A guide to key rates, thresholds and allowances for the 2025/26 tax year:
- Section 1: Pay and income
- Section 2: Child benefit and childcare
- Section 3: Assets and investments
- Section 4: Pensions
- Section 5: Business taxation
With the new tax year now in full effect, households across the UK face a range of tax changes that will impact their finances in the months ahead. Payslips at the end of the month will reflect new minimum wage rules, while pensioner income will also be higher thanks to the state pension uprating.
Meanwhile, businesses processing April’s payroll will need to factor in higher employer National Insurance costs.
After cuts to the dividend and CGT allowances in recent years investors will welcome a new tax year in which allowances remain the same for a change, while the government’s pledge to get more people investing in ISAs will be watched closely by investors and savers alike.
For more information about tax, pensions, investments and household finances, full contact details for AJ Bell spokespeople can be found below.
Income tax
The personal allowance, basic rate, higher rate and additional rate tax thresholds remain frozen for 2025/26.
Income tax thresholds have been frozen since April 2021, when they were last uprated with inflation for the 2021/22 tax year. Chancellor Rachel Reeves’ Autumn Budget said in April 2028 ‘personal tax thresholds will be uprated in line with inflation’. The additional rate threshold has been cut since the freeze began, falling from £150,000 to £125,140 in April 2023.
*The personal allowance is completely extinguished once earnings reach £125,140, with £1 of the personal allowance lost for every £2 of ‘adjusted net income’ above £100,000. This means there is a higher effective tax rate of 60% on earnings of £100,000-£125,140.
Employee National Insurance
Employee NI rates and thresholds remain unchanged for the coming tax year.
From 6 April 2024, the main rate of NI was cut by two percentage points from 10% to 8%. This followed a two percentage point cut in January 2024, meaning the main rate was reduced from 12% to 8% in a year.
*Those earning above the lower earnings limit but below the primary threshold will not pay NI, but are effectively treated as though they have. This means they obtain a qualifying year of NI contributions against their state pension eligibility record, for example.
Employer National Insurance
One of the chancellor’s most significant policy announcements at her inaugural Budget involved an overhaul of employer NI.
Employer National Insurance will rise to 15% and the secondary threshold (the level of salary at which employer NI begins to apply) falls to £5,000. The threshold is set to remain in place until April 2028, at which point it will increase in line with CPI.
The changes will add around £865 to the cost of employing someone earning £30,000, or £1,105 for a worker on £50,000.
However, the Employment Allowance will rise from £5,000 to £10,500. Eligible employers can deduct the sum from their employer NI bill, meaning some smaller companies will see an overall reduction in tax as a result of the measures.
Minimum wage
New rates took effect from 1 April 2025, with the National Living Wage increasing 6.7% to £12.21. The most significant increase comes for those age 18-20, with the hourly rate increasing over 16% to £10.
Section 2: Child benefit and childcare
Child benefit
Payable to households with children aged under 16, or under 20 if they remain in education, child benefit is increased for 2025/26. Parents registered for child benefit can receive National Insurance credits, meaning they obtain qualifying years for the state pension.
Child benefit high income tax charge
The high income child benefit charge is applied where child benefit is claimed and one or both parents have an income over £60,000.
Child benefit is withdrawn at a rate of 1% for each £200 of earnings over £60,000, meaning eligibility for child benefit is lost entirely where one partner earns £80,000 or more.
Previously child benefit was eroded at a rate of 1% per £100 of earnings from £50,000 to £60,000 up to and including the 2023/24 tax year.
‘Free’ childcare hours
The free childcare hours scheme continues to be expanded gradually, with the final stage set to be implemented from September 2025. Since September 2024, 15 free hours entitlement has been available to working parents of children aged from nine months old, while three and four year olds get the 30 hours.
In September 2025 the full entitlement to 30 free hours is extended to parents of children from nine months old. The funding applies from the term following that in which the child turns nine months.
Various eligibility criteria apply, with those earning over £100,000 able to access 15 hours of funding for three year olds but excluded from the full 30 hours for children from nine months.
Funding is available during term time (38 weeks), although in practice this can be spread throughout the year.
Tax-Free Childcare
Using a Tax-Free Childcare account, parents can obtain a £2 government top-up for every £8 paid in. The government payment is equivalent to basic rate tax relief and capped at a maximum £2,000 per year per child, or £4,000 for disabled children.
Once one partner earns over £100,000 families are no longer eligible for Tax-Free Childcare.
The scheme remains unchanged for 2025/26.
Section 3: Assets and investments
ISAs
All ISA annual subscription limits remain frozen at the current level and the Lifetime ISA bonus remains at 25%.
Minor reforms to ISAs in the past year mean it is now possible to subscribe to more than one of the same type of ISA in single tax year. For example, an individual can pay into two Stocks and Shares ISAs if they choose.
The government strongly indicated in its Spring Statement documents that ISA reform is on the table in the coming year, with a consultation possible ahead of the Autumn Budget.
AJ Bell has long campaigned for ISA simplification. You can read more about AJ Bell’s view on how the government should simplify the ISA landscape here.
