The 2026/27 tax year brings a significant number of changes that will affect business owners, landlords, company directors, pension savers, and individuals with overseas assets. Some of these changes take effect from 6 April 2026; others are already confirmed for April 2027 and April 2028. All of them have been through Parliament and are now part of UK law.
This guide sets out the ten most important changes, explains what each one means in plain terms, and ends each section with a clear action point so you know what to consider doing next. There is a great deal here, but there is also plenty of time to plan — and with the right advice, most of these changes can be managed effectively.
If anything in this article applies to you and you would like to discuss it, please do get in touch with us. That is what we are here for.
| Key UK Tax Changes 2026 and 2027 — At a Glance | |
|---|---|
| Dividend tax rises | Basic rate to 10.75%, higher rate to 35.75% — from 6 April 2026 |
| BPR & APR reform | 100% IHT relief capped at £2.5m per person (£5m per couple) — from 6 April 2026 |
| AIM shares | BPR reduced from 100% to 50% in all cases — from 6 April 2026 |
| BADR rate rise | CGT on qualifying business disposals rises from 14% to 18% — from 6 April 2026 |
| VCT relief cut | Income tax relief on VCT investments reduced from 30% to 20% — from 6 April 2026 |
| FIG regime | Replaces remittance basis for non-domiciled individuals — in force since 6 April 2025 |
| Savings & property tax rises | All income tax rates on savings and property income +2pp — from 6 April 2027 |
| Pensions & IHT | Most unused pension funds brought into IHT scope — from 6 April 2027 |
| Cash ISA cap | Under-65s limited to £12,000/year in Cash ISAs — from 6 April 2027 |
| Frozen thresholds | Income tax bands remain frozen until April 2031 — fiscal drag continues |
Changes Taking Effect from 6 April 2026
1. Dividend Tax Rate Increases
If you own shares in a company — whether your own limited company or an investment portfolio — the tax you pay on dividend income is going up from April 2026. The basic and higher rate of dividend tax are each rising by 2 percentage points. The additional rate (for those earning above £125,140) is unchanged.
| Tax Band | 2025/26 Rate | 2026/27 Rate | Change |
|---|---|---|---|
| Basic rate (up to £50,270) | 8.75% | 10.75% | +2 percentage points |
| Higher rate (£50,271–£125,140) | 33.75% | 35.75% | +2 percentage points |
| Additional rate (above £125,140) | 39.35% | 39.35% | Unchanged |
The tax-free dividend allowance — the amount you can receive in dividends before any tax is due — has already been cut sharply in recent years and now stands at just £500. This means the rate increases will catch a much wider range of shareholders than at first glance.
For company directors who pay themselves partly in dividends, the numbers will need revisiting. The strategy of keeping salary low and dividends high to reduce National Insurance has not gone away, but the relative advantage is narrower than it used to be. Employer pension contributions made directly through the company continue to offer strong tax efficiency and are worth considering as part of your remuneration mix.
2. Frozen Income Tax Thresholds — The Silent Tax Rise
Income tax rates themselves are not going up. The basic rate stays at 20%, the higher rate at 40%, and the additional rate at 45%. However, the thresholds at which those rates kick in have been frozen since 2022 and will remain frozen until April 2031. As your income rises with inflation, more of it falls into higher tax bands — even though the rates haven’t changed. This is sometimes called fiscal drag, and it is a real and growing cost for many people.
The personal allowance remains at £12,570, and the higher rate threshold at £50,270. If your income is approaching either of those levels — or approaching £100,000, where the personal allowance begins to be tapered away — there are often straightforward steps that can help.
3. Business Property Relief and Agricultural Property Relief — New £2.5 Million Cap
This is probably the most significant inheritance tax change for business owners and farmers in a generation. Until now, qualifying business and agricultural assets — a family company, a farm, certain investments — could be passed on free of inheritance tax, however large the estate. From 6 April 2026, that unlimited relief ends.
