8 Major UK Tax Changes For 2026: The Ultimate Guide To IHT, CGT, And Income Tax Hikes

The UK tax landscape is set for a dramatic overhaul starting in the 2026/2027 fiscal year, with several significant and potentially costly changes set to take effect from April 6, 2026. For individuals, business owners, and those with substantial assets, the financial planning environment is shifting rapidly, moving away from a period of relative stability into one where high-net-worth individuals and entrepreneurs will face notably higher tax liabilities. This detailed guide, updated for December 2025, breaks down the most critical reforms—specifically targeting Inheritance Tax (IHT), Capital Gains Tax (CGT), and various Income and Savings Tax rates—that demand immediate review and strategic action to mitigate the financial impact. The year 2026 marks a crucial point where several previously announced legislative changes and the expiration of certain temporary freezes will converge, leading to what many financial experts are calling a stealth tax raid. The key takeaway for all taxpayers is that the era of frozen allowances is continuing, while specific tax reliefs are being curtailed, effectively increasing the overall tax burden (the "tax take") across multiple areas of personal and business finance.

The Seismic Shift in Inheritance Tax (IHT) from April 2026

The most radical and high-impact change for wealthier families and business owners is the proposed reform to Inheritance Tax (IHT) reliefs, which has been a cornerstone of estate planning for decades. These changes directly target the reliefs associated with business and agricultural assets.

The £1 Million Cap on Business and Agricultural Reliefs

From April 6, 2026, a new, stringent £1 million cap will be introduced on the combined value of assets eligible for 100% relief under Business Property Relief (BPR) and Agricultural Property Relief (APR). * Business Property Relief (BPR): BPR currently allows for 100% relief from IHT on the transfer of a qualifying business or shareholding, both during the owner’s lifetime and upon death. This has been a vital tool for succession planning for family-owned companies. * Agricultural Property Relief (APR): APR provides 100% relief on the value of qualifying agricultural land and property. * The Impact: Under the new rules, if a deceased person's estate holds a mix of qualifying business and agricultural assets valued at, for example, £5 million, only the first £1 million will receive 100% relief. The remaining £4 million will be subject to IHT at the standard 40% rate, unless other reliefs apply. This change necessitates an urgent review of wills, trust structures, and company ownership models well before the 2026 deadline.

Extended IHT Payment Flexibility

While the cap is a major restriction, one minor concession is expected to be introduced. From April 2026, the option to pay Inheritance Tax by equal annual instalments over 10 years, interest-free, will be extended to cover the IHT liability on all property within an estate. This is a move to improve liquidity for executors who may be struggling to sell assets quickly.

Capital Gains Tax (CGT) Hikes and Relief Reductions

Entrepreneurs, investors, and those disposing of business assets will be hit by significant increases in the effective rate of Capital Gains Tax (CGT) from the 2026/2027 tax year.

1. Business Asset Disposal Relief (BADR) Rate Increase

The primary relief for business owners selling their company is being made considerably less generous. * The Change: The CGT rate applied to disposals qualifying for Business Asset Disposal Relief (BADR)—formerly known as Entrepreneurs' Relief—is scheduled to increase from 14% to 18% from April 6, 2026. * Strategic Implication: This 4-percentage-point jump means that any qualifying sale completed after the 2025/2026 tax year will incur a higher tax bill. Business owners contemplating a sale should accelerate their plans or explore alternative tax-efficient exit strategies.

2. Investors' Relief Lifetime Limit Slashed

Investors' Relief, which allows for a 10% CGT rate on gains from shares in unlisted trading companies (subject to certain conditions), is also being significantly curtailed. * The Reduction: The lifetime limit for Investors' Relief qualifying disposals will be drastically reduced from £10 million to just £1 million. * Effect: This measure severely limits the tax advantage for angel investors and external investors in high-growth companies, making the relief largely irrelevant for large-scale investment.

3. Carried Interest Moves to Income Tax Framework

The taxation of 'carried interest'—the share of profits received by private equity and venture capital fund managers—is set for a fundamental change. From April 6, 2026, the carried interest regime will be moved to the Income Tax framework. * The Result: This shift means that carried interest will be taxed at the higher Income Tax rates (up to 45% or higher in Scotland) instead of the current, lower Capital Gains Tax rates. This is a major blow to the private equity sector and will significantly increase the tax liability for fund managers.

Income, Savings, and Investment Tax Changes

Beyond the headline changes to IHT and CGT, several specific tax rates for savings and investments are also set to rise, compounding the pressure on household finances.

1. Dividend Tax Rates Increase

For company directors, shareholders, and those with significant investment portfolios, the tax on dividends is increasing. * New Rates (from April 2026): * The Dividend Ordinary Rate will increase to 10.75%. * The Dividend Upper Rate will increase to 35.75%.

2. Savings Basic Rate Rises

The basic rate of tax applied to savings income is set to increase, affecting non-ISA savings accounts. * New Rate (from April 2026): The Savings Basic Rate will increase to 22%.

3. Venture Capital Trust (VCT) Relief Reduction

A key incentive for investment in smaller, higher-risk companies is being scaled back. * The Cut: The Income Tax relief available on investments in Venture Capital Trusts (VCTs) will be reduced from 30% to 20% from April 2026. This makes VCTs a less attractive option for high-earning investors looking for immediate tax relief.

The Stealth Tax: Frozen Personal Allowances

Perhaps the most universally felt "tax change" for 2026 is the lack of change to the core Income Tax thresholds. This is a classic example of fiscal drag, a "stealth tax" that pulls more people into higher tax bands as wages rise with inflation.

The Extended Freeze on Personal Allowances

The Personal Allowance, the amount of income you can earn before paying Income Tax, has been frozen at £12,570 for several years. Crucially, this freeze was originally scheduled to end in April 2026 but has been extended until April 2028. * Fiscal Drag: As inflation continues and average earnings increase, the fixed £12,570 threshold means a larger percentage of a person's income becomes taxable. Furthermore, more workers will be pushed into the 40% Higher Rate Tax band (£50,270) and the 45% Additional Rate Tax band (£125,140), as these thresholds are also frozen. The government forecasts that this measure will raise billions in revenue by April 2028.

HMRC's Digital Correspondence Update

In a procedural, rather than fiscal, change, HMRC has confirmed a major update to its letter and correspondence system starting in 2026. This digital overhaul is expected to affect an estimated 37 million taxpayers, streamlining how the tax authority communicates about tax codes and liabilities. While not a tax rate change, it is a significant administrative reform that taxpayers should be aware of.

Strategic Planning Entities: What to Review Now

The convergence of these eight major changes in 2026 demands immediate action from taxpayers and financial planners. The window for tax-efficient disposals or restructuring is rapidly closing. 1. Estate Planning: Review all existing wills and trusts, especially those relying heavily on Business Property Relief (BPR) and Agricultural Property Relief (APR) to ensure the value of qualifying assets does not exceed the new £1 million cap. Consider lifetime giving strategies. 2. Business Exit Strategy: For business owners contemplating a sale, accelerating the disposal to complete before April 2026 could save the difference between the 14% and 18% Business Asset Disposal Relief (BADR) rate. 3. Investment Portfolio: Review the structure of non-ISA savings and dividend-generating investments, given the expected increases in Dividend Tax Rates and the Savings Basic Rate. 4. VCT Investment: Assess the viability of future Venture Capital Trust (VCT) investments, factoring in the reduction of Income Tax relief from 30% to 20%. 5. Income Tax: Be acutely aware of the Personal Allowance Freeze and the resulting fiscal drag. Consider maximising pension contributions to reduce taxable income and avoid being pulled into a higher tax band.

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