Don’t be lulled into thinking that a quiet Spring Statement means a quiet tax year. Tax changes are coming.
From 6 April a bunch of rule changes come into force that will mean that your taxes might change in 2026/27. It’s a series of small changes that could add up.
The good news is that there are steps you can take to reduce what you pay. The even better news is that you still have time before 6 April to act, with a bit of planning now you can soften the impact and make the most of your tax-free allowances.
This article isn’t personal advice. ISA, pension, and tax rules can change, and benefits depend on your circumstances. Remember, different income tax rates and bands apply to Scottish taxpayers for non-savings and non-dividend income. Savings and dividend income tax rates and bands are the same as the rest of the UK. If you’re not sure an action is right for you, ask for financial advice.
How could you pay more tax in tax year 2026/27?
Dividend income tax
You get a £500 dividend allowance, after which dividends are normally taxed based on your marginal rate. The current rates will increase by two percentage points from 6 April – from 8.75% to 10.75% for basic rate taxpayers and from 33.75% to 35.75% for higher rate taxpayers. For those paying additional rate income tax, the rate remains unchanged at 39.35%.
An easy win is to prioritise moving any income-producing investments you hold into a tax efficient account like a Stocks and Shares ISA where dividends are free of UK dividend tax.
If you’ve got unused ISA allowance, you can use Share Exchange (Bed & ISA) to shelter investments in an ISA. Just watch out as the process does involve selling and rebuying your investments inside an ISA, so capital gains tax (CGT) may apply if the gains exceed your allowance (£3,000). This allowance resets on 6 April, so you can repeat this process each tax year. There are other considerations too so worth having a look into it before going ahead.
VCT investments
A major perk of Venture Capital Trusts (VCTs) is shrinking – the upfront income tax relief is being reduced from 30% to 20% from 6 April 2026. VCTs typically give you access to dozens of privately-owned companies – an option for those looking to diversify their portfolio with smaller UK companies.
But VCTs aren’t for everyone, they’re higher risk investments that are typically more suited to those with large portfolios who’ve already maxed out their ISA and pension allowances.
You can invest up to £200,000 into VCTs each year and benefit from income tax relief up front, along with tax-free capital gains and dividends. So, you can boost your income without increasing your taxable income. But it’s important to know that this tax relief is only available on newly issued VCT shares, not those bought on the secondary market.
And to keep the income tax relief, VCT shares must be held for at least five years. You also need to have enough income tax liability in the tax year to fully benefit from the relief – otherwise, you won’t receive the maximum available.
If you’ve got money earmarked to invest in a VCT, you could consider looking at this before midnight on 5 April to potentially enjoy higher tax relief at 30%. But as always, don’t just invest for the tax benefits. All investments fall as well as rise in value, so you could get back less than you invest.
Capital gains tax increasing on business assets
If you’re planning to sell your business or qualifying assets, it could cost you more. From 6 April, the rate of CGT where Business Asset Disposal Relief (BADR) applies will increase from 14% to 18%. So, if you’re planning to sell business assets this year, changes to Investors’ Relief (IR) and BADR – previously known as Entrepreneur’s Relief – could lead to a noticeably bigger CGT bill.
Income tax – the stealth tax
Technically income tax rates aren’t rising. But with thresholds frozen at 2021/22 levels, many will be paying more.
It can pay to be proactive and keep an eye on your total earnings. If your income rises with an annual uplift or a promotion, you could find yourself pushed into a higher tax bracket. Jumping up a bracket can have a knock-on effect beyond income tax – reduced allowances, and higher tax rates on dividends and gains.
The 40% higher rate threshold kicks in at £50,270 for those with a full personal allowance available, and 45% additional rate tax starts on income above £125,140. There’s also effectively 60% tax if you earn between £100,000-£125,140. That’s because for every £2 of income over £100,000, you lose £1 of your tax-free personal allowance. The freeze of these thresholds will continue until at least April 2031.
One of the most effective ways to keep more of what you earn is by making pension contributions. You can do this by increasing contributions to a workplace pension scheme, or, if available, by using salary sacrifice where you swap some of your annual earnings for extra pension contributions. Money in a pension is usually accessible from age 55 (rising to 57 in 2028).
Alternatively, you can contribute separately to a pension such as a Self-Invested Personal Pension (SIPP). A SIPP is a great, flexible choice if you’re self-employed, plus providers will often have a ready-made pension plan, meaning you can leave the day to day in expert hands. Just remember there is an annual allowance for pensions which, for most people, is £60,000, although tax relief on personal contributions is also limited by your earnings (or £3,600, if lower).