Under the new rules, each individual can pass on up to £2.5 million of qualifying business or agricultural assets at 100% relief — meaning no IHT on that portion. Above £2.5 million, relief drops to 50%, giving an effective IHT rate of 20% on the excess. The key points in plain terms are:
- Each person has a £2.5 million allowance. A married couple or civil partners together have up to £5 million, provided the allowance of the first to die is not wasted.
- The £2.5 million allowance refreshes every seven years for lifetime gifts, which opens up a long-term planning strategy of making gifts during your lifetime.
- Gifts made on or after 30 October 2024 will be assessed under the new rules if the donor dies on or after 6 April 2026 within seven years of making the gift. If you made gifts of qualifying assets since that date, it is worth reviewing your position.
- Trusts holding qualifying assets have their own £2.5 million allowance, but the trust rules are complex — please take advice before making any changes.
The good news is that the majority of business owners and farmers will not be affected at all — around 85% of estates claiming these reliefs in 2026/27 are expected to pay no more IHT than before. But for those with larger businesses, farms, or qualifying asset portfolios, the impact can be substantial, and early planning makes a significant difference.
Wills often contain clauses that leave all business or agricultural assets to children on first death, with other assets going to the surviving spouse. With the new transferable allowance, this approach may no longer give the best outcome — it is worth reviewing existing wills with your solicitor.
If you own a family business, farm, or significant qualifying assets and have not yet reviewed your succession planning in light of these changes, please get in touch. We can help model the impact on your estate and identify the most practical planning steps. Call us on 01707 665533 or email michael@mfiliou.com.
4. AIM Shares — End of Full IHT Relief
Shares on the Alternative Investment Market (AIM) have for many years attracted 100% Business Property Relief after two years of ownership, making them a popular way to reduce inheritance tax while staying invested in the stock market. From April 2026, this changes: AIM shares will attract only 50% BPR in all cases, producing a permanent effective IHT rate of 20% on death. The £2.5 million combined allowance does not apply to AIM shares — the 50% rate applies to the full value regardless.
This does not make AIM shares worthless as an investment, but it does fundamentally change their role as an IHT planning tool. Investors who hold AIM portfolios specifically for IHT purposes should review whether these still form the right part of their planning strategy.
5. Business Asset Disposal Relief — CGT Rate Rises to 18%
When you sell a qualifying business or business interest, Business Asset Disposal Relief (BADR) — previously known as Entrepreneurs’ Relief — gives you a reduced rate of capital gains tax on the first £1 million of qualifying gains. That lifetime limit is unchanged, but the rate has been rising. It went from 10% to 14% in October 2024, and from April 2026 it rises again to 18%. The mainstream CGT rates of 18% and 24% remain unchanged.
For a business owner selling up, BADR still provides a meaningful saving compared with the standard CGT rates. But the relief is worth considerably less than it was a couple of years ago, and the timing of a disposal can make a real difference.
6. Venture Capital Trust Relief — Reduced from 30% to 20%
Venture Capital Trusts (VCTs) offer income tax relief on investments in smaller growing businesses. Until now, investors have benefited from 30% income tax relief on up to £200,000 invested per year. From April 2026, this relief is cut to 20%. The other VCT benefits — tax-free dividends and capital gains — are unchanged, and those who have already invested in VCTs keep the relief they have already claimed.
VCTs remain a tax-efficient investment for the right person, but they are less immediately attractive than they were. For higher and additional rate taxpayers who have been using VCTs to reduce their annual tax bill, it is worth reassessing whether pension contributions or ISA maximisation offer a better return for their circumstances.
7. The Foreign Income and Gains (FIG) Regime
If you have overseas income or assets, or if you have recently moved to the UK after living abroad, this section is important for you.
Since 6 April 2025, the old remittance basis — which allowed non-UK domiciled individuals to leave overseas income untaxed as long as they did not bring it to the UK — has been replaced by the Foreign Income and Gains (FIG) regime. The new system works differently:
- If you have been non-UK resident for at least 10 consecutive years before moving to the UK, you can claim a full UK tax exemption on your foreign income and gains for the first four tax years of your UK residence.
