% (24% on property)
So if you made £5,000 profit selling shares, you'll pay CGT on £2,000 of it. That's £200 tax if you're a basic rate taxpayer, £400 if you're higher rate.
CGT Planning Tip:
If you're married, you can transfer assets to your spouse before selling them. This effectively doubles your CGT allowance to £6,000 per couple.
Dividend Tax: Also Painful
The dividend allowance has been cut to ribbons:
- 2025/26 Dividend Allowance: £500 (down from £2,000 in 2023/24)
- Basic Rate: 8.75% on dividends
- Higher Rate: 33.75% on dividends
- Additional Rate: 39.35% on dividends
This particularly hurts company directors who pay themselves in dividends. If you're getting £10,000 in dividends, you'll pay tax on £9,500 of it.
ISA and Pension Allowances
Some good news - the main allowances stayed the same:
- ISA Allowance: £20,000 (£1,000 in Cash ISAs)
- Junior ISA: £9,000
- Pension Annual Allowance: £60,000
- Pension Lifetime Allowance: Abolished (finally!)
The abolition of the pension lifetime allowance is massive if you're a high earner. You can now save as much as you want in pensions without being penalised.
Other Changes Worth Knowing
Inheritance Tax
Still frozen at £325,000 (£650,000 for couples). With house prices where they are, more families are getting caught by IHT.
Student Loan Thresholds
The Plan 2 threshold is frozen at £27,295. If you're on Plan 5 (started uni after 2023), you start paying back at £25,000.
Marriage Allowance
Still £1,260, which can save you £252 a year if you're married and one of you doesn't use their full personal allowance.
What Should You Do?
Use Your Allowances
With allowances being cut, it's more important than ever to use them. Max out your ISA, use your CGT allowance, consider pension contributions.
Consider Timing
If you're planning to realise gains or take dividends, spread it across tax years to make the most of your allowances.
Look at Pensions
With the lifetime allowance gone, pensions are more attractive for high earners. The 40% tax relief is still excellent.
Think About Incorporation
If you're self-employed and earning good money, it might be worth incorporating. The tax on retained profits in a company is only 19%.
The Bigger Picture
Let's be honest - the tax burden is going up. Frozen thresholds, reduced allowances, and higher rates mean most people will pay more tax in 2025/26 than they did in 2024/25.
The government is trying to raise revenue without being too obvious about it. Freezing thresholds doesn't make headlines like increasing rates would, but it has the same effect.
This is why tax planning is more important than ever. Every allowance you don't use is money wasted. Every bit of tax relief you don't claim is a gift to HMRC.
Don't Panic
Yes, taxes are going up, but don't let it paralyse you. The fundamentals haven't changed:
- ISAs are still brilliant for tax-free growth
- Pensions still give you tax relief
- Earning more money is still better than earning less
- Building wealth is still possible
Just be smart about it. Use your allowances, plan ahead, and don't give HMRC any more than you have to.
The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing. - Jean-Baptiste Colbert