What Are the Changes in the 2026/2027 Tax Year in the UK?
The 2026/27 UK tax year begins on 6 April 2026 and runs until 5 April 2027. While there are no dramatic headline-grabbing tax rate increases, several important changes come into effect that will affect employees, business owners, landlords, investors and those planning their estates.
In many areas, the real impact comes not from rising rates but from continued freezes, targeted increases and structural reforms such as Making Tax Digital.
The key changes in the 2026/2027 UK tax year are:
- A 2% increase in dividend tax rates for basic and higher rate taxpayers
- A rise to 18% Capital Gains Tax where Business Asset Disposal Relief applies
- The removal of employee home working tax relief
- A £2.5 million cap on 100% Business and Agricultural Inheritance Tax relief
- The introduction of Making Tax Digital for some sole traders and landlords
Below is a detailed breakdown of each change and what it could mean for you.
Key Changes at a Glance
Although much of the tax system remains technically “unchanged”, the 2026/27 tax year continues the long-running freeze on thresholds and allowances, which increases tax receipts through fiscal drag.
At the same time, several targeted measures — particularly affecting dividends, capital gains and inheritance tax — may require proactive planning.
Income Tax Changes for 2026/27
Personal Allowance and Tax Thresholds
For the 2026/27 tax year, the main income tax thresholds remain frozen:
- Personal Allowance: £12,570
- Higher rate threshold: £50,270
- Additional rate threshold: £125,140
These figures have now been frozen for several years and are scheduled to remain unchanged until at least April 2031.
While this may appear stable, the freeze means that as salaries rise with inflation, more people are gradually pulled into higher tax bands. This is known as fiscal drag. For example, if your salary increases from £50,000 to £53,000, a larger proportion of your income falls into the 40% band — even though tax rates themselves have not changed.
Over time, this quiet shift can significantly increase your overall tax burden.
Scottish Income Tax Updates
Scottish taxpayers continue to pay different rates and thresholds on non-savings, non-dividend income, such as salary and self-employment profits.
From April 2026, Scottish tax rates remain unchanged. However, there are minor adjustments to the basic and intermediate rate thresholds. Savings and dividend income still follow UK-wide tax rates.
If you live in Scotland and earn employment or self-employment income, it is worth reviewing how these threshold adjustments affect your marginal tax position, particularly if your income sits near a band boundary.
Dividend Tax Changes
One of the most significant changes for 2026/27 affects dividend income.
From 6 April 2026:
- The basic rate dividend tax increases from 8.75% to 10.75%
- The higher rate increases from 33.75% to 35.75%
- The additional rate remains at 39.35%
- The dividend allowance remains £500
This change will particularly affect company directors and shareholders who take remuneration via dividends. While a 2% increase may seem modest, it can have a noticeable impact for those drawing substantial dividend income.
For example, a higher rate taxpayer receiving £30,000 in dividends could see several hundred pounds in additional tax compared to the previous year.
If you operate through a limited company, reviewing your dividend strategy before April 2026 may be worthwhile.
Capital Gains Tax Updates
Standard Capital Gains Tax Rates
The main CGT rates remain:
- 18% for basic rate taxpayers
- 24% for higher and additional rate taxpayers
The annual exemption remains at £3,000.
However, the key change relates to Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investors’ Relief.
Increase to Business Asset Disposal Relief Rate
From 6 April 2026, the CGT rate applying to qualifying disposals under these reliefs increases from 14% to 18%.
For business owners planning an exit, this is a material shift. On a £250,000 qualifying gain, the tax bill rises from £35,000 to £45,000 — a £10,000 increase.
Anyone considering selling a business, shares or qualifying assets may wish to review timing and tax planning carefully.
National Insurance Changes
For 2026/27, most National Insurance rates and thresholds remain unchanged.
Employees continue to pay:
- 8% on earnings between £12,570 and £50,270
- 2% above £50,270
Self-employed individuals pay:
- 6% on profits between £12,570 and £50,270
- 2% above £50,270
Employer National Insurance remains at 15% on qualifying earnings, including most benefits in kind.
Although there are no major structural changes, voluntary contributions for those living abroad become more restrictive and potentially more expensive from April 2026.