- The exemption is not given automatically — you must claim it each year on your self-assessment return.
- It does not cover UK-source income or gains, which remain fully taxable.
For those who built up overseas wealth under the old remittance basis and want to bring it to the UK, the Temporary Repatriation Facility (TRF) allows you to do so at a reduced tax rate for a limited period:
| Tax Year | TRF Rate on Remittance |
|---|---|
| 2025/26 | 12% |
| 2026/27 | 12% |
| 2027/28 | 15% |
| 2028/29 onwards | TRF facility closes |
The FIG regime and the TRF both involve strict time limits. If you are in the UK under the four-year FIG exemption, the window cannot be reclaimed once it has passed. Similarly, the TRF closes after 2027/28. Early professional advice avoids costly missed opportunities.
Changes Coming from 6 April 2027
The following three changes are confirmed in law and take effect in just over a year’s time. There is still time to plan, but that window will close quickly.8. Savings and Property Income Tax Rates — Rising by 2% Across the Board
From April 2027, the income tax rates on savings interest and property income are each rising by 2 percentage points. This is a straightforward increase that will affect anyone earning savings interest or rental income above their tax-free allowances.| Income Type | Current Rate (2026/27) | New Rate (from April 2027) |
|---|---|---|
| Savings income — basic rate | 20% | 22% |
| Savings income — higher rate | 40% | 42% |
| Savings income — additional rate | 45% | 47% |
| Property income — basic rate | 20% | 22% |
| Property income — higher rate | 40% | 42% |
| Property income — additional rate | 45% | 47% |
The new property income rates apply in England, Wales and Northern Ireland from 6 April 2027. The government will engage separately with Scotland on equivalent powers.
The Personal Savings Allowance — the amount of savings interest you can receive before paying tax — is £1,000 a year for basic-rate taxpayers and £500 for higher-rate taxpayers. Additional-rate taxpayers have no Personal Savings Allowance at all. With rates rising, holding savings in tax-free wrappers such as ISAs and pensions becomes even more valuable from April 2027.
9. Inheritance Tax and Pension Funds — A Major Change from April 2027
For many years, unspent pension funds have sat outside the estate for inheritance tax purposes. This made pensions not just a retirement savings vehicle, but a valuable way of passing wealth to the next generation free of IHT. From 6 April 2027, this changes for most people.
Under the new rules, the value of most unused pension funds and death benefits will be included in the taxable estate. In plain terms: if you die with money left in your pension, it will generally count towards your IHT calculation alongside your other assets.
The key points to understand are:
- Many estates that currently sit below the IHT threshold may now be pushed above it once pension assets are included.
- The IHT is the responsibility of the estate’s Personal Representatives — but it can be paid directly from the pension fund, which avoids the need to withdraw money from the pension and pay income tax just to fund the IHT bill.
- Certain pension benefits remain outside the IHT charge, including death-in-service benefits, transfers to a spouse or civil partner, and transfers to charity.
- Pension assets will not qualify for Business Property Relief or Agricultural Property Relief, even if the pension holds business or agricultural investments.
It is worth noting that this does not make pensions a poor savings vehicle — far from it. The income tax efficiency of pension contributions remains very strong. What changes is how pensions fit into your wider estate plan, and that is worth revisiting.
The good news is that there is still time to plan. Over a year remains before these rules take effect. Reviewing how your pension interacts with your estate plan now — rather than after April 2027 — gives you the best range of options.
If you are concerned about how the new pension IHT rules will affect your estate, please speak to us. We work with clients and their financial advisers to review the full picture and identify practical steps. Call 01707 665533 or email michael@mfiliou.com.
10. ISA Changes — Cash ISA Cap for Under-65s from April 2027
From 6 April 2027, the rules on how you use your annual ISA allowance are changing for most adults. The overall allowance stays at £20,000, but if you are under 65 you will only be able to put a maximum of £12,000 into a Cash ISA. The remaining £8,000 will need to go into a Stocks and Shares ISA or another eligible ISA type.
