The 2025-26 tax year brought a significant package of changes that affect millions of UK taxpayers, employers, and investors. While headline tax rates for individuals remain unchanged, the cumulative impact of frozen thresholds, reduced allowances, and higher employer costs represents a substantial shift in the overall tax burden. Here is a plain-English guide to everything that changed.
Frozen Income Tax Thresholds
For the fifth consecutive year, the personal allowance remains fixed at £12,570 and the higher-rate threshold stays at £50,270. These thresholds have been frozen until at least April 2028.
This freeze is commonly called “fiscal drag” — as wages grow with inflation, more income falls into higher tax bands even though the rates themselves have not changed. The result is a stealth tax increase affecting anyone whose pay has risen since 2021.
- Personal allowance: £12,570 (unchanged)
- Basic rate band: £12,571 – £50,270 (20%)
- Higher rate band: £50,271 – £125,140 (40%)
- Additional rate: over £125,140 (45%)
Scottish taxpayers face different income tax rates and bands set by Holyrood. See our Scottish income tax guide for details.
Employer National Insurance: A Major Increase
Perhaps the biggest single change in 2025-26 is the increase in employer National Insurance. From April 2025:
- The employer NI rate rose from 13.8% to 15%
- The secondary threshold (the wage level at which employer NI kicks in) was cut from £9,100 to £5,000 per year
These two changes together significantly increase the cost of employing people. A full-time worker on £30,000 now costs their employer roughly £1,900 more in NI contributions per year compared with 2024-25.
To soften the blow for smaller businesses, the Employment Allowance increased from £5,000 to £10,500, and the £100,000 employer NI cap that previously limited eligibility was removed. Eligible businesses can now offset £10,500 of their employer NI bill — but larger businesses and single-director companies still face the full increase.
Dividend Allowance: Now Just £500
The tax-free dividend allowance continues its steep decline. For 2025-26 it stands at £500, down from:
- £2,000 in 2022-23
- £1,000 in 2023-24
- £500 in 2024-25 (and continuing)
This change most directly affects company directors who pay themselves through dividends and investors with shares held outside an ISA or pension. Anyone receiving more than £500 in dividends must pay tax on the excess at:
- 8.75% (basic rate taxpayer)
- 33.75% (higher rate taxpayer)
- 39.35% (additional rate taxpayer)
The practical response for most investors is to use the £20,000 ISA allowance first — dividends within an ISA are completely tax-free.
Capital Gains Tax Annual Exemption: £3,000
The CGT annual exemption — the amount of gains you can make tax-free each year — has been slashed from £12,300 in 2022-23 to just £3,000 for 2025-26. This is where it has remained since 2024-25.
CGT rates for 2025-26 are:
- 18% (basic rate, residential property)
- 24% (higher/additional rate, residential property)
- 18% (basic rate, other assets)
- 24% (higher/additional rate, other assets)
Note: CGT rates on assets other than residential property were increased in the Autumn 2024 Budget, aligning them more closely with property rates.
Anyone selling investments outside an ISA or pension now has much less headroom before triggering a tax bill. Couples should remember they each have their own £3,000 allowance and can transfer assets between themselves tax-free to make the most of both.
Stamp Duty: First-Time Buyer Changes
The temporary stamp duty relief for first-time buyers that was introduced in September 2022 ended on 31 March 2025. From 1 April 2025, the original thresholds were restored:
- First-time buyers pay SDLT from £300,000 (down from the temporary £425,000 threshold)
- The maximum property value to qualify for first-time buyer relief fell from £625,000 back to £500,000
This means a first-time buyer purchasing a property at £425,000 now pays significantly more stamp duty than they would have done before April 2025. The change is particularly significant in London and the South East where property prices are higher.
ISA Allowances: Unchanged
The overall ISA allowance remains at £20,000 for 2025-26. Given the reductions in dividend and CGT allowances, making full use of your ISA is more important than ever. Any returns — whether income, dividends, or capital gains — generated within an ISA are completely tax-free.
The Lifetime ISA limit (for first-time buyers or retirement) remains at £4,000 per year within the overall £20,000 ISA limit, with a 25% government bonus up to £1,000.
Pension Annual Allowance
The pension annual allowance remains at £60,000 for 2025-26 (or 100% of your earnings if lower). Pension contributions are still one of the most tax-efficient ways to save, as they reduce your taxable income and the money grows free of income tax and CGT inside the wrapper.
High earners (with income over £260,000) face a tapered annual allowance, which can reduce the limit to as low as £10,000. See our pension tax relief calculator for a personalised figure.
What This Means in Practice
The combined effect of these changes for a typical higher-rate employee on £60,000:
- Frozen thresholds mean they pay more income tax than they would have if thresholds had risen with inflation
- If their employer has reduced headcount or held back pay rises to absorb the NI increase, they may feel that indirectly too
- If they hold shares outside an ISA, the lower CGT exemption and dividend allowance increase their investment tax bills
Key actions to consider:
- Maximise your ISA contribution (£20,000 per year)
- Make pension contributions to reduce taxable income
- If you are a company director, review your salary/dividend split with an accountant
- If you are a higher earner, check whether you are affected by the tapered pension allowance
- Couples should consider transferring income-producing assets to make use of both personal allowances
Use our income tax calculator to see exactly how much tax you will pay in 2025-26 based on your own salary.