Dreadful April: brace yourself for a wave of predatory tax hikes

Tuesday, March 31, 2026 2:47 pm

April is here and the new tax year will bring a range of tax hikes, albeit with no headline rate hikes, with frozen thresholds, shrinking wages and strong profits hitting families, workers and savers.

The negative impact will also be felt as Brits are hit by a wave of rising household debt, adding to financial pressure and coming at a time of heightened uncertainty amid the economic fallout from the Iran war.

Olly Cheng, head of financial planning at Rathbones, said: “A new tax year usually brings a clean slate, but this marks a clear step up in so-called tax evasion.

“Chilling opportunities quietly drag more people into higher tax brackets, which means more families will pay more tax, often without realizing it.

“The danger is that people don’t feel that there are problems until the year is already underway, which is why it is so important to check the money before and after the new tax year to get the money in the right way.”

Tax trap

In the run up to the Autumn Budget 2025, the discussion about the tax trap gathered pace with families scrambling to organize their finances in order to avoid being dragged into the higher tax bracket.

Income tax rates remained unchanged from last year’s Budget but the limit will remain in place until at least 2031, further increasing financial stress.

HMRC estimates show that a record 2 million people will earn more than £100,000 next tax year, up from 1.9 million this year, meaning six per cent of workers will start the year before or at the end of the tax trap.

Crossing the threshold causes income to be reduced, creating an effective 60% tax rate on income between £100,000 and £125,140, ​​and the income becomes a “tax emergency”.

Inheritance tax bill

The tax year also starts with inheritance tax (IHT) rates, at £325,000 nil rate band and £175,000 of housing there is no rate, regardless of any potential rise in property and property values.

Rathbones estimates that more than 3,500 estates could face IHT bills exceeding £500,000 by the end of the current tax year, up from 2,520 estates in the 2021 to 2022 tax year.

Cheng said: “Each new tax year brings more families quietly into the inheritance tax court.

“The situation is set to get worse from April 2027, when pension assets are brought into line, a change that could attract even lower estates to the IHT net.

“There is more motivation to act sooner rather than later, as many want to support their children and grandchildren who are facing greater financial pressures than previous generations, from acquiring property and paying university fees to coping with the high costs of living.”

Share with VCTs

Dividend tax is also set to rise by two per cent for most investors, tightening tax on income held outside of tax-free pensions such as pensions and ISAs.

Taxpayers will drop from 8.75 percent to 10.75 percent, while taxpayers will increase from 33.75 percent to 35.75 percent.

Taxpayers will continue to hit 39.35 percent.

The increase also means that business owners who sacrifice income should scrutinize the numbers “very carefully as tax benefits are reduced”.

Meanwhile, VCT tax relief will be reduced from 30 per cent to 20 per cent and inheritance tax relief on eligible AIM shares will drop from 100 per cent to 50 per cent.

Isabella Galliers-Pratt, investment director at Rathbones, said: “AIM shares and VCTs have not lost their place entirely, but the tax benefits that once justified the risk have been reduced.

What to do before April 6

For those with an income of around £ 100,000 it is wise to check bonuses, salary increases or benefits that can give the total amount over the limit. Another option is to see if there are salary sacrifice schemes in place to lower income tax, although these schemes are also being reviewed by the Chancellor.

Use the remaining ISA allowances before the reset, especially on those held outside of tax, including dividend income.

Savers can also look to reduce their inheritance tax exposure by taking stock of property values, as rising property prices can push estates closer to the threshold of inheritance tax.