UK tax changes 2026: What you need to know

Shaz Bishop
Director, Wealth Manager
RBC Brewin Dolphin

The 2026/27 tax year introduces new rates, reliefs and allowances. While some changes have hit the headlines, others – like frozen thresholds – might quietly affect your finances. Explore the key updates below to see how these changes might affect your plans.

Inheritance tax on farms and businesses

Since April 2026, a cap now applies on Agricultural Property Relief (APR) and Business Relief (BR) for inheritance tax (IHT). It means that everyone gets 100% relief on up to £2.5 million of qualifying assets. Spouses and civil partners can combine their allowances, allowing up to £5 million to pass on free from IHT.

Originally the cap was expected to be £1 million, so the higher threshold reduces the impact for many families. However, larger estates may now face an IHT bill at a rate of 20% above the allowance.

What to review now

“It’s important to understand the allowance is £2.5 million at 100% relief, or £5 million for a married couple or civil partners,” says Shaz Bishop, a wealth manager at RBC Brewin Dolphin. “Anything above that is taxed at 20%, not the standard 40% rate on other assets, so there’s still a saving compared with holding assets elsewhere.”

“If there’s likely to be a tax bill, you can look at gifting and starting the seven-year clock, or putting protection in place to cover the liability,” says Bishop.

Selling your business or shares in it? Tax relief is changing

Business owners thinking about selling shares or planning an exit strategy will be affected by changes to Business Asset Disposal Relief (BADR).

BADR – previously known as Entrepreneurs’ Relief – applies a lower rate of capital gains tax (CGT) when you sell shares in a qualifying business. The rate rose from 10% to 14% in April 2025 and again to 18% in April this year, in line with the rate for basic-rate taxpayers.

If you’re a higher or additional rate income taxpayer, the BADR rate is still lower than your standard CGT rate of 24%, meaning you’ll save 6% on every pound of qualifying gains.

What to review now

“Use spousal transfers where appropriate and make sure you understand what capital losses you can carry forward,” says Bishop. “It’s important to have a good accountant on board so you know what’s available.

“Gift holdover relief can allow you to gift assets to family members and defer the tax until they sell their shares. It’s something to consider in the right circumstances.”

Dividend tax increase

The rate of tax on dividends has risen by two percentage points for basic and higher rate taxpayers. It means the tax you’ll pay on your dividend income above the £500 dividend allowance has risen to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers. The additional rate remains at 39.35%.

What to review now

“Make sure you’re utilising your tax wrappers,” says Bishop. Investments held within an ISA or pension are not subject to dividend tax. Ensuring both you and your spouse or partner use your annual allowances can help shelter your investments from future tax.

“Many couples leave allowances unused. That’s free tax relief you’re missing out on. Even if you can’t max them out, using what you can makes a real difference over time.”

Venture Capital Trusts upfront relief reduced to 20%

Venture Capital Trusts (VCTs) let you invest in early-stage UK companies while receiving upfront income tax relief. This was 30% but fell to 20% in April this year. However, dividends from VCTs remain tax-free and gains are exempt from CGT.

“This doesn’t change their fundamental appeal for everyone,” says Bishop. “Yes, you don’t get 30% relief anymore, but 20% is still substantial. Plus, the dividends and growth are tax-free – that’s powerful for long-term investors.”

What to review now

With reduced income tax relief, it’s worth checking whether investing in a new VCT is still appropriate for your goals and risk profile. Some investors may also want to consider the Enterprise Investment Scheme (EIS) – which still offers 30% tax relief.

“These are high-risk investments,” says Bishop. “Our clients who use them are typically high-net-worth individuals who are comfortable with that level of risk and are primarily looking for income tax relief. Seeking financial advice is always recommended before investing in EIS or VCTs.”

Frozen thresholds – how to avoid bracket creep

Income tax thresholds were first frozen in 2021-22 and that freeze is set to continue until April 2031. As incomes tend to rise over time, this can mean you’re pushed into a higher tax band, increasing the tax you pay on earnings, savings and investments.

What to review now

If you’re close to the top of a tax band, there are several things you can do.

“Maximising pension contributions is key,” says Bishop. “Reducing taxable income through pensions, charitable donations or salary sacrifice can help manage creeping tax bills. Plus, you can use unused pension allowances from the previous three years, as long as your earnings support the contribution.”

She also emphasises strategic withdrawal planning, “It’s not just about what you save – it’s about the order you draw income from different sources. Should you take from your pension, your ISA, or your dividend income first? The sequence matters, and it changes depending on your tax position each year. We can model different scenarios to show you what saves the most.”

Looking ahead to 2027

More changes are coming in April 2027 when pensions will become liable for IHT, the cash ISA allowance will fall for those under 65 and the income tax rate on property and savings will rise. You can find a summary in our Spring Statement insight.

With time to prepare, there’s plenty you can do to get your finances ready. Bishop advises making sure you’re using your ISAs, pensions and possibly offshore bonds, VCTs or EIS as appropriate. All of these can help you manage future tax bills.

The most effective approach to your finances is to diversify. Many of us think of different investments, asset classes and geographies when we think of diversification, but it should also include tax management.

“Legislation is consistently changing,” says Bishop. “That’s why it’s important to diversify across tax wrappers, so you have options when the rules shift.”

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The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute financial planning, tax, or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should always check the tax implications with an accountant or tax specialist. Information is provided only as an example and is not a recommendation to pursue a particular strategy.