Savers aged 65 or over are fully exempt from this cap and can continue to use the entire £20,000 allowance in cash if they wish. Existing Cash ISA balances are unaffected — the cap applies only to new contributions from April 2027 onwards.
The Government’s aim is to encourage more people to invest rather than save in cash, in the hope of delivering better long-term returns. Whether that approach suits you depends on your circumstances — but the change in savings income tax rates (see change 8 above) does make the ISA wrapper more valuable from 2027, so maximising your ISA contributions now is generally sound planning regardless.
The 2026/27 tax year is the last year in which under-65s can contribute the full £20,000 to a Cash ISA before the new cap takes effect on 6 April 2027. If cash savings are important to you, this year’s ISA allowance is particularly worth using in full.
What to Do Next
The changes covered in this article are broad, but not every change will affect every reader equally. What matters is understanding which of them apply to your situation and taking sensible steps while there is time.
We are a firm of Chartered Certified Accountants with over 30 years of experience advising individuals and businesses across Hertfordshire and London. We deal with these issues every day, for clients at every stage of life and business. If any of the above has prompted a question or a concern, we would be very glad to hear from you.
The most common regret we hear from clients is that they wished they had come to us sooner. With most of these changes, the earlier you plan, the more options you have.
Get in touch:
- Telephone: 01707 665533
- Mobile: 07831 622711
- Email: michael@mfiliou.com
- Address: Salisbury House, 81 High Street, Potters Bar, Hertfordshire EN6 5AS
Frequently Asked Questions
Which tax changes take effect in April 2026?
Several changes take effect from 6 April 2026. Dividend tax rates rise by 2 percentage points for basic and higher rate taxpayers. Business Property Relief and Agricultural Property Relief are reformed, with 100% IHT relief capped at £2.5 million per individual. AIM-quoted shares lose full BPR and attract only 50% relief. The CGT rate under Business Asset Disposal Relief rises from 14% to 18%. VCT income tax relief falls from 30% to 20%. Income tax thresholds remain frozen until 2031.
Which tax changes take effect in April 2027?
From 6 April 2027, income tax rates on savings and property income rise by 2 percentage points across all bands. Most unused pension funds are brought into the scope of inheritance tax for the first time. The annual Cash ISA contribution limit for savers under 65 is reduced from £20,000 to £12,000, while the overall ISA allowance of £20,000 remains unchanged.
Will my pension be subject to inheritance tax from 2027?
In most cases, yes. From 6 April 2027, the value of most unused pension funds will be included in the taxable estate for IHT purposes. Certain benefits remain outside the charge, including transfers to a spouse or civil partner, death-in-service benefits, and transfers to charity. The IHT can be paid directly from the pension fund, avoiding the need to withdraw taxable income to fund the bill. There is still time to plan before April 2027 — and it is well worth doing so.
Are Cash ISAs being restricted from 2027?
From 6 April 2027, savers under 65 will be limited to contributing £12,000 per year into a Cash ISA, with the remaining £8,000 of the annual £20,000 ISA allowance available for stocks and shares or other ISA types. Savers aged 65 or over are exempt and retain the full £20,000 Cash ISA allowance. Existing Cash ISA balances are unaffected. The 2026/27 tax year is the last year in which under-65s can contribute the full £20,000 to a Cash ISA.
What should business owners, landlords, and pension savers do now?
The most useful thing is to review your position before the changes bed in — not after. Business owners should look at the value of their qualifying assets against the new £2.5 million BPR/APR threshold and review their succession planning and wills. Landlords should consider whether their ownership structure remains efficient given the property income tax rises coming in 2027. Pension savers should check whether their pension fund, added to their other assets, takes their estate above the IHT threshold. In all cases, early planning gives you the most options. Please get in touch and we will be happy to talk it through with you.