During 2026 there are going to be a series of tax changes in the UK which will impact investors and business owners through higher rates on dividends, frozen thresholds, and reduced tax breaks for smaller companies. In this article, we run through the key tax changes in 2026 you need to watch out for.
Dividend tax increase
From April 2026, dividend tax rates will increase by two percentage points. This shift follows announcements made in the Autumn Budget 2025 and is intended to narrow the gap between the taxation of earnings and the taxation of investment income.
- Basic rate - Paid on dividends within the £12,570 to £50,270 bracket, this will rise from 8.75% to 10.75%.
- Higher rate - Applied on dividends in the £50,271 to £125,140 bracket, this will increase from 33.75% to 35.75%.
- Additional rate - This remains unchanged at 39.35%.
Don’t forget dividends sit on top of other income when determining the correct rate of taxation.
The tax-free dividend allowance remains at £500, meaning you will pay tax on any dividends above this level held outside tax-efficient wrappers like ISAs or pension.
Income tax and NI thresholds frozen
While headline rates of income tax and National Insurance (NI) are not rising in 2026, the thresholds at which you start paying these taxes remain frozen. This creates "fiscal drag," where pay rises quietly, pushing more of your income into higher tax bands. The income tax and NI freeze was extended in the recent Autumn Budget and is now set to continue until April 2031.
The hidden cost of creeping into a new tax band
Crossing into a higher tax bracket does more than just increase the rate you pay on your salary:
- Capital Gains Tax (CGT) - When your earnings exceed £50,270, the tax rates on capital gains increase (from 18% to 24%), CGT is calculated after all other income is finalised with any gain sitting above the £50,270 threshold taxed at the higher rate of 24%.
- Dividends - as more of your earnings creep into higher tax brackets, you could end up paying more tax on any dividend income, as explained in the previous section.
- Savings Allowance - When your earnings exceed £50,270, your tax-free savings allowance halves from £1,000 to £500.
- The 60% tax trap - For every £2 you earn above £100,000, your personal allowance is withdrawn by £1, creating an effective tax rate of 60% (or 62% including NI) on income between £100,000 and £125,140.
Fuel duty
The temporary 5p cut to fuel duty remains in place until 31st August 2026. After this, rates will rise gradually to return to 2022 levels:
- September 2026 - Duty increases by 1p.
- December 2026 - Duty increases by a further 2p
- March 2027 - A final 2p increase takes effect.
Tobacco, Vaping, and Alcohol
- Alcohol Duty - Rates will rise by 3.66% in February 2026, adding roughly 2p to a pint or 10p to a bottle of wine
- New Vape Tax - Will be introduced in October 2026, adding £2.20 per 10ml to all e-liquids
- Tobacco Duty - A one-off increase of £2.20 per 100 cigarettes arrives in October 2026, alongside the annual RPI + 2% rise.
Working from home relief scrapped
From 6th April 2026, the government will scrap the tax relief individuals can currently claim for working from home (if their employer does not cover extra costs). While individuals will no longer be able to claim this themselves, employers will still be able to give staff tax-free payments towards homeworking expenses if they choose to do so.
Inheritance tax
Significant reforms to inheritance tax (IHT) take effect on 6th April 2026, impacting farms and businesses.
- Agricultural and Business Property Relief - 100% IHT relief will now only apply to the first £2.5 million of qualifying assets that are passed on. Above this level an effective IHT rate of 20% will be applied. Upon death, any unused thresholds can be passed onto a spouse or civil partner, allowing them to pass on up to £5 million with 100% IHT relief.
- AIM Shares - Eligible shares in the Alternative Investment Market will only attract 50% IHT relief (rather than the full 100% relief), meaning they will be subject to an IHT rate of 20% when passed on.
Investment tax relief
Venture Capital Trusts (VCTs) - Upfront tax relief on VCTs will fall from 30% to 20% from 6th April 2026.
Mansion Tax Valuations
A "high-value council tax surcharge" (commonly called the Mansion Tax) starting in 2028 will be based on property valuations conducted throughout 2026. Homes valued over £2 million in 2026 will face surcharges between £2,500 and £7,500 in 2028.
Tax records
- Making Tax Digital (MTD) - From April 2026, sole traders and landlords with total annual income from self-employment and property of £50,000 must keep digital records and send quarterly updates to HMRC.
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