What’s changing in the 2026/27 tax year – and why it matters

For England, Wales and Northern Ireland, income tax thresholds remain frozen until at least April 2031. The personal allowance, the basic rate band, the higher rate threshold and the additional rate threshold are all staying exactly where they are.

This sounds uneventful. In reality, it’s one of the most effective ways the Government can increase tax receipts without announcing a tax rise.

As wages rise gradually with inflation, more people are pulled into higher tax bands without feeling any better off. Otherwise known as fiscal drag.

A relatively modest pay rise can result in a noticeably larger tax bill. A bonus can push you further into the higher-rate tax band than expected. And if your income exceeds £100,000, part of your personal allowance starts to disappear altogether.

In April 2026, the National Living Wage rises to £12.71 per hour. While this is welcome news, for those already paying income tax, higher earnings against frozen thresholds can gradually mean more of that income becoming taxable.

Also, from April 2026, the tax rates applied to dividend income will increase. The basic rate rises from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%, and the additional rate will remain unchanged at 39.35%.

If you receive dividends, whether as a business owner or from investments held outside ISAs and pensions, a larger share of the same income will now go to HMRC.

In Scotland, the approach is slightly different. From April 2026, the Scottish Government is increasing the basic and intermediate rate thresholds by 7.4%, offering some protection for lower and middle earners.

However, the higher, advanced and top rate thresholds remain frozen. For higher earners, fiscal drag continues in exactly the same way as in the rest of the UK.

Because Scotland sets its own income tax bands and rates, the structure of taxation is now significantly different from England, Wales and Northern Ireland. With some thresholds rising and others standing still, take-home pay on the same earnings can differ noticeably depending on which side of the border you live.

Many savers are often surprised by something that didn’t exist a few years ago. Interest on cash savings is now high enough to attract tax.

Personal Savings Allowances remain unchanged, but interest rates are significantly higher than they were for much of the last decade. As a result, people who have simply held sensible cash reserves are now exceeding their allowance and finding that savings interest is taxable.

The ISA allowance remains at £20,000 for 2026/27, which feels reassuringly familiar. But from April 2027, a notable change arrives. Under-65s will be limited to holding £12,000 in a Cash ISA, even though the overall ISA limit remains £20,000.

This is a clear signal of direction. The system is encouraging investment rather than large cash holdings, and cautious savers may need to think differently about how they use their ISA allowance.

For higher earners, another quiet change arrives from April 2026. Income tax relief on Venture Capital Trust (VCT) investments reduces from 30% to 20%. For those willing to take more risk with their money, by using VCTs as part of tax planning, this reduces the attractiveness of the scheme and may prompt a review.

If you earn income from assets or a business, several of these changes come together.

The rise in dividend tax from April 2026 directly affects business owners who take remuneration this way. At the same time, frozen income tax thresholds mean more of that income may fall into higher rate bands over time.

For landlords, a much more significant change is already confirmed for April 2027. New tax rates for rental income will apply at 22%, 42% and 47% for basic, higher and additional rate taxpayers.

Although this sits just outside the 2026/27 tax year, it is close enough that many property owners will want to review ownership structures and long-term plans well in advance.

In Scotland, eligible retail, hospitality and leisure businesses will receive 15% non-domestic rates relief in 2026/27, offering some welcome support for premises-based businesses.

There is some reassuring news. The State Pension rises by 4.8% from April 2026 under the triple lock, and working-age benefits and tax credits rise by 3.8%.

However, the more significant story sits slightly further ahead.

From April 2027, unused pension funds will be brought into the scope of inheritance tax. Following the pension freedoms introduced in April 2015, pensions increasingly became a highly tax-efficient way to pass wealth on to the next generation. This change alters that landscape.

For those with substantial pension savings, the conversation is shifting from “leave the pension untouched for as long as possible” to a more balanced discussion about how pensions, other assets and estate planning fit together.

Looking further ahead again, from 2029, salary sacrifice and pension National Insurance relief will apply only to the first £2,000 of income sacrificed each year. For higher earners who rely heavily on salary sacrifice, this is a significant future change to be aware of now.

Inheritance tax nil-rate bands remain frozen until April 2031. As property values and investment portfolios grow over time, more estates are gradually pulled into the tax net without any formal change to the rules.

For most families, this is the part that matters most. Assets have risen in value over the past decade, but the amount you can pass on tax-free has not moved with them.

Alongside this, a significant change is coming in April 2026 for those who own qualifying farms or family businesses.

Until now, Agricultural Property Relief (APR) and Business Property Relief (BPR) have often allowed these assets to pass on free of inheritance tax, with no upper limit. From 6 April 2026, that changes.

Full 100% relief will be capped at £2.5 million per person across combined agricultural and business assets. Any value above that will receive only 50% relief rather than the standard 40%, creating an effective inheritance tax charge of 20% on the excess.

Unused portions of this £2.5 million allowance can be transferred between spouses or civil partners, meaning couples may still pass on up to £5 million at full relief. Any tax due on amounts above this can be paid in equal, interest-free instalments over ten years.

For most families, the frozen inheritance tax thresholds are the key issue. But for those with larger farms or family businesses, this reform represents a fundamental change to how these assets pass between generations and is likely to require a review of wills, ownership structures and succession planning.

Either way, this is an area where it makes sense not to assume existing plans still work as intended.

Not all of the changes sit within the tax system. Some are designed to ease everyday household costs.

• From April 2026, energy bill support measures are expected to reduce average household costs. Fuel duty remains frozen until August 2026 before staged increases later in the year.
• Regulated rail fares in England are frozen for a year from March 2026.
• The two-child benefit limit is removed from April 2026.

These are the changes you’re more likely to notice in day-to-day life, even if they don’t show up on a tax return.

Several confirmed changes sit a little further ahead but are important to bear in mind for longer-term planning.

From April 2028:

• High-value properties in England and Wales will face an additional council tax-style charge for homes valued over £2 million.
• Scotland will introduce new council tax bands for properties above £1 million and £2 million.
• Electric vehicles will move to mileage-based taxation.

Each of these may seem some way off. Together, they signal the direction of travel for property and transport taxation.

What ties all of this together is not a single dramatic reform. It is the cumulative effect of many small pressures.

Income is being drawn into higher tax bands. Savings are becoming more taxable. Dividend income is taxed more heavily. Pensions are becoming less effective as an inheritance tool. Cash ISAs are being restricted. Property and rental income face increasing scrutiny.

Over time, this can mean paying significantly more tax than expected, not because of a single decision, but because personal finances have evolved while tax rules have stood still.

This is the type of tax year where a review can be particularly valuable because they could alter the decisions you make today.

How should you take income? Where should you put your savings? How should your investments be structured? How does your pension fit into your estate planning?