Millions of individuals are set to face higher tax obligations in 2026, but there are strategies available to reduce the impact on your finances. Sarah Coles, the head of personal finance at Hargreaves Lansdown, provides insights into navigating the upcoming tax changes.
Coles emphasizes the importance of taking proactive steps early on to mitigate the potential tax burden in 2026. By being proactive, individuals can minimize the impact of the tax adjustments that lie ahead.
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The personal allowance, which denotes the income threshold before tax liability kicks in, has been fixed at £12,570 until 2031. This freeze means that as incomes rise, individuals risk moving into higher tax brackets.
In April 2026, the dividend tax rate is set to increase from 8.75% to 10.75% for basic rate taxpayers and from 33.75% to 35.75% for higher rate taxpayers. Additionally, venture capital trusts will witness a reduction in tax relief from 30% to 20% in the same period.
The inheritance tax nil rate band will stay at £325,000, and the residence nil rate band at £175,000 until 2031. Similarly, the IHT annual gift allowance remains unchanged at £3,000.
Come April 2026, council tax in England is slated to rise again, with local authorities authorized to increase it by up to 5% annually without the need for a referendum.
The 5p per liter reduction in fuel duty implemented in March 2022 will gradually be phased out, returning to pre-reduction levels by March 2027.
From February 2026, alcohol duty will increase in line with RPI inflation, while tobacco duty will see a one-off rise as announced in the 2024 spring Budget by Jeremy Hunt. Additionally, tobacco duty typically rises in November by RPI inflation plus two percentage points.
A new duty of £2.20 per 10ml of vaping liquid will be imposed starting October 2026.
Coles suggests five legal methods to reduce your tax liability in 2026. These include maximizing ISA saving accounts, leveraging pension contributions for tax relief, utilizing salary sacrifice schemes, transferring income-generating assets between spouses tax-efficiently, and taking advantage of the marriage allowance if applicable.
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