The new tax year brings a number of important changes that may affect your income, investments, and longer‑term planning. While many tax rates have not increased, the overall tax burden is rising for many people due to frozen allowances and higher taxes on investments.

Below is a summary of the key points and what they could mean for you.

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1. Income Tax – Allowances Remain Frozen

The amount you can earn before paying income tax (known as the Personal Allowance) remains £12,570, and the main income‑tax bands are unchanged. They are frozen at this level until 2031:

• Basic Rate: £12,571 – £50,270 (20% rate)
• Higher Rate: £50,271 – £125,140 (40% rate)
• Additional Rate: Above £125,140 (45% rate)

[Note: these are the bands for England and Scottish income tax bands and rates differ].

Why this matters

• Pay rises or pension increases can push more of your income into higher tax bands
• Those with taxable income over £100,000 continue to have their Personal Allowance tapered by £1 for every £2 above this level (fully tapered when income exceeds £125,140)
• More families are affected by higher‑rate tax and related charges (such as the High Income Child Benefit Charge)

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2. Dividend Tax Increases (Important Change)

From 2026/27, tax on dividends has increased for most taxpayers.

• The tax‑free dividend allowance remains £500.
• Dividend tax rates have risen for basic‑rate and higher‑rate taxpayers:
  • Basic‑rate taxpayers: dividend tax increased from 8.75% to 10.75%
  • Higher‑rate taxpayers: dividend tax increased from 33.75% to 35.75%
  • Additional‑rate taxpayers: unchanged at 39.35%

This mainly affects:

• Company directors who take income via dividends
• Investors holding shares outside ISAs or pensions

What this means

Dividends are now less tax‑efficient than they were previously, with the higher rate level now less than 5% lower than the higher rate for income tax. This makes ISAs and pensions increasingly important as tax wrappers.

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3. Capital Gains Tax – Reliefs Weaken Further

The amount you can realise in gains each tax year without paying Capital Gains Tax remains low at £3,000.

In addition:

• Business Asset Disposal Relief and Investors’ Relief now apply a higher 18% tax rate (a phased increase from 10%, up to 14%, now 18%)
• The lifetime limit for these reliefs is £1 million

These reliefs now mainly protect higher ‑ and additional‑rate taxpayers from the main 24% CGT rate, rather than providing a large tax saving compared to basic rates of CGT.

What this means

Selling investments, second properties, or businesses can trigger tax much more quickly than in the past. Timing and planning around disposals is increasingly important.

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4. National Insurance (NI) – Higher Cost for Employers

For employees and the self‑employed, National Insurance rates are largely unchanged.

However, employers now pay more National Insurance on staff earnings due to:

• A higher employer NI rate – now 15% above the threshold
• A lower employer threshold of £5,000 (earnings above which, employers pay NI on) – this reduced threshold started in 2025/26 however

What this means

Although this does not directly reduce your take‑home pay, it can affect:

• Salary growth
• Business profitability
• Decisions around employing staff or extracting income

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5. State Pension Increase – But More May Be Taxable

From 2026/27, the State Pension has increased under the “triple lock” by 4.8%.

• The full new State Pension increased to £241.30 per week (over £12,500 per year, almost the same level as the Personal Allowance).

Because the Personal Allowance is frozen, many pensioners now find that:

• Some of their State Pension is now taxable
• Any private pension income may push them further into tax
• From 2027/28 any increase to the State Pension will mean a full new State Pension exceeds the Personal Allowance (unless this is increased)

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6. ISAs – Still Very Beneficial

You can still invest up to £20,000 per year into ISAs, with no tax on income or gains inside the wrapper.

This tax year is particularly important because:

• Future restrictions on cash ISAs are expected from April 2027 for those under age 65, where contributions will be reduced to £12,000 pa

What this means

Using ISA allowances regularly is one of the most effective ways to reduce tax on savings and investments.

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7. Making Tax Digital – New Reporting Rules

From 2026/27, Making Tax Digital applies to:

From 2026/27, Making Tax Digital becomes compulsory for:

• Self‑employed individuals
• Landlords

with gross income over £50,000 per year.

Those affected must:

• Keep digital records
• Submit quarterly income and expense updates
• Use HMRC‑compatible software

The income threshold will reduce to £30,000 in 2027/28 and £20,000 thereafter.

Why this matters

This is a fundamental change to how tax is reported, increasing administration and compliance risk for affected individuals.

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8. Inheritance Tax – Changes to Business & Farm Reliefs

Before April 2026, qualifying business and agricultural assets could often pass on 100% inheritance‑tax free, regardless of value.

From 6 April 2026:

• A new £2.5 million allowance applies to the combined value of assets qualifying for:
  • Business Property Relief (BPR)
  • Agricultural Property Relief (APR)
• Assets up to £2.5 million still receive 100% relief, any value above £2.5 million receives only 50% relief
• The £2.5 million allowance applies per individual For married couples or civil partners, any unused allowance can be transferred. This gives couples a potential £5 million combined 100% relief

Because IHT is normally charged at 40%, this means an effective 20% inheritance‑tax charge on qualifying assets above the allowance.

• AIM shares now only qualify for a 50% relief against inheritance tax, where previously they fully qualified for 100% Business Relief

There is no pension IHT change in 2026/27, however:

• The government has confirmed that most unused pension funds will fall within IHT from 2027/28, making 2026/27 a key planning year for pension and estate strategies

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Key Takeaways

• More tax without higher headline rates is becoming the norm
• Investment income (dividends and gains) is taxed more heavily
• ISAs and pensions are more valuable than ever
• Business owners and landlords face rising complexity
• Forward planning can reduce unnecessary tax

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Tax planning is becoming increasingly more important, as tax is rising, ensuring that you’re making use of available allowances in the best way for your circumstances.

However, it’s just as important to consider the long-term picture and ensure any tax planning still fits in with that.