*Lifetime ISAs can only be opened by those aged 18-39 and subscriptions can be made up until age 50. The maximum payment of £4,000 normally counts as part of the overall adult ISA subscription limit of £20,000.
Dividends
The dividend allowance was halved again last year, from £1,000 to £500, costing investors up to £197 in additional tax compared to 2023/24. In total, the two successive cuts to the dividend allowance since 2022/23 could cost up to £590 a year for additional rate taxpayers, £506 for a higher rate taxpayer and £131 for a basic rate taxpayer.
On 6 April 2022 rates were increased by 1.25% to 8.75%, 33.75% and 39.35% respectively for basic, higher, and additional rate taxpayers and remain at that level for 2025/26.
Capital gains tax (CGT)
CGT rates were increased in the Autumn Budget in October last year from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher and additional-rate taxpayers, effective immediately. For 2025/26, CGT rates remain the same:
- Basic-rate taxpayers: 18% for assets excluding main residence
- Higher and additional-rate taxpayers: 24% for assets excluding main residence
From 6 April 2025, the rate of CGT that applies to business asset disposal relief and investors’ relief increased from 10% to 14%. This is set to increase again on 6 April 2026 to 18%.
The CGT allowance was halved again last year from £6,000 to £3,000 and will remain the same in 2025/26.
Stamp Duty (property)
Temporary changes to reduce stamp duty ended in April 2025, meaning that the lower threshold has reverted to £125,000 from £250,000.
Labour has since confirmed that from October 2024 a further 5% surcharge applies to those buying an additional property. This is an increase from the previous 3% and will remain in 2025/26 tax year.
First-time buyers relief also changed in April, with the temporary increase since 2022 disappearing. From 1 April 2025, first-time buyers are still eligible for first time buyer’s relief, but with no stamp duty charged on only the first £300,000, provided the property costs less than £500,000. It is charged at the standard rate of 5% on the value of the purchase from £300,001 to £500,000.
*Up until 1 April 2025.
Personal Savings Allowance
The amount of savings interest that can be earned tax free remains frozen.
Rising interest rates on cash in recent years have meant many more households are paying tax on savings interest. An FOI request from AJ Bell revealed that in the tax year just ended HMRC estimates around 2.1 million people will owe tax on savings interest (source: AJ Bell FOI).
In many cases, people will not realise they owe the tax until they’re notified of an adjustment to their tax code.
*Individuals with income below £17,570 can receive up to £5,000 of interest tax free under the starting rate for savings. Every £1 of income above the £12,570 personal allowance reduces the starting rate for savings by £1.
Inheritance Tax (IHT)
Chancellor Rachel Reeves extended the freeze on IHT thresholds by two years until April 2030 at the Autumn Budget in 2024 and announced changes to agricultural property relief and business property relief due from April 2026. A consultation on applying IHT to unused pension funds on death is also ongoing.
IHT: The tax-free threshold remains frozen for 2025/26 at £325,000.
Levied on estates on death, IHT is charged at 40% of the value of the individual’s estate over the £325,000 nil rate band. The nil rate band is transferable between spouses, giving married couples a combined £650,000 free of IHT.
Residence nil rate band (RNRB): An additional £175,000 tax-free exemption enables married homeowners to benefit from a total £1 million IHT exemption. The RNRB also remains frozen for 2025/26.
State pension
During the Autumn Budget, the government confirmed that it will maintain the state pension triple-lock, with the state pension increasing by 4.1% for the 2025/26 tax year, in line with earnings growth.
Pension credit
The minimum guaranteed income paid to low-income pensioners has also increased by 4.1%.
Annual allowance
The annual allowance will stay the same at £60,000. It was increased from £40,000 in April 2023.
Lifetime allowance
The lifetime allowance (LTA) was abolished from 6 April 2024.
However, two key new allowances were introduced:
- An individual ‘lump sum allowance’ set at £268,275, measuring the tax-free cash taken over someone’s lifetime
- An individual ‘lump sum and death benefit allowance’ set at £1,073,100 – incorporating tax-free lump sums someone takes while alive, plus any serious ill health lump sum and lump sums paid out when they die
Money purchase annual allowance
The ‘money purchase annual allowance’ (MPAA) will remain at £10,000.
Tapered annual allowance
The tapered annual allowance reduces the available annual allowance for those who have income exceeding both the ‘adjusted income’ and ‘threshold income’. Adjusted income refers to all income, including bonuses, plus any pension contributions. Where this is over £260,000 individuals must check their threshold income, which allows for certain deductions to determine whether the individual is subject to the taper.
The minimum tapered annual allowance and ‘adjusted income’ limit will remain at £10,000 and £260,000 respectively. The ‘threshold income’ limit also remains unchanged at £200,000. Under the tapered annual allowance, for every £2 of adjusted income over this threshold, the individual’s annual allowance is reduced by £1. The maximum reduction will be £50,000, thus reducing the annual allowance to £10,000 for anyone with adjusted income of £360,000 or above.
Corporation tax
The rates of corporation tax will remain the same for the 2025/26 tax year.
*Companies with profits between £50,000 and £250,000 may be entitled to marginal relief.
VAT
VAT remains unchanged at 20%.