Understanding the 2026 UK tax changes: What you need to know
Every April brings a new set of tax rules. Some years it’s just small adjustments. Other times, the changes are enough to affect what you take home, how you draw income from your business, or how much of your investment gains you keep.
The 2026/27 tax year sits somewhere in the middle. There’s no major headline change, but a number of smaller ones that can add up over time. Here’s what has changed and what it means for you.
What’s new from April 2026?
Let’s start with a quick summary before we get into the details:
- Income tax thresholds stay frozen until at least 2031
- Dividend tax rates have gone up for basic and higher rate taxpayers
- Business Asset Disposal Relief has increased to 18%
- Making Tax Digital for Income Tax has entered its first phase
- Capital gains tax rates and the annual exempt amount remain as previously set
None of these changes exist in isolation. It’s the combination of them that tends to catch people out.
Income tax thresholds: Frozen again
The personal allowance stays at £12,570 for 2026/27. The higher rate threshold remains at £50,270, and the additional rate kicks in at £125,140. None of that has moved.
The Budget in 2025 confirmed these amounts will stay frozen until at least April 2031, which is a full decade since most of them were last changed.
On paper, a freeze doesn’t feel like a tax rise. In practice, it absolutely is one. When incomes rise with inflation but the thresholds don’t follow, individuals get to keep less of any extra income they earn, and more people gradually find themselves pushed into higher tax bands. It happens slowly, quietly, and without a single headline about tax rates going up.
Income tax bands at a glance (England, Wales and Northern Ireland)
- £0 to £12,570 — Personal Allowance, 0%
- £12,571 to £50,270 — Basic rate, 20%
- £50,271 to £125,140 — Higher rate, 40%
- Over £125,140 — Additional rate, 45%
One thing to watch: if your income goes above £100,000, your personal allowance starts reducing by £1 for every £2 earned above that level. Cross £125,140 and it’s gone entirely.
Dividend tax has gone up
This one matters particularly if you’re a business owner drawing dividends, or an investor with shares held outside an ISA.
From 6 April 2026, the dividend tax rate for basic rate taxpayers has risen from 8.75% to 10.75%, and from 33.75% to 35.75% for higher rate taxpayers. Additional rate taxpayers remain at 39.35%.
A 2% increase doesn’t sound dramatic. But pair that with a tax-free dividend allowance of just £500, and director-shareholders may find their profit extraction strategies need a rethink.
To put it in real terms: on £30,000 of dividend income in the basic rate band, you’re now paying around £600 more per year than you were in 2024/25. For higher earners taking larger dividends, the numbers climb considerably.
If your dividends are sitting outside a pension or ISA, now is a good time to look at that.
Capital gains tax: Where things stand
The main CGT rates haven’t changed this year. Basic rate taxpayers pay 18% and higher rate taxpayers pay 24%. The annual exempt amount stays at £3,000, though for context, that exemption was £12,300 not long ago.
Business Asset Disposal Relief has risen again
This one is significant for business owners. Business Asset Disposal Relief (BADR) and Investors’ Relief rates have gone from 14% to 18% for qualifying disposals from 6 April 2026. That follows the move from 10% to 14% which happened in April 2025.
On a qualifying gain of £1 million, the tax bill has gone from £100,000 before 2025 to £180,000 from April 2026, with the £1 million lifetime limit still in place.
If a business sale is on the horizon, the conversation with your adviser needs to happen well before any deal is near completion.
How do allowances reset?
Every year on 6 April, your allowances start fresh. Anything unused from the previous tax year disappears. Here’s what you have available for 2026/27:
- Personal Allowance: £12,570
- Dividend Allowance: £500
- Capital Gains Tax Exempt Amount: £3,000
- Personal Savings Allowance: £1,000 for basic rate taxpayers, £500 for higher rate
- ISA Allowance: £20,000 per adult
- Pension Annual Allowance: £60,000 (subject to your earnings)
There’s no rollover. Use them or lose them.
How to reduce your tax bill
There’s no shortcut, but there are things you can do right now that make a genuine difference.
Put more into your ISA
No income tax or capital gains tax applies to cash or investments held within an ISA. Given where dividend tax rates now sit and how far the CGT exemption has fallen, keeping investments inside an ISA wrapper is one of the most effective moves you can make. You’ve got £20,000 to use this year.
Increase your pension contributions
If your income sits between £100,000 and £125,140, a pension contribution can bring your taxable income down, saving you 40% income tax, and let you keep more of your personal allowance which essentially gives you 60% in tax relief. That’s three benefits from one action. It’s one of the areas where proper planning really pays off.
Don’t ignore your partner’s allowances
If your partner has allowances sitting unused, whether that’s their personal allowance, dividend allowance or CGT exemption, structuring your investments across both of you can reduce your combined tax bill quite significantly. Many couples overlook this entirely.
Think about where your investments are held
Where you hold your investments is something a lot of people never think about. Dividend-paying assets are better off inside a pension or ISA. Growth-focused investments can sit in a general account where your £3,000 CGT exemption does some work each year. Same money, better position.
Get advice before selling a business
With BADR now at 18%, the difference between good planning and no planning on a significant business sale could be tens of thousands of pounds. Don’t leave it too late.
Where does this leave you?
No single change in April 2026 is catastrophic on its own. But frozen thresholds pulling more income into tax, rising dividend rates, a CGT exemption a fraction of what it once was, and higher relief rates on business sales all point in the same direction.
Tax rules don’t wait, and neither should your financial plan. If any of these changes affect you, the team at Fairview Financial Management is here to help. Get in touch today.