As the end of the 2025/26 tax year fast approaches, it’s important that taxpayers are aware of the changes ahead for 2026/27 from 6 April.
David Little, Partner in Financial Planning at wealth management firm Evelyn Partners, says:
“The end of the tax year is a good time to take stock and plan ahead. Most individuals and families will have settled the decisions they need to make for the 2025/26 tax year-end, especially if they benefit from professional advice.
Others might be scrambling to decide if or how to use up remaining allowances such as those for ISAs, pensions and gifting. But they should not forget about what’s happening in 2026/27, as changes to tax rules, allowances and rates coming in on 6 April could influence these last-minute decisions. There are several important developments to be aware of.”
1. Dividend tax is increasing
From 6 April, the rates of tax payable on dividends from shares, and funds that invest in shares, will rise by 2 percentage points to:
- 10.75% for basic-rate taxpayers
- 35.75% for higher-rate taxpayers
- 39.35% for additional-rate taxpayers (unchanged)
David says:
“If investments are held outside a tax-free wrapper like a pension or ISA, then dividend income could be subject to a higher rate of tax from 6 April. With only a meagre £500 of dividends per person now protected from tax by the annual allowance, it’s essential that savers and investors recognise this and take action if necessary.
The increase means a basic-rate taxpayer earning £10,000 in dividends will – all other things being equal – pay £1,021 in dividend tax in the new tax year compared to £831 currently. A higher-rate taxpayer will pay £3,396, up from £3,206 currently.
Those affected should consider whether they can transfer unprotected investments into a tax-free wrapper – typically an ISA, pension or for larger portfolios, an Offshore Bond – although they should be aware that the process of selling and repurchasing could lead to a taxable capital gain. Couples can make sure they are making the most of their combined allowances and married couples can benefit from interspousal transfers to ensure investments are held tax-efficiently.
Higher and additional rate taxpayers in search of tax-efficient income from their investments might also consider investing directly in low coupon gilts, where most of the probable yield will come in the form of tax-free capital gains. This is best considered with the advice of a financial planner or investment manager.”
Additional changes affecting business owners and investors:
- Capital Gains Tax: The rate for Business Asset Disposal Relief (BADR) and Investors’ Relief increases to 18% (up from 14%).
- Business Rates: Revaluations and a new five-tier multiplier system are introduced.
- Venture Capital Trusts: Upfront income tax relief for VCT subscriptions is reduced from 30% to 20%.
2. Allowances and thresholds remain frozen
David says:
“This ‘non-change’ is in some ways the most important change of all, because it’s another year when most tax thresholds and allowances will shrink in real terms, exposing more earnings and wealth to tax.”
The Chancellor announced in the November 2025 Budget that income tax thresholds will stay at current levels until April 2031:
- Personal allowance: £12,570
- Higher-rate threshold: £50,270
- Additional-rate threshold: £125,140
Scotland has its own tax bands, which are more punitive for higher earners.
David continues:
“Furthermore, the ‘£100k tax trap’ remains frozen in time. Introduced in the Finance Act 2009, this refers to the sharp rise in an individual’s effective marginal tax rate to 60% on taxable income between £100,000 and £125,140.
Once taxable income exceeds £100,000, the tax-free personal allowance (£12,570) is gradually withdrawn at a rate of £1 for every £2 of additional income. As a result, each extra £100 earned in this band is effectively taxed at 60%, plus National Insurance.
In practice, this means a pay rise or bonus in this range can leave someone keeping only £40 of every £100 earned, making it one of the most punitive marginal tax zones in the UK tax system. Due to different tax bands in Scotland, this rate is equivalent to 67.5% for Scottish taxpayers.”
He adds:
“Likewise, inheritance tax nil-rate bands, annual exemptions for capital gains and dividends, and the personal savings allowance remain frozen in money terms and so offer shrinking protection in real terms.
This means more people will face tax bills where they would not previously, or pay more tax at higher rates.
Being drawn into higher income tax bands doesn’t just increase the tax on earnings. It also affects capital gains, dividends and savings allowances. Steps such as increasing pension contributions can help keep individuals in lower tax bands.
Tax planning opportunities for couples, especially those married or in civil partnerships, are increasingly important, as they can use two sets of allowances.
As the tax system becomes more complex, good financial planning advice can be highly beneficial, particularly for estate and succession planning.”
He continues:
“With inheritance tax thresholds frozen and asset values rising, more families are being drawn into IHT liabilities. This trend will accelerate due to upcoming reforms, including changes to agricultural and business relief and the inclusion of unspent pension assets from April 2027.
Solutions like lifetime gifting and trusts are becoming more relevant but should be undertaken with professional advice.”
3. Major change to IHT business reliefs
From 6 April:
- 100% agricultural property relief and business relief will apply only to the first £2.5 million of relevant assets
- This threshold has been increased from £1 million announced in the October 2024 Budget
- AIM-listed shares will receive only 50% relief
David says:
“In some cases, an unexpectedly large IHT bill can jeopardise the future of a firm and the jobs it provides if liquid assets are not available.
For many business owners, 6 April is a clear deadline for planning.
Transfers of assets that can currently be made with no immediate tax charge will be limited after this date. While it may be too late for some legal restructuring, there may still be advantageous financial planning options.”
“Spouses can inherit any unused relief, similar to IHT nil-rate bands. Any unused portion of the £2.5 million allowance can be transferred to the surviving spouse.
A financial planner can help ensure wills are structured efficiently and advise whether asset transfers should be initiated.”
4. State pension rises toward the personal allowance
David says:
“This is not strictly a tax change, but it could have tax consequences.”
From 6 April:
- State pension rises by 4.8% under the triple lock
- Full new state pension increases to £241.30 per week (around £12,535 annually)
- Basic state pension rises to £184.90 per week
He explains:
“The full new state pension is now very close to the personal allowance of £12,570. While many pensioners receive less, some already exceed this threshold.”
Research suggests the number of pensioners paying tax is rising significantly and could reach 10 million by the end of the decade.
David says:
“There is still uncertainty about how state pension income will be taxed in future. Currently, it is always paid gross.
If someone has other income (such as a private pension), HMRC usually adjusts their tax code. However, if the state pension is their only income and exceeds the personal allowance, the government has confirmed it will not be taxed in 2026/27, with plans to extend this policy.
Some retirees may need to review their income carefully. A relatively small increase in state pension income could push them into a higher tax band, affecting not just income tax but also tax on investments and savings allowances.
With inflation pressures rising, future state pension increases could push it well above the personal allowance in coming years.”
