Six Major Tax Changes Coming This April: What You Need to Know

As we approach the end of another tax year on April 5th, significant changes are on the horizon that could substantially impact your financial situation. With just days remaining to maximize your current tax allowances—including the £20,000 ISA contribution limit—it’s crucial to understand what’s changing and how these adjustments might affect your wallet. From digital reporting requirements to inheritance tax modifications and dividend rate increases, the upcoming tax year brings a mixed bag of reforms that will touch different groups of taxpayers in various ways. Let’s break down these six major changes in plain language so you can plan accordingly.

Going Digital: The New Reality for Self-Employed Workers and Landlords

Starting April 6th, sole traders and landlords earning more than £50,000 from their businesses or rental properties will be required to use the Making Tax Digital system. This represents a fundamental shift in how the UK government wants people to manage and report their tax affairs. Rather than the traditional once-a-year scramble to compile receipts and complete tax returns, you’ll need to keep digital records throughout the year and submit quarterly updates to HMRC using approved software.

Under this new regime, sole traders will need to file at least five separate updates annually: four quarterly reports detailing income and expenses, plus an end-of-year tax return. If you’re both self-employed and a landlord, you’re looking at potentially double the paperwork—and that’s before considering any VAT returns you might owe. It sounds daunting, but the rollout is gradual. Initially, only those earning above £50,000 must comply, with the threshold dropping to £30,000 next April, which will affect an estimated 970,000 additional people.

The good news is that HMRC recognizes this is a significant change, so there are free software options available to help manage the transition. Once you’ve recorded your income and expenses, the software automatically generates summaries to send to HMRC, making the actual submission relatively straightforward. The penalty system has also been designed with some forgiveness built in—you’ll receive penalty points for late submissions, but you won’t face an actual £200 fine until you’ve accumulated four points. This means occasional mistakes or missed deadlines won’t immediately hit your bank account, giving you some breathing room as you adjust to the new system.

Inheritance Tax: Changes for Farmers and Extended Freezes for Everyone Else

Inheritance tax is changing in ways that particularly affect agricultural businesses while maintaining the status quo for most other people. For farmers, a new relief structure is being introduced with a £2.5 million cap before inheritance tax kicks in. For assets above this threshold, a 50% tax relief will apply. This represents a significant improvement from the original £1 million cap proposed in last year’s autumn budget—the government increased it to £2.5 million following widespread protests from the farming community who argued the lower threshold would force families to break up farms that had been passed down through generations.

For everyone else, the inheritance tax landscape remains largely unchanged, though the freeze continues. The basic inheritance tax threshold sits at £325,000, a figure that hasn’t budged since 2009 and will now remain frozen until 2030. This ongoing freeze effectively represents a stealth tax increase, as property values and other assets generally increase over time, meaning more estates gradually creep over the threshold despite no actual change in the rate or allowance.

To understand how inheritance tax works: if your estate is valued below £325,000 when you die, your beneficiaries won’t owe any inheritance tax. The same applies if you leave everything to your spouse, civil partner, or certain charities. However, for estates above this threshold, the portion exceeding £325,000 is taxed at 40%. For example, if someone passes away leaving an estate worth £400,000, only £75,000 of it would be taxable, resulting in a £30,000 tax bill (40% of £75,000). Given inflation and rising property values over the past 15-plus years, this frozen threshold means inheritance tax is increasingly affecting middle-class families who never considered themselves wealthy enough to worry about it.

Dividend Tax Increases: Bad News for Shareholders

If you receive income from company shares, prepare for a hit to your returns. Dividend tax rates are climbing across the board from April 6th. The tax-free dividend allowance remains at just £500 (already quite low), but the rates you’ll pay on income above this threshold are increasing significantly. Basic rate taxpayers will see their dividend tax rate jump from 8.75% to 10.75%, while higher rate taxpayers face an even steeper increase from 33.75% to 35.75%.

To put this in concrete terms: according to AJ Bell’s senior pensions and savings expert Charlene Young, basic and higher rate taxpayers will pay £390 more in tax on £20,000 worth of dividends compared to last tax year. For many people who have built investment portfolios as part of their retirement planning or who supplement their income with dividend payments, this represents a meaningful reduction in their take-home returns. Company directors who pay themselves partly through dividends—a common tax-efficiency strategy for small business owners—will also feel the pinch, as their effective income will decrease unless they adjust their payment structures.

