2026 marks another year of the UK continuing on its course towards a higher tax burden on households.
Some recent tax rises are explicit, such as the increase to employer National Insurance (NI) contributions in April 2025. Others fall into the category of ‘stealth taxes.’
This means that the rates and allowances don’t change, but when you factor in inflation, people will be paying more tax in real terms.
In this guide, we explain the main changes to tax allowances since October 2024, as well as some options for saving tax.
Dividend Tax
Currently, you can earn up to £500 in dividends before you start to pay tax. This could include profits from your own company or income from a share portfolio.
The allowance was reduced from £1,000 in the 2023/24 tax year to £500 from April 2024. Prior to that, it was £2,000.
If you own your own company, you have a few options for taking your income efficiently. You can combine dividends and salary to make the most of all available allowances.
Although the dividend allowance is now just £500, a modest salary combined with dividends remains a tax-efficient remuneration structure in many circumstances.
There are a few other options for taking tax-efficient benefits from the company. For example, the company can make pension contributions or pay for certain types of life cover on your behalf.
If you receive dividends from an investment portfolio, you could move some of your holdings into an ISA. This means that all returns are tax-free.
You can transfer up to £20,000 per year. Remember that moving funds into an ISA is a disposal for Capital Gains Tax purposes and could result in a tax liability.
Capital Gains Tax (CGT)
The CGT exemption is currently £3,000. Again, this allowance has fallen over recent years, from a high point of £12,300 in April 2023.
Any gains realised above £3,000 are generally subject to tax of 18% for basic rate taxpayers and 24% for higher rate taxpayers.
There are certain rules that help mitigate CGT. For instance, you do not pay it when selling your home (assuming you live there), and giving assets to charity is also tax-free.
Gifts to a spouse are also exempt from CGT. You could transfer an asset so you can make use of both exemptions and basic rate bands.
If you have an investment portfolio, you can realise small gains every year to make use of your exemptions. This avoids large gains building up and potentially becoming taxable later.
You can do this by switching funds, moving money into your ISA, or taking withdrawals to top up your income.
Income Tax
Income tax allowances and thresholds will remain static until at least 2031. High inflation means that both wages and prices will rise, pushing more people into the next tax band, while putting increased pressure on household finances. This means that even with a pay rise, employees are likely to have a lower disposable income than in previous years.
You can receive income tax relief on pension contributions. In most personal pensions, contributions are paid net of basic-rate tax and then topped up by HMRC. For example, if you contribute £80, HMRC adds £20, making a total pension contribution of £100. Higher- and additional-rate taxpayers may be able to claim extra tax relief through self-assessment or by contacting HMRC.
If you make contributions through your employer, relief is often calculated automatically. It’s worth seeking advice if you have more than one source of income. There are limits on pension tax relief, which are explained here.
You can also claim tax relief if you invest in some high-risk schemes, such as Enterprise Investment Schemes (EIS) or Venture Capital Trusts (VCTs). These provide income tax relief of up to 30%, subject to certain conditions. Advice is recommended if you are considering investing in these plans, as they are not suitable for everyone.
Marriage allowance can offer a small saving on your tax bill if you are a basic rate taxpayer and your spouse is not fully utilising their personal allowance. Up to £1,260 of the personal allowance can be passed between spouses, saving up to £252 per year.
You may also be paying tax on interest from savings. While interest has been negligible over the last few years, increasing rates mean that more people will be paying tax on their savings.
One option is to transfer some of your cash to a spouse to use both personal savings allowances. This is £1,000 per year for a basic rate taxpayer and £500 for a higher rate taxpayer. You can also move some of your cash to an ISA.
Inheritance Tax (IHT)
The IHT nil rate band has been frozen at £325,000 since 2009, and will remain so until at least 2031. Between high inflation, rising interest rates and increasing asset values, more and more estates will likely become subject to IHT.
The joint nil rate band helps to make estate planning simpler for couples, as together they can pass on up to £650,000, free of IHT. Additionally, the Residence Nil Rate Band can provide further relief where a family home forms part of the estate and is passed to direct descendants, such as children or grandchildren.
If inheritance tax remains a concern, there are a number of planning options that may help reduce a potential liability, particularly when considered well in advance. For example:
- Make gifts during your lifetime. The annual gifting exemption allows gifts of up to £3,000 each tax year to be exempt from inheritance tax immediately. Larger gifts drop out after seven years.
- Consider placing assets in trust. This allows you to reduce the value of your estate after seven years, without giving beneficiaries full control of the money.
- Set up life insurance (payable to a trust) to cover the liability.
- Make gifts to charity. Charitable gifts are removed from your estate immediately. If you donate at least 10% of your estate via your will, your remaining taxable estate will be subject to a reduced rate of 36% (normally 40%).
We will likely all pay more tax in the coming years, but with some simple planning, you could make some significant savings.
Please don’t hesitate to contact a member of the team to find out more about tax planning.
The content in this article was correct on 20/07/2026.
The value of your investment can go down as well as up and you may get back less than the amount invested
VCT’s and EIS’s are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital
The Financial Conduct Authority does not regulate Trusts, Inheritance Tax and Estate Planning
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