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5 Major UK Tax Changes Hitting Your Wallet In April 2026: The Comprehensive Guide

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The UK tax landscape is set for a significant seismic shift in the 2026-2027 tax year, beginning on 6 April 2026, with a series of major legislative changes that will impact income, investments, and wealth transfer. While much of the public focus has been on the cost of living crisis, a range of previously announced, yet often overlooked, tax measures are scheduled to take effect, dramatically altering the financial planning strategies for millions of individuals, investors, and business owners across the United Kingdom. This comprehensive guide, updated for December 2025, details the most critical changes you must prepare for now.

The core theme of the 2026 changes is a targeted increase in the tax burden on capital and wealth, primarily through the reform of Capital Gains Tax (CGT) and a radical overhaul of Inheritance Tax (IHT) reliefs. These changes, coupled with the continuation of the multi-year freeze on Income Tax thresholds, mean that proactive financial planning is no longer optional—it is essential to mitigate substantial new liabilities.

The Stealth Tax: The Continuing Freeze on Income Tax Thresholds

One of the most impactful, yet least talked about, changes for 2026 is the continuation of the freeze on Income Tax thresholds, which is currently legislated to remain in place until April 2028.

While the rates of Income Tax (Basic Rate, Higher Rate, and Additional Rate) may not change in the 2026-2027 tax year, the freezing of the thresholds is a powerful form of "fiscal drag" or "stealth tax."

  • Personal Allowance (PA): The standard Personal Allowance, the amount of income you can earn before paying Income Tax, remains frozen.
  • Higher Rate Threshold (HRT): The threshold at which you begin paying the 40% Higher Rate of Income Tax is also frozen.

As wages increase due to inflation and pay rises, more and more people are dragged into paying tax for the first time, or pushed into the higher 40% tax bracket. This effect significantly reduces the real-terms value of any pay increase, making the freeze a primary concern for middle-income earners.

The continuation of this freeze means that by April 2026, the cumulative effect of fiscal drag will be substantial, increasing the tax bill for millions who are not traditionally considered 'high earners'.

The £1 Million Shock: Major Overhaul of Inheritance Tax Reliefs

The most radical and potentially costly change for wealthy families and business owners comes in the form of a significant restriction on two of the most valuable Inheritance Tax (IHT) reliefs: Business Property Relief (BPR) and Agricultural Property Relief (APR). These changes are scheduled to take effect from 6 April 2026.

A £1 Million Cap on BPR and APR

From April 2026, the government will introduce a £1 million cap on the combined value of assets eligible for 100% BPR and APR. Previously, these reliefs offered 100% exemption from IHT on qualifying assets, such as shares in unlisted trading companies (BPR) or farmland (APR), regardless of their value.

This new cap means that:

  • Any value of qualifying business or agricultural assets exceeding £1 million will now be subject to Inheritance Tax, typically at the standard 40% rate.
  • This change will fundamentally alter succession planning and wealth transfer strategies for family businesses, farmers, and wealthy investors with significant holdings in private companies.

IHT Payment Flexibility

On a slightly more positive note, from April 2026, the government will extend the option to pay Inheritance Tax by equal annual instalments over 10 years, interest-free, to all property. This change is intended to ease the immediate liquidity pressure on estates, allowing heirs more time to sell assets without a forced sale, though the tax liability itself remains.

Capital Gains and Investment Income: The Rate Hikes

The 2026-2027 tax year is also set to see a dramatic increase in the rates of Capital Gains Tax (CGT) and a noticeable rise in Dividend Tax rates, directly targeting investment returns and asset disposal.

Capital Gains Tax (CGT) Rate Surge

Major changes to CGT rates, particularly for assets other than residential property (where rates are already higher), are scheduled for April 2026.

  • Basic Rate Taxpayers: The CGT rate will increase from 10% to 18%.
  • Higher and Additional Rate Taxpayers: The CGT rate will increase from 20% to 24%.

