5 Critical UK Tax Changes Arriving In 2026: The New Rules That Will Redefine Your Wealth
The UK tax landscape is set for a significant overhaul in 2026, marking what many experts are calling the most substantial set of changes since the post-pandemic fiscal adjustments. As of today, December 22, 2025, the government has confirmed several major policy shifts that will fundamentally impact individuals, investors, and business owners across the country, particularly concerning long-term planning for wealth transfer and corporate investment. These changes, primarily taking effect from the start of the 2026/2027 tax year (April 6, 2026), are designed to raise revenue and reshape key incentives, demanding immediate attention from anyone involved in tax planning or financial management.
The core intention behind the Finance Bill 2025-26 measures is a targeted approach to closing tax reliefs while maintaining headline rates in some areas. From a dramatic cap on Inheritance Tax (IHT) reliefs to rising rates on investment income and a tightening of business capital allowances, the new rules require a proactive strategy. Understanding these five critical changes is essential to avoid unexpected tax liabilities and ensure compliance in the coming fiscal year.
1. The £1 Million Cap on Inheritance Tax (IHT) Business and Agricultural Reliefs
The most consequential change for high-net-worth individuals and owners of generational assets is the radical reform to Inheritance Tax (IHT) reliefs, effective from April 6, 2026. This measure targets two long-standing, powerful reliefs: Business Property Relief (BPR) and Agricultural Property Relief (APR).
The Restriction on Property Reliefs
Historically, BPR and APR allowed qualifying assets, such as shares in unquoted trading companies or agricultural land, to be passed on entirely free of IHT. The new legislation introduces a hard cap.
- New Cap: From April 2026, the 100% rate of relief for BPR and APR will be restricted to the first £1 million of value per individual.
- Taxation Above the Cap: Any value of qualifying property exceeding the £1 million cap will be subject to the standard IHT rate, typically 40%.
- Impact on Trusts: This change also affects trust reliefs, requiring a comprehensive review of existing wills, family trusts, and estate planning structures that rely on the full exemption.
This reform fundamentally alters the landscape for family businesses and farming estates, pushing many to re-evaluate succession planning and potentially leading to a higher tax burden on intergenerational wealth transfer.
2. Significant Increases to Dividend and Savings Income Tax Rates
Investors and those with substantial income from savings and dividends will face a notable increase in their tax burden starting from the 2026/2027 tax year. These "quiet tax rises" are a key component of the government's revenue-raising strategy.
The Rising Cost of Investment Income
The rates applied to dividend income are set to rise by two percentage points across the basic and higher rate bands:
- Basic Rate: The Dividend Ordinary Rate will increase from 8.75% to 10.75%.
- Higher Rate: The Dividend Upper Rate will increase from 33.75% to 35.75%.
- Additional Rate: The Dividend Additional Rate will remain at 39.35%.
Furthermore, the tax rates on savings income are also set to increase, with the Savings Basic Rate rising to 22%.
New Rules for Property Income
In a move to simplify and ring-fence specific income streams, new legislation will be introduced in the Finance Bill 2025-26 to create separate, distinct rates of tax specifically for property rental income within the Income Tax calculation. This measure aims to clarify the tax treatment of rental profits and may affect how landlords calculate their final tax liability.
3. Major Adjustments to Corporation Tax and Capital Allowances
For UK businesses, the focus in 2026 shifts from the headline Corporation Tax (CT) rate to the critical area of capital allowances, which dictate how companies can deduct the cost of assets from their profits.
Capital Allowance Reductions and Incentives
While the main Corporation Tax rate is confirmed to remain at 25% and the Small Profits Rate at 19% for the financial year beginning April 1, 2026, the rules around depreciation allowances are tightening.
- Reduced Writing-Down Allowances (WDAs): From April 2026, the main rate for Writing-Down Allowances will be reduced from 18% to 14%. This means businesses will recover the cost of their investments more slowly.
- New First-Year Allowance: To counterbalance the WDA reduction, a new 40% First-Year Allowance will be introduced for certain qualifying assets. This allows businesses to claim a greater deduction in the year of purchase, influencing investment timing decisions.
- Increased Late Filing Penalties: The government is also increasing fixed late filing penalties for Corporation Tax returns with a filing date on or after April 1, 2026, reinforcing the need for timely compliance.
These changes require business owners to conduct an immediate review of their capital expenditure plans to maximise the benefit of the new 40% First-Year Allowance before the WDA reduction takes full effect.
4. The End of Voluntary Class 2 National Insurance Contributions for Overseas Work
A specific but crucial change impacting UK nationals living or working abroad concerns National Insurance Contributions (NICs). From April 6, 2026, the ability to pay voluntary Class 2 NICs for periods spent overseas will cease.
This reform is part of a wider review of Voluntary NICs (VNICs). Individuals working abroad will no longer be able to use the lower-cost Class 2 contributions to build up their State Pension record. Instead, only the higher-cost Voluntary Class 3 contributions will be available for individuals seeking to fill gaps in their contribution history while residing outside the UK.
HMRC is expected to write to affected individuals from July 2026. Those currently relying on Class 2 contributions for their State Pension while working abroad must review their payment strategy immediately to ensure their pension entitlement is not jeopardised.
5. Personal Tax Thresholds Remain Frozen Until 2028
While not a direct 'change' in the sense of a new tax or rate, the continued freeze of key personal tax thresholds, known as 'fiscal drag,' remains one of the most significant factors affecting individual taxpayers in 2026 and beyond.
The Chancellor has confirmed that numerous personal tax thresholds will remain frozen until April 2028, extending a policy that was initially set to end in April 2026.
- Personal Allowance: The tax-free Personal Allowance remains fixed at £12,570.
- Higher Rate Threshold: The threshold for the Higher Rate of Income Tax (40%) remains fixed at £50,270.
As wages and inflation continue to rise, this freeze means more people are being pulled into the tax system (paying tax for the first time) or pushed into higher tax brackets (paying 40% tax), effectively acting as a stealth tax increase for millions of workers. The government’s commitment to this freeze is a central pillar of its fiscal strategy, making it a critical consideration for all forms of income and financial planning.
Tax Planning and Preparing for the 2026/2027 Fiscal Year
The upcoming 2026 tax year is defined by targeted tax rises and a tightening of long-held reliefs. The shift in Inheritance Tax rules, the increased cost of investment income, and the reduction in Capital Allowances signal a more challenging environment for wealth and business management.
Key tax planning steps to consider before April 2026:
- IHT Review: Urgently review any assets currently covered by Business Property Relief (BPR) or Agricultural Property Relief (APR) that exceed the new £1 million cap. Consider alternative wealth transfer mechanisms or lifetime gifts.
- Dividend Strategy: Investors should review their portfolios and consider maximising ISA allowances and pension contributions, as these vehicles shield income from the rising dividend tax rates.
- Capital Expenditure: Businesses planning large capital investments should aim to complete purchases before April 2026 or structure them to take maximum advantage of the new 40% First-Year Allowance to mitigate the impact of the reduced Writing-Down Allowances.
- Overseas NICs: UK nationals abroad who have relied on Class 2 NICs must consult with HMRC to determine the best strategy for maintaining their State Pension record using Class 3 contributions or other means.
Furthermore, HMRC is also set to introduce a new advance tax certainty service from July 2026, offering binding rulings on complex tax positions for significant inbound investment, providing a degree of clarity for major global businesses. Given the complexity of these changes, seeking professional advice from a qualified tax accountant or financial adviser is essential to navigate the 2026/2027 tax year effectively.
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