End of Home Working Tax Relief
A significant practical change affects employees who work from home.
From 6 April 2026, employees will no longer be able to claim the £6 per week flat-rate home working allowance directly from HMRC.
Employers can still reimburse employees tax-free for additional home working costs. However, where employers do not offer reimbursement, employees will not be able to claim tax relief themselves.
This change removes a widely used relief introduced and expanded during the pandemic and affects many hybrid workers.
Inheritance Tax Changes
One of the most substantial changes in 2026/27 affects Inheritance Tax reliefs for business owners and farmers.
From 6 April 2026:
- 100% Business Relief and Agricultural Relief apply only to the first £2.5 million of qualifying assets.
- Assets above this limit qualify for 50% relief.
Previously, these reliefs were uncapped. The introduction of a ceiling could significantly increase potential IHT exposure for larger estates involving trading businesses or agricultural property.
In addition, the nil-rate band remains frozen at £325,000 until at least 2031, meaning rising asset values continue to increase IHT exposure for many families.
Estate planning reviews are increasingly important where business or agricultural assets form a significant part of the estate.
Making Tax Digital – Who Is Affected?
April 2026 marks the start of Making Tax Digital (MTD) for Income Tax.
The first group required to comply includes:
- Sole traders
- Landlords
- Individuals with gross self-employment and/or property income over £50,000 (based on their 2024/25 return)
Those affected will need to:
- Maintain digital records
- Use HMRC-compatible software
- Submit quarterly updates
- File an annual final declaration
From April 2027, the threshold reduces to £30,000.
This represents one of the most significant administrative changes in recent years, particularly for landlords who currently keep basic spreadsheets or paper records.
ISA Changes and Investment Updates
For the 2026/27 tax year, the overall ISA limit remains £20,000.
However, from April 2027, the amount that can be contributed to a cash ISA is expected to reduce to £12,000 for those aged 64 and under. The overall £20,000 limit remains, but allocations between cash and stocks and shares will become restricted.
As a result, the 2026/27 tax year may represent an opportunity to maximise cash ISA contributions before the rules tighten.
Dividend and personal savings allowances remain unchanged for 2026/27.
What Should You Do Before 6 April 2026?
With several changes taking effect, reviewing your position before the end of the current tax year could be beneficial.
Depending on your circumstances, this might include:
- Reviewing dividend timing if you operate through a limited company
- Considering the timing of a business disposal
- Preparing for Making Tax Digital compliance
- Checking your PAYE tax code
- Reviewing estate planning where business assets exceed £2.5 million
- Ensuring home working arrangements are structured efficiently
Small planning decisions made before 6 April 2026 could have long-term tax implications.
Summary Table of All Changes
| Tax Area | 2026/27 Position |
|---|---|
| Personal Allowance | £12,570 (frozen) |
| Higher Rate Threshold | £50,270 (frozen) |
| Dividend Tax (Basic) | 10.75% |
| Dividend Tax (Higher) | 35.75% |
| BADR CGT Rate | 18% |
| CGT Annual Exemption | £3,000 |
| Home Working Relief | No longer claimable by employees |
| Business & Agricultural Relief | 100% capped at £2.5m |
| Making Tax Digital | Starts for income over £50,000 |
FAQs
When does the 2026/2027 tax year start?
The UK tax year runs from 6 April 2026 to 5 April 2027.
Are income tax rates increasing in 2026?
The main income tax rates are not increasing, but thresholds remain frozen, which may increase overall tax bills over time.
Can I still claim home working tax relief?
From April 2026, employees can no longer claim the flat-rate allowance from HMRC.
Who must comply with Making Tax Digital in 2026?
Sole traders and landlords with gross income above £50,000 based on their 2024/25 return.
Final Thoughts on the Changes in the 2026/2027 UK Tax Year
The 2026/27 tax year continues a pattern of gradual tightening rather than dramatic reform. While headline rates remain largely stable, changes to dividend taxation, capital gains relief, inheritance tax and compliance requirements could materially affect many taxpayers.
Understanding these changes early allows for proper planning — particularly for business owners, landlords and higher earners.
