We examine the upcoming changes to tax rates and allowances for 2026 and how they will impact you
Share This year, a number of tax increases will take effect that may increase your debt to HM Revenue and Customs (HMRC).
Although you can't stop these tax increases, there are things you can do to lower your tax liability. Maintaining financial control in 2026 will depend on your ability to adapt to these changes.
Here are 13 taxes that will increase this year, along with tips on how to reduce them.
First.
Dividend income tax. In April of this year, the tax rates on dividend incomewhich are distinct from your regular income tax billwill rise by two percentage points. Depending on the income tax rate you pay, there are three different dividend tax rates. The dividend income tax will increase from 8.75 percent to 10.75 percent for basic rate taxpayers and from 33.75 to 35.75 percent for higher rate taxpayers.
The dividend tax charge of 39.35 percent will not change for individuals who pay additional rate income tax.
Regardless of your income tax band, you can receive up to £500 in dividend income during a tax year without having to pay any taxes on it.
Your bills will increase on April 6 if you make more than this annually.
How to proceed.
You can take certain actions to lower your dividend tax obligations. Since dividend income (and growth) on funds held in an ISA is tax-free, it makes perfect sense to make use of your ISA allowance. If you have any unused ISA allowance for this year, you may transfer dividend-producing shares that you currently hold outside of an ISA. If not, you can wait until the allowance resets on April 6th, when the new tax year starts.
Two. Business assets are subject to the capital gains tax (CGT).
Starting in April, the capital gains tax (CGT) rate in areas where business asset disposal relief (BADR) is applicable will rise. Therefore, if you intend to sell business assets this year, you should be aware that changes to Investors Relief (IR), formerly known as Entrepreneurs Relief, and Business Asset Disposal Relief (BADR) may result in higher capital gains tax obligations.
Gains will be subject to an increase in taxation from 14% to 18%.
How to do something.
Selling your business assets before the end of the tax year may be more tax-efficient. Naturally, this depends on your overall tax circumstances.
#3.
Revenue tax. Although many people will pay more income tax in 2026, the rate at which we pay it won't increase.
This is due to the fact that our bills increase in the absence of an annual increase in the income tax thresholds (for England and Wales) and the tax-free personal allowance, which is presently set at 12,570.
Fiscal drag is the term for the government's practice of freezing thresholds rather than raising them to reflect rising living expenses.
In England, Wales, and Northern Ireland, taxable income between 12,571 and 50,270 is subject to the basic rate of 20 percent; taxable income between 50,271 and 125,140 is subject to the higher rate of 40 percent. Over 125,140 in taxable income is subject to the additional rate threshold. These thresholds will remain frozen through April 2031.
By doing nothing, the government essentially forces more people into the higher income tax rate bracket as their wages increase due to promotions that offer higher salaries or yearly pay increases.
If you reside in Scotland, income tax is computed somewhat differently. Everybody's personal allowance is still £12,570. Then there are three tiers: basic, intermediate, and starter rates. This year, neither the new bands nor the existing Scottish income tax rates will be altered.
Fiscal drag will affect Scottish workers as well.
How to do something.
Increasing your pension contributions is one of the best ways to lower your income tax liability. You can either contribute to a self-invested personal pension or discuss raising contributions to a workplace pension plan with your employer (Sipp). You can also choose the latter if you work for yourself.
Forty.
VCT finances. On April 6, 2026, upfront income tax relief on VCTs will drop from 30% to 20%, which will lessen the incentive for certain investors. Investing in venture capital trusts (VCTs) enables you to support small businesses in the United Kingdom. You purchase shares in a VCT, a fund that makes investments in a basket of usually 4080 privately held, rapidly expanding businesses.
You can receive up to 30p in upfront tax relief for every pound invested in a VCT. Dividends and capital gains are tax-free, so you can increase your income without raising your taxable income.
Dividends can also be reinvested in new VCT shares for individuals who do not require the income, which could result in an extra 30% tax break or 20% after April 6.
A VCT can require an annual investment of up to £200,000.
How to intervene.
In order to take advantage of greater tax relief, you should invest in a VCT before April. Don't invest solely for tax advantages, though. Make sure you are aware of the risks.
Five.
Flying as a passenger. Air Passenger Duty (APD) rates will rise once more starting on April 1, 2026, increasing the cost of flights. Long-haul flights will see larger increases.
It will increase the cost of a short-haul economy flight by two and a short-haul premium or business class flight by four. APD is collected by airlines as part of the cost of tickets.
How to proceed.
Checking comparison websites and, if possible, being flexible with departure dates will help you get the best deal on flights.
Fifth.
Tax relief for remote work. HMRC will no longer grant tax relief to employees who work from home for additional, non-reimbursed household expenses like gas and electricity.
Seven. tax on benefits in kind.
You pay a tax known as Benefit in Kind (BiK) when you purchase a car through the salary sacrifice program offered by your employer. The CO2 emissions of your car determine the BiK rates, just like vehicle excise duty.
In the 2026 - 2027 fiscal year, BiK rates are expected to rise by an additional 1%. Electric vehicles will pay 4 percent BiK instead of the current 3 percent starting on April 6, 2026.
Household expenses.
In 2026, households will experience several bill increases, beginning on January 1st with an increase in the energy price cap.
How to proceed.
Keep a careful check on the amount you pay for each utility, subscription, and service to ensure that you are in charge of your household bills. Call to find out what offers you qualify for when a contract on any aspect of your household bills is about to expire.
Eight. energy expenses.
There will be a minor monthly increase in energy bills from the start of the year until March 31, 2026. Compared to the final quarter of 2025, the average household on the energy price cap now pays 0.2 percent more for energy.
Up until March 31, the average household on a dual-fuel variable energy tariff paying by direct debit will pay 1,758 annually. This is three times higher than the previous price cap.
How to proceed.
Take into consideration a smart meter, which can assist you in identifying the sources of the majority of your energy consumption and figuring out how to cut it wherever possible.
Ten.
Hydro. In the upcoming weeks, it will be announced that water bills will increase further in 2026 - 2027.
How to intervene.
You can request a free water meter installation if you don't currently have one but believe you use less water than you pay for. You can determine whether a water meter could save you money using a calculator provided by the Consumer Council for Water.
Fifth.
Council taxes. The amount of council tax that most households in England pay will probably increase this year. In most local authorities, tax bills are expected to increase by an average of 5% starting in April, which is typically the maximum increase allowed. However, because of funding cuts and low current rates, some local authorities have been granted permission for much higher hikes in 2026. These include Windsor, Maidenhead, and a few London boroughs.
Eighteen.
TV license. Although it has not yet been confirmed, an increase in the TV licence fee is anticipated in April. A color license currently costs £174.50. The price of a black-and-white license is 58.50.
12.
Power. The fuel duty freeze, which has been in effect since January 2011, will end in September 2026. After that, fuel duty will rise annually in accordance with inflation.
Fifteen.
Duty of alcohol. Next month, the price of your favorite drink could go up. In February, all alcohol duty rates will increase to 3.66 percent in accordance with the retail price index (RPI). According to the Wine & Spirit Trade Association, that amounts to roughly 11p for a bottle of Prosecco, 13p for a standard red wine, and 38p for a bottle of spirits.
The key money dates for 2026 are listed in a different article.
View Additional HM Customs and Revenue.
Leave a comment on: There are thirteen tax changes in 2026 Which taxes will increase?