UK Tax Changes 2026: 5 Major Hikes & The £1 Million Shock That Will Hit Your Wealth
The UK tax landscape is set for a significant seismic shift in the 2026/2027 fiscal year, marking one of the most impactful periods for personal and business wealth in a generation. While many taxpayers have been focused on immediate changes, a series of pre-announced, yet often overlooked, policy adjustments are scheduled to take effect from April 2026, dramatically increasing the overall tax burden on investments, savings, and inherited wealth. These changes, confirmed by government policy and the Office for Budget Responsibility (OBR), are critical for anyone engaged in serious financial planning.
As of today, December 22, 2025, financial experts are urging individuals and business owners to urgently review their wealth structures to mitigate the forthcoming impact of these changes, which include rising Capital Gains Tax (CGT) rates, a major overhaul of Inheritance Tax (IHT) reliefs, and an increase in dividend taxation. The collective effect of these measures is designed to push the UK tax take to a peacetime record high by the end of the decade, making proactive planning essential before the 2026 deadline.
The Core Tax Hikes: CGT, Dividends, and Savings
The 2026/2027 tax year will see several rate increases and allowance reductions that directly target investment income and capital profits, shifting the tax burden onto private wealth and savings. These are not speculative changes but legislated measures that are set to impact millions of taxpayers.
1. The Capital Gains Tax (CGT) Rate Increase
One of the most significant changes is the scheduled rise in the lower rate of Capital Gains Tax (CGT). Following an initial increase in the previous year, the rate for non-property disposals will rise again:
- The lower rate of CGT will increase from 14% (the rate from April 2025) to 18% from April 6, 2026.
- This 18% rate applies to gains that fall within an individual's basic rate income tax band.
- The higher rate of CGT (for gains falling within the higher and additional rate income tax bands) is also set to increase, though the specific final rates are subject to further fiscal announcements.
This rise is particularly concerning given the simultaneous reduction of the Annual Exempt Amount (AEA) for CGT, which has been severely cut in recent years. The combination of a lower tax-free allowance and a higher tax rate means more people will be liable for CGT, and they will pay a larger percentage on their gains.
2. Dividend Tax Rates Rise by 2%
Investors who hold shares outside of tax-advantaged wrappers like ISAs (Individual Savings Accounts) will face a higher bill on their dividend income from April 2026. The dividend tax rates are slated to rise by 2% across the board:
- Basic Rate Taxpayers: The dividend tax rate will increase by 2%.
- Higher Rate Taxpayers: The dividend tax rate will increase by 2%.
- Additional Rate Taxpayers: The dividend tax rate will increase by 2%.
Crucially, the tax-free Dividend Allowance remains at a significantly reduced level of just £500. This low allowance, coupled with the higher rates, means almost all but the smallest investors will pay tax on their dividends, making tax-efficient vehicles like Stocks and Shares ISAs more valuable than ever.
3. Investors' Relief Lifetime Limit Slashed
Investors' Relief is a form of CGT relief designed to encourage investment in unlisted trading companies. The benefit of this relief is being severely curtailed from the 2026 fiscal year. The lifetime limit applying to qualifying disposals has been dramatically reduced from £10 million down to just £1 million from April 6, 2026. This change significantly impacts high-net-worth individuals and serial entrepreneurs who rely on this relief for substantial capital gains.
The £1 Million IHT Shock: New Rules for Business and Farm Owners
Perhaps the most profound change targeting intergenerational wealth transfer is the major overhaul of Inheritance Tax (IHT) reliefs for business and agricultural assets, effective from April 6, 2026. This is a targeted approach that directly affects the owners of private companies, farms, and landed estates.
The New £1 Million Cap on APR and BPR
Currently, qualifying business assets (Business Property Relief or BPR) and agricultural assets (Agricultural Property Relief or APR) can be passed on free of Inheritance Tax, often with no cap on value. The new legislation introduces a hard cap:
- From April 6, 2026, a £1 million cap will be placed on the combined value of assets eligible for 100% Agricultural Property Relief and Business Property Relief.
- For any value of qualifying assets above the £1 million cap, the relief will be reduced, meaning a portion of the value will be subject to the standard 40% IHT rate.
This represents one of the biggest shifts in UK Inheritance Tax in decades and will require immediate re-evaluation of succession planning, trust structures, and asset ownership. For a family farm or medium-sized trading company, this cap could result in hundreds of thousands of pounds in unexpected IHT liability.
The Long-Term Squeeze: Income Tax and Fiscal Drag
While there are no headline-grabbing *rate* increases for Income Tax in 2026, the long-term policy of freezing the Personal Allowance and the Higher Rate Threshold is a stealth tax that will continue to bite deep into household finances.
The Extended Threshold Freeze (Fiscal Drag)
The Personal Allowance (the amount you can earn tax-free) and the Higher Rate Threshold (the point at which you start paying 40% tax) have been frozen at their current levels since April 2021. This freeze was initially scheduled to end in April 2026, but it has since been confirmed that the freeze will be extended until April 2028 and potentially even later, to 2029–30.
This policy, known as "fiscal drag," means that as wages increase with inflation, more people are pulled into paying income tax for the first time, and more basic rate taxpayers are pulled into the higher 40% rate. The Institute for Fiscal Studies (IFS) estimates that extending these freezes is a major revenue-raiser for the Treasury, significantly increasing the overall tax burden on working households.
Understanding Your Tax-Free Allowance
The standard Personal Allowance is frozen at £12,570. However, taxpayers can legally increase their total tax-free income by utilising specific HMRC allowances. For instance, the Trading Allowance and Property Allowance each allow a taxpayer to earn up to £1,000 tax-free from 'side-hustle' or property income, on top of the Personal Allowance. This is how some taxpayers can effectively boost their total tax-free amount to £13,570 or more, though this is a specific rule and not a general increase to the main allowance.
Strategic Tax Planning Before April 2026
Given the certainty of these 2026 tax changes, proactive planning is crucial to legally minimise future liabilities. The window of opportunity is closing, particularly for high-value asset transfers.
Inheritance Tax (IHT) Planning:
- Review BPR/APR Assets: Business owners and farmers must urgently review their wills, partnership agreements, and trust structures to see how they can legally mitigate the impact of the £1 million cap. Accelerating the transfer of assets before April 2026 may be a consideration, subject to the seven-year gifting rule.
- Utilise Exemptions: Ensure full use of annual IHT exemptions, such as the £3,000 annual exemption and small gift exemptions, which are not affected by the new cap.
Capital Gains Tax (CGT) Planning:
- Accelerate Disposals: If you are planning to sell a significant asset (shares, second property, etc.) that will result in a large capital gain, consider completing the disposal before April 6, 2026, to benefit from the lower CGT rate.
- Maximise Allowances: Ensure both spouses/civil partners use their individual Annual Exempt Amounts (AEA) before they are further reduced in future years.
- ISA Maximisation: All gains and income within an ISA are completely free of both CGT and Income Tax (including dividend tax). Max out your annual ISA allowance to shield future investment growth.
Income and Dividend Tax Planning:
- Pension Contributions: Maximising pension contributions remains one of the most powerful tax-planning tools, as contributions receive tax relief at your marginal rate and growth is tax-free.
- Utilise the £1,000 Allowances: If you have any small income streams from property or trading, ensure you are using the £1,000 allowances to keep that income entirely tax-free.
The tax landscape for 2026 is defined by a clear trend: the erosion of allowances and the increase of rates on private wealth and investment returns. By understanding the specific deadlines and the mechanisms of the new rules—from the £1 million IHT cap to the 18% CGT rate—taxpayers can take decisive action now to protect their financial future.
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