Everyone was bracing themselves for what Chancellor Rachel Reeves might drop in the Autumn announcement. In the end, it was a bit of a damp squib. Still, there are a few things nursery owners, especially those thinking of selling in the next few years, should keep on their radar.
Taxes, taxes
The first biggie is tucked behind changes to the dividend tax rate. Dividend tax sits under the income tax umbrella. This matters for nursery owners trading as limited companies, as well as anyone taking dividends through a company structure, which is pretty common these days.
Two main things to note.
Firstly, basic and higher dividend rates are going up by 2 percentage points in April 2026. Someone earning £130,000 per year will pay about £2,376 more in tax based on a standard tax code. The additional dividend rate stays put at 39.35%.
On the flip side, income from property and savings is also jumping by 2% across all bands. If you have multiple properties or chunky investments sitting pretty, now is the time to recheck your financial setup and make sure everything still works hard for you.
For those operating as limited companies, there’s also a shift around salary sacrifice. Many private nursery owners who are not part of a big group or pension scheme move large portions of their profits straight into a pension pot without paying national insurance or corporation tax on it. It is usually a very tax-efficient way to pull money out of your business if you don’t need it today. From April 2029 though, the amount you can tuck away this way will be capped at £2,000. Above that, you would end up paying roughly 23% more tax once NI is factored in. Whether this ever actually happens, given the timing with the next General Election, is anyone’s guess. It may simply be political maths.
A ripple effect
Next up, wages. The National Living Wage is rising by 4.1% to £12.71 for over-20s. The National Minimum Wage is jumping 8.5% to £10.85 for 18 to 20-year-olds. Great news for lower-earning staff, but for small nursery businesses, these increases stack up quickly.
If you employ someone for 40 hours a week, the uplift including pension costs adds around £1,227 a year. Multiply that across 10 staff, and you are staring at an extra £12,270 annually.
And here is the kicker. When you go to market, higher staffing costs directly impact valuation. Using a multiple of 6, that extra cost could reduce a valuation by around £73,620. In most cases you may be able to soften the blow with fee increases and offset it against the impact of funding increases from the last year. This should allow you to absorb the increase fully but for those thinking that you may get away without fee increases this year, we would advise you to review that with this in mind.
Other considerations
There are a few smaller but still relevant points.
Electric vehicles will now attract a tax of 3p per mile, with hybrids at 1.5p per mile. If your hybrid only does 30 or 40 miles before switching to fuel, and fuel costs per mile rise by 5p, longer journeys could get pretty pricey. The electric charge won’t be with us for a few years, but for those settings running after school clubs using petrol or diesel company vehicles, the cost will be going up sooner.
More points worth a mention:
- Unspent pensions will count towards your estate for inheritance tax from April 2027. This will include things like freeholds held in pension pots, so consider this when tax planning.
- Personal income tax thresholds remain frozen, which in an inflationary climate means you may pay more tax even though nothing has changed on paper.
- The Employers National Insurance threshold is also frozen, nudging the cost of employing people up again.
- Owners could previously transfer half or more of the business to an employee on an EOT basis with 100 percent tax relief. That relief now caps at 50 percent. This is becoming more common in nurseries and anyone looking to make the change soon will need to recalculate the cost.
If you are unsure how any of this affects you or your nursery, speak to someone who actually enjoys this stuff. The team at Owen Froebel can help.
For more information contact Owen Froebel. Visit www.owenfroebel.co.uk, email hello@owenfroebel.co.uk or call 02476 013929.
