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Millions of households face higher tax bills despite the lack of any rise in the headline rate – or a financial reset to mitigate the impacts, according to Rathbones, a leading UK wealth and asset management firm.
From 6 April, frozen thresholds, shrinking allowances and tighter reliefs will increase the tax burden on workers, savers and families, according to Rathbones’ analysis . The impact will be felt just as a raft of household bills reset higher, compounding pressure at the start of the financial year.
Olly Cheng, Financial Planning Divisional Lead, at Rathbones, says: “A new tax year usually brings a clean slate, but this one marks a clear step up in so called stealth taxes. Frozen thresholds are quietly pulling more people into higher tax bands, meaning more households will pay more tax, often without realising it.
“Add in higher council tax, water bills and telecoms costs, and it becomes a series of smaller hits adding up. The danger is people don’t feel the squeeze until the year is already underway, which is why it’s so important to take stock* before and after the new tax year to get finances in the best possible shape.”
Income tax: the £100,000 tax trap widens
Income tax rates remain unchanged, but frozen thresholds (until at least 2031) are intensifying fiscal drag in the new tax year.
HMRC estimates obtained by Rathbones show a record 2.06 million people will earn over £100,000 in 2026/27, up from 1.95 million this year and just 1.22 million in 2021/22. That means around 6% of the workforce will start the year in, or close to, the £100,000 tax trap.
Crossing £100,000 triggers the tapering of the personal allowance, creating an effective 60% marginal tax rate (around 62% including National Insurance) on income between £100,000 and £125,140.
Olly Cheng says: “A new tax year is meant to be a clean slate, but for many higher earners it marks the point at which pay rises and bonuses turn into a tax shock. Frozen thresholds mean more people are starting this tax year already exposed to punitive marginal rates.”
Inheritance tax: 3,500 estates could be facing £500,000+ bills
The new tax year also begins with inheritance tax thresholds still firmly frozen (£325,000 nil rate band and £175,000 residence nil rate band) despite any possible rise in property and asset values.
FOI data obtained by Rathbones shows 2,520 estates paid more than £500,000 in IHT in 2021/22, nearly one in 10 taxable estates, representing a 29% increase in just three years. If current trends continue, more than 3,500 estates could face £500,000+ IHT bills by the end of the current tax year.
Olly Cheng says: “Each new tax year quietly brings more families into the inheritance tax net. With thresholds frozen and asset values rising, IHT is no longer just a concern for the ultra-wealthy. The issue is set to intensify from April 2027, when pension assets are brought into scope - a change that could pull even relatively modest estates into the IHT net. This makes it increasingly important for families to engage in effective financial planning.
“Conversations with clients show a strong desire to gift now to help reduce future IHT bills. There is added impetus to act sooner rather than later, as many want to support their children and grandchildren facing far greater financial pressures than previous generations — from getting onto the property ladder and paying university fees to coping with broader cost of living challenges.”
Dividend tax hike hits investors and business owners
From 6 April, dividend tax increases by two percentage points for most investors, tightening the tax net on income held outside ISAs and pensions:
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Basic rate: 8.75% to 10.75%; Higher rate: 33.75% to 35.75% Additional rate: remains 39.35%
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Dividend allowance: remains just £500
Isabella Galliers-Pratt, Senior Investment Director at Rathbones, says: “With the dividend allowance now just £500 and tax rates rising from April, far more dividend income is being taxed than in the past. For investors, that makes where assets are held - inside or outside ISAs and pensions - more important than ever. For business owners who pay themselves via dividends, it doesn’t end the salary and dividend model, but it does mean the numbers need checking more carefully, as the tax advantage has narrowed.”
AIM shares and VCTs tax benefit reduced
The new tax year also marks a clear turning point for tax efficient investing:
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Inheritance tax relief on qualifying AIM shares is cut from 100% to 50%, creating an effective 20% IHT charge after two years of ownership.
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Upfront income tax relief on Venture Capital Trusts (VCTs) falls from 30% to 20%.
A £1 million AIM portfolio that could previously pass on tax free could now face a £200,000 inheritance tax bill if the investor dies after April 2026.
Isabella Galliers-Pratt says: “AIM shares and VCTs haven’t lost their place entirely, but the tax advantages that once justified the risk have been diluted. For many investors, the sums involved, including the prospect of a six-figure inheritance tax bill, mean these decisions now demand far more scrutiny.”
What people should check before and after 6 April
Olly Cheng says:
Before 6 April
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Income around £100,000: Check whether bonuses, pay rises or benefits could tip total income over £100,000, triggering the loss of the personal allowance and a 60% marginal tax rate.
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ISA and pension allowances: Make use of remaining allowances before they reset, particularly where savings or investments sit outside tax efficient wrappers. Where relevant, couples may also want to consider using a spouse or civil partner’s unused ISA and pension allowances, which can help shelter more income and gains from tax.
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Dividend income: Review how much dividend income is being generated outside ISAs and pensions ahead of higher dividend tax rates taking effect.
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Inheritance tax exposure: Take stock of estate values, particularly where rising property prices may have pushed estates closer to inheritance tax thresholds.
After 6 April
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Take home pay: Check payslips to understand the real impact of frozen tax thresholds and National Insurance on net income.
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Savings and investments: Re evaluate where assets are held now higher dividend taxes and reduced reliefs for AIM shares and VCTs have come into force. Couples may want to review how assets are split between partners, to ensure both personal allowances, ISA allowances and tax bands are being used as efficiently as possible.
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Pension planning: Treat the new tax year as a planning window ahead of the forthcoming change that will bring unused pension pots into inheritance tax calculations from 2027 - including whether pension contributions can be shared more effectively between partners.
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Household budgets: Factor in higher council tax, water bills and other rising costs that tend to reset at the start of the financial year.