This change reflects the government’s broader approach to raising revenue without touching the headline income tax rates, instead targeting specific types of income that affect smaller (though often better-off) segments of the population. For investors, this underscores the importance of making full use of tax-advantaged accounts like ISAs, where dividend income remains completely tax-free regardless of how much you earn.

Venture Capital Trust Relief Gets Slashed

If you’re an investor interested in supporting high-risk, high-reward start-up companies through Venture Capital Trusts, your tax incentive is being cut significantly. The upfront income tax relief for VCT investors is dropping from 30% to 20% in the new tax year. VCTs are specialized investment companies listed on the London Stock Exchange that channel money into smaller, younger firms with substantial growth potential but also considerable risk.

For someone maximizing their VCT investment at the full £200,000 allowance (the maximum permitted), this change could mean up to £20,000 less in tax relief—a substantial difference that may make these investments less attractive despite their other benefits. VCTs offer advantages including tax-free dividends and no capital gains tax on profits when you sell, but the reduced upfront relief diminishes one of their key selling points.

Charlene Young notes that the government hasn’t simply made VCTs less attractive across the board—they’ve also relaxed eligibility rules for companies seeking VCT funding, meaning more start-ups can now apply for this type of investment. This suggests the government is trying to maintain overall investment levels in the small business sector while reducing the Treasury’s upfront cost. For investors, the calculation becomes more complex: are the remaining tax benefits and growth potential sufficient to justify the increased risk, especially with 10% less upfront relief?

Capital Gains Tax on Business Sales Increases

Entrepreneurs and investors selling businesses or business assets face higher taxes from April 6th. The capital gains tax rate applying to business asset disposal relief and investors’ relief is rising from 14% to 18%. This four-percentage-point increase directly impacts anyone selling a business, business shares, or other qualifying assets, meaning they’ll keep less of their profit.

Capital gains tax applies to the profit you make when selling, gifting, or disposing of an asset that has increased in value—you’re taxed on the gain, not the total sale price. For most assets, the rates are actually higher: 24% on residential property gains, 32% on carried interest for investment fund managers, and 24% on other chargeable assets. Business asset disposal relief was specifically designed to encourage entrepreneurship by offering a lower rate for qualifying business sales, recognizing that people often pour years of work and risk into building businesses.

Even with this increase to 18%, business asset disposal relief still offers a better rate than the standard capital gains tax rates, but the gap is narrowing. For someone selling a business for a substantial sum—say, a £500,000 gain—this four-point increase means an extra £20,000 in tax. This could influence timing decisions for business owners considering selling, as some might try to complete sales before April 6th to capture the lower rate. It also affects long-term planning for entrepreneurs, who may need to adjust their expected after-tax proceeds when considering exit strategies.

Working from Home Tax Relief Ends

Finally, for the millions who embraced remote work during and after the pandemic, there’s disappointing news: the tax relief for working from home is being discontinued. Currently, if you must work from home (not simply because you prefer to, but because your job requires it), you can claim tax relief on extra household costs like business phone calls and the gas and electricity for your work area. The relief is calculated as a flat £6 per week, with the actual benefit depending on your tax rate—a basic rate taxpayer gets £1.20 weekly (20% of £6), which adds up to about £62 per year.

While this isn’t a huge amount of money for most people, it represented recognition that working from home does create additional household expenses. For many workers, losing this relief feels like a step backward, especially as remote and hybrid work arrangements have become permanent features of the employment landscape rather than temporary pandemic measures. The £6 weekly allowance was deliberately kept simple to make claiming straightforward, but its removal suggests the government views widespread home working as sufficiently established that it no longer warrants special tax treatment.

As these six changes take effect, the best approach is to review your personal circumstances and consider how each might apply to you. With a couple of days remaining in the current tax year, there’s still time to maximize existing allowances—whether that’s topping up your ISA, considering VCT investments at the current higher relief rate, or planning business asset sales. Tax planning isn’t the most exciting topic, but understanding these changes can save you significant money and help you make informed financial decisions throughout the coming year.