This significant increase—an 80% hike for basic rate taxpayers and a 20% hike for higher rate taxpayers—is a powerful incentive for investors to review their portfolios and consider accelerating any planned asset disposals before the April 2026 deadline. The annual exempt amount (AEA) for CGT is also continuing its phased reduction in the years leading up to 2026, further increasing the tax net.

Dividend and Savings Tax Increases

Investors receiving income from dividends and savings will also face higher tax bills from 6 April 2026.

  • Dividend Ordinary Rate: Set to increase to 10.75%.
  • Dividend Upper Rate: Set to increase to 35.75%.
  • Savings Basic Rate: Set to increase to 22%.

These increases, combined with the reduction in the Dividend Allowance and the Personal Savings Allowance (PSA) for high earners, will make tax-efficient wrappers like ISAs (Individual Savings Accounts) and pensions even more crucial for managing investment income.

Key Business and Corporate Tax Adjustments

While the main Corporation Tax rate is expected to hold steady at 25% for the financial year beginning 1 April 2026, businesses must prepare for a significant reduction in capital allowances.

Reduced Writing-Down Allowances (WDAs)

From 1 April 2026 (for Corporation Tax) and 6 April 2026 (for Income Tax), the main rate of Writing-Down Allowances (WDAs) will be reduced from 18% to 14%. WDAs allow businesses to deduct the cost of assets (like machinery, equipment, and vehicles) from their taxable profits over several years.

The reduction in the WDA rate means that the tax relief on capital expenditure will be spread over a longer period, reducing the immediate cash flow benefit of investment. This change is designed to encourage businesses to utilise the temporary 'Full Expensing' measure for qualifying plant and machinery while it is available, before the WDA reduction takes effect.

National Insurance and International Tax Compliance

The 2026 tax year brings a specific, yet important, change to National Insurance (NI) contributions for expatriates and a new compliance burden for large multinational corporations.

Voluntary Class 2 NI Restriction

From 6 April 2026, individuals will no longer be able to pay voluntary Class 2 National Insurance contributions for periods spent working abroad. This Class 2 contribution is often used by UK citizens working overseas to maintain their entitlement to the State Pension and other benefits. Affected individuals will instead have to rely on paying the more expensive Class 3 contributions, or ensure they meet the criteria for other NI credits.

Multinational Compliance Requirements

A new tax compliance requirement is set to be introduced from 2026, affecting all large multinational enterprises (MNEs). This is part of the UK's commitment to international tax reform, aimed at increasing transparency and ensuring MNEs pay their fair share of tax globally.

Preparing for the 2026 Tax Environment

The cumulative effect of the 2026 tax changes—the freezing of Income Tax thresholds, the dramatic increase in CGT rates, and the severe restriction on IHT reliefs—creates a compelling urgency for immediate financial review.

Tax entities and planning areas requiring immediate attention:

  • Capital Gains Tax Planning: Reviewing portfolios for potential disposals before April 2026 to lock in lower CGT rates.
  • Inheritance Tax Planning: Urgent review of Wills, Trusts, and the structure of family businesses or agricultural estates to mitigate the impact of the £1 million BPR/APR cap.
  • Corporate Investment Strategy: Accelerating capital expenditure plans to maximise the benefit of current Writing-Down Allowances before the reduction.
  • ISA and Pension Contributions: Maximising contributions to tax-efficient wrappers to shield income and gains from the higher CGT and Dividend Tax rates.
  • Expat NI Status: Reviewing the NI contribution history for periods abroad before the Class 2 restriction takes effect.

The 2026-2027 tax year is shaping up to be one of the most significant in recent memory for UK tax policy. Ignoring these scheduled changes could result in substantial and avoidable tax liabilities. Consult with a qualified financial advisor or tax specialist now to ensure your personal and business finances are optimally structured for the new tax reality.

5 Major UK Tax Changes Hitting Your Wallet in April 2026: The Comprehensive Guide
uk tax changes 2026
uk tax changes 2026

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