The 2025-26 UK tax year was the first lived fully under the package of reforms announced in Labour's first Budget on 30 October 2024. The employer National Insurance rate moved to 15% with a £5,000 secondary threshold from 6 April 2025. The Business Asset Disposal Relief rate moved from 10% to 14% on the same date. The Furnished Holiday Let regime was abolished. The non-dom remittance basis was replaced by the four-year foreign income and gains regime. The Employment Allowance rose to £10,500. The Stamp Duty Land Tax additional dwellings surcharge had already moved to 5% from the previous October.
This is our settled view, written in the fourth week of April 2026, of what 2025-26 delivered and what it taught us about life under the new regime.
Employer NIC — the first full year at 15%
The combined impact of the employer NIC rate rise to 15% and the secondary threshold drop to £5,000 produced the most substantial increase in the cost of employment in a decade. For employers below the Employment Allowance ceiling, the £10,500 allowance largely absorbed the rate increase. For employers above that level, the impact was real and had to be managed through pricing, headcount, hours, or productivity. The proportional impact was heaviest on businesses with large lower-paid workforces — hospitality, retail, social care, and parts of leisure — where the threshold drop affected a larger share of each employee's pay.
Our business advisory team supported clients through three rounds of price review during the year, particularly in service businesses where the employer NIC change had to be passed through to clients to preserve margin. Several clients took the opportunity to review working patterns, automation investment, and outsourcing — long-deferred conversations that the NIC change finally crystallised.
BADR at 14% — the new baseline
The first BADR-qualifying disposals at the 14% rate completed during the year. The discipline of confirming qualifying conditions remained the dominant theme. For owner-managers facing the 14% rate and contemplating whether to bring a disposal forward before the 18% rate takes effect from 6 April 2026, the cost-benefit calculation became a substantial planning conversation in autumn 2025 and winter 2025-26. The lifetime limit of £1 million per individual continued to anchor the planning.
The non-dom regime in its first year of replacement
The four-year foreign income and gains regime took effect from 6 April 2025. For UK arrivers with at least ten consecutive years of non-UK residence, the first four years of UK residence carried full UK exemption on foreign income and gains. After four years, full UK taxation on worldwide income and gains applies. The Temporary Repatriation Facility — allowing pre-6 April 2025 foreign income and gains to be brought to the UK at a 12% rate — ran for transitional years with rates adjusted across the window.
The inheritance tax shift from a domicile-based system to a residence-based system fundamentally changed the planning conversation for our Canary Wharf clients with international family wealth and our Dubai clients with UK ties. The general rule is that an individual becomes a "long-term UK resident" after a defined period of UK residence and remains within the IHT net for ten years after departure. The detailed application of the residence test occupied substantial advisory time during the year.
FHL abolition — the first year
The Furnished Holiday Let regime was abolished from 6 April 2025. FHL properties are now treated as ordinary property income for income tax, capital gains tax, and capital allowance purposes. The capital allowance position of pre-existing FHL properties — what survives the transition and what does not — produced detailed technical questions that we worked through in collaboration with specialist tax counsel for several portfolio clients.
What is approaching in April 2026
The 2025-26 tax year ended with several substantial changes already legislated to take effect from 6 April 2026. The BPR and APR cap at £1 million per estate takes effect, with the relief rate falling to 50% above the cap. The BADR rate rises from 14% to 18%. The AIM share BPR rate falls to 50%. Pension pots are confirmed to enter the IHT net from 6 April 2027. The personal allowance and higher rate threshold freezes remain in place until April 2028.
For family business clients, the BPR cap timetable produced the most intensive planning year we have worked through. Family investment company structures, employee ownership trusts, share class redesigns, and lifetime trust planning have all featured heavily in our engagements through 2025-26. The seven-year potentially exempt transfer cumulation rule continues to constrain the value of last-minute lifetime gifts — gifts made in March 2026 are still very much inside the seven-year window at the 2026 effective date.
Personal tax — fiscal drag continues
The personal allowance remained at £12,570 and the higher rate threshold at £50,270 — both frozen since April 2021 and now in their fifth and final year of freeze. The additional rate threshold remained at £125,140. With cumulative wage growth across the five-year freeze period running materially above zero, the share of the workforce paying higher rate tax has risen substantially. The 60% effective marginal rate on income between £100,000 and £125,140 — produced by the personal allowance taper — has continued to be a focus of our personal tax planning conversations.
The dividend allowance remained at £500 and the CGT annual exempt amount at £3,000 — both effectively rounding rather than planning tools. The salary-versus-dividend optimisation, which had become substantially less generous over the five-year period, continued to shift fractionally year-on-year.
Corporation tax in its third full year
The two-tier corporation tax system, marginal relief in the £50,000 to £250,000 band, and permanent full expensing all continued through 2025-26 without further structural change. The 25% main rate and 19% small profits rate remained in force. Associated company reviews continued to feature in every year-end engagement. The merged R&D scheme entered its second full year of operation and the rebuilt claim methodologies began producing the first complete-year picture of effective relief rates under the new system.
The verdict
The 2025-26 tax year was the first to be lived fully under Labour's October 2024 settlement and the first to demonstrate how the various measures interact in practice. For owner-managed businesses, employers, family business owners, and internationally mobile clients, the year produced a substantial volume of planning work — most of it concentrated in the run-up to the 6 April 2026 changes.
If you would like a structured 2025-26 retrospective applied to your own position, book a planning call with our team.