7 Major UK Tax Changes For 2026/2027: The £1M Cap, CGT Hike, And The 'Frozen' Tax Trap
The UK tax landscape is set for a significant overhaul in the 2026/2027 tax year, with a number of previously announced legislative changes coming into effect that will directly impact personal wealth, investments, and business succession. These updates, confirmed through recent Finance Bills and government consultations, move far beyond the usual minor adjustments, introducing new caps on reliefs and substantial rate increases that demand immediate financial planning.
As of December 2025, the focus is shifting from the immediate tax year to the major structural reforms scheduled for April 2026. This article breaks down the seven most critical, confirmed, and proposed tax changes you need to understand now to mitigate your exposure and optimise your financial strategy for the coming years.
The Seven Most Critical UK Tax Changes Effective From April 2026
The 2026/2027 tax year is a pivotal moment for UK taxpayers, bringing into force several key policies that have been legislated or consulted upon in recent Budgets and Autumn Statements. These changes affect everything from wealth transfer to investment income.
1. The Capital Gains Tax (CGT) Rate Hike to 18%
One of the most consequential changes for investors and second-home owners is the planned increase to the basic rate of Capital Gains Tax (CGT). This change is part of a broader fiscal strategy to raise revenue from wealth.
- The New Rate: The basic rate of CGT is scheduled to increase from 14% (the rate effective from April 2025) to a new rate of 18%, effective from 6 April 2026.
- Higher Rate: The higher rate of CGT is also expected to be adjusted in line with this increase, though the specific final figure should be confirmed in upcoming fiscal events.
- Investors' Relief Cap Reduction: Simultaneously, the lifetime limit for qualifying disposals under Investors' Relief is set to be drastically reduced from £10 million to just £1 million. This significantly curtails the tax benefit for early-stage investors in unlisted trading companies.
This phased increase is designed to give taxpayers a window to "crystallise" gains before the final, higher rate takes effect, making 2025/2026 a crucial year for portfolio review.
2. The £1 Million Cap on Inheritance Tax (IHT) Reliefs
For business owners and those with substantial agricultural holdings, the Inheritance Tax (IHT) landscape will be fundamentally altered in 2026.
- Reliefs Affected: The change introduces a cap on the combined value of assets eligible for both Agricultural Property Relief (APR) and Business Property Relief (BPR).
- The Cap: From 6 April 2026, the maximum combined value of assets that can qualify for 100% relief under APR and BPR will be limited to £1 million.
- Impact on Succession: Any asset value above the £1 million cap will be subject to the standard IHT rate, which currently stands at 40%. This is a major shift, requiring immediate restructuring of wills, trusts, and business succession plans for high-net-worth families and farmers.
This is arguably one of the biggest shifts in UK Inheritance Tax in decades and will have a profound effect on the intergenerational transfer of wealth and businesses.
3. Higher Tax Rates for Dividends and Savings Income
Savers and investors who hold assets outside of tax-efficient wrappers like ISAs and pensions will face higher tax bills on their returns starting in the 2026/2027 tax year.
- Dividend Tax Increase: The Dividend Ordinary Rate is set to increase to 10.75%, and the Dividend Upper Rate will rise to 35.75% from 6 April 2026.
- Savings Tax Increase: The Savings Basic Rate is also scheduled to increase to 22%.
These increases are designed to align the taxation of investment income more closely with general income tax rates. They significantly increase the value of using Individual Savings Accounts (ISAs) and pensions, which remain protected from these rate hikes.
4. The Extended 'Fiscal Drag' from Frozen Allowances
While not a direct "change" in the traditional sense, the continuation of the freeze on key tax thresholds remains the single largest tax rise by stealth. The policy, known as 'fiscal drag', pulls more people into higher tax brackets as their wages increase with inflation.
- The Freeze: The Income Tax Personal Allowance (£12,570) and the Higher Rate Threshold (£50,270) are currently frozen.
- Duration: This freeze is now legislated to remain in place until April 2028, extending well beyond the 2026/2027 tax year.
- The Effect: As average earnings rise, a growing number of taxpayers will find themselves paying tax for the first time or moving from the basic rate into the 40% higher rate bracket, even if their real-terms spending power has not increased.
5. End of Voluntary Class 2 National Insurance Contributions (NICs) Abroad
Expatriates and individuals who have worked overseas face a specific change regarding their future State Pension entitlement.
- The Change: From 6 April 2026, individuals will no longer be able to pay voluntary Class 2 National Insurance contributions for periods spent working abroad.
- The Option Remaining: Only voluntary Class 3 NICs will be available for overseas periods.
- The Purpose: This is part of a government effort to simplify the voluntary NICs system, but it requires those working abroad to review their contributions to ensure they meet the qualifying years for the UK State Pension.
6. New Rules for Paying Inheritance Tax on Property
In a small piece of good news for those dealing with estate administration, the process of paying Inheritance Tax is set to become more flexible for a wider range of assets.
- The Extension: From April 2026, the option to pay Inheritance Tax by equal annual instalments over 10 years, interest-free, will be extended to all property, not just land and buildings.
- Benefit: This change provides greater flexibility and liquidity to executors, reducing the immediate financial strain of settling an IHT bill before assets are fully liquidated.
7. Major Overhaul of Self-Assessment Rules
While the full details of the Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) rollout have been subject to delays, other significant changes to the Self-Assessment regime are still expected to arrive by 2026.
- Affected Groups: This primarily impacts self-employed individuals, landlords receiving rental income, and those with side businesses.
- The Goal: The changes aim to simplify the filing process and potentially introduce new digital reporting requirements, though the exact scope is subject to ongoing legislative timelines. Taxpayers should monitor HMRC announcements closely for mandatory changes to reporting frequency and software requirements.
Strategic Planning: How to Prepare for the 2026/2027 Tax Year
The convergence of these major changes—the CGT hike, the IHT relief cap, and the dividend/savings rate increases—makes proactive tax planning essential before the 2026/2027 tax year begins.
Reviewing Your Investment Strategy
With dividend and CGT rates increasing, the tax-free benefits of ISAs become even more valuable. Investors should consider:
- Maximising ISA Allowances: Utilising the full £20,000 annual ISA allowance for adult savers and the £9,000 Junior ISA allowance is a critical first step to shield future gains and income from the higher rates.
- Crystallising Gains: Reviewing portfolios to realise capital gains before the 18% rate takes effect in April 2026, especially if the current annual CGT Allowance is available.
- Pension Contributions: Maximising contributions to registered pensions remains one of the most tax-efficient ways to save, as income and gains within the pension fund are generally tax-free.
Mitigating the Inheritance Tax Cap
The £1 million cap on APR and BPR is a game-changer for wealthier estates. Immediate action should include:
- Business Structure Review: Assessing whether the current structure of a business or farm still maximises BPR/APR under the new cap.
- Trust Planning: Utilising trusts to pass on assets outside of the estate, as the new IHT changes also affect trust reliefs.
- Gifting Strategy: Reviewing lifetime gifting strategies to ensure assets are passed on effectively and efficiently, well in advance of the new rules taking effect.
The Ongoing Threat of Fiscal Drag
The extended freeze on the Personal Allowance and tax thresholds until 2028 necessitates a focus on salary sacrifice and other tax-deductible benefits. By reducing your taxable income through mechanisms like increased pension contributions, you can counteract the effects of fiscal drag and prevent yourself from crossing into a higher tax bracket unnecessarily.
The 2026/2027 tax year is not a time for complacency. The confirmed changes to Capital Gains Tax and Inheritance Tax reliefs are structural shifts that require immediate and detailed consultation with a professional tax adviser to ensure your wealth and business assets are protected.
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