New Tax System Changes for 2026/27

As we’ve now entered the new tax year, we’ve outlined below how to prepare for the new tax system changes for 2026/27 and why planning ahead for your tax return in January 2027 is advised.

CHANGES TO THE NEW TAX SYSTEM FOR 2026/27

DIVIDEND TAXES

• The rate of dividend tax has increased by 2% for the basic and higher rate bracket to 10.75% and 35.75% respectively from April 2026 onwards
• The additional rate remains at 39.35%
• The tax free dividend allowance remains at £500

DIVIDENDS

MAXING TAX DIGITAL FOR INCOME TAX

This is a new way of reporting income and expenses for sole traders and landlords. You’ll need to comply with the requirements for MTD if you have annual business or property income of over £50,000 from 6 April 2026, over £30,000 from 6 April 2027, and £20,000 from 6 April 2028

MTD FOR INCOME TAX

CAPITAL GAINS TAX

• The capital gains tax rate for disposals qualifying for business asset disposal relief or investors relief has increased from 14% to 18% from April 2026
• The rate of tax on disposals of assets remains at 18% for basic rate taxpayers and 24% for higher rate taxpayers

CAPITAL GAINS TAX

NATIONAL INSURANCE FOR THE SELF-EMPLOYED

• From April 2026, the small profits threshold has increased to £7,105. Those earning under this amount can voluntarily pay Class 2 NICs to gain a qualifying year for state pension
• Individuals based overseas will no longer be eligible to pay voluntary Class 2 NIC. Class 3 NIC can be paid as an alternative to fill gaps in state pension at a rate of £17.75 per week

HOME WORKING

• Employees will no longer be able to claim tax relief for additional household expenses related to working from home
• The flat rate use of home allowance of £6 per week has also been abolished

INHERITANCE TAX

• Inheritance Tax rates and thresholds remain broadly unchanged
• Business Property Relief (BPR) and Agricultural Relief (APR) is capped at The £2.5 million allowance can be transferred between spouses or civil partners if unused on first death
• From April 2026, relief on AIM shares has reduced to 50%, even if they’re within the £2.5 million BPR threshold

INHERITANCE TAX

PROPERTY AND SAVINGS INCOME

• The personal savings allowance thresholds remains unchanged at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £nil for additional rate taxpayers
• From 6 April 2027, the rate of tax on savings and property income will increase by 2% to 22%, 42% and 47%, for basic, higher and additional rate tax payers respectively

EMPLOYMENT TAXES

• The thresholds for employer’s Class 1 NICs and employee’s Class 1 NICs remain at £5,000 and £12,570 respectively
• The rate of employer’s National Insurance Contributions (NICs) remains at 15%
• The rate of employee’s National Insurance Contributions (NICs) remains at 8% for earnings between £12,570 and £50,270 and 2% for earnings above £50,270

HIGH-INCOME CHILD BENEFIT CHARGE (HICBC)

The threshold for the HICBC remains at £60,000. The taper rate is £1 for every £200 of income above £60,000.

INCOME TAX ALLOWANCES

• The tax-free personal allowance remains at £12,570, with partial withdrawal for incomes over £100,000 and full withdrawal over £125,140
• Income tax rates and thresholds remain frozen from the previous tax year

INCOME TAX

INDIVIDUAL SAVINGS ACCOUNTS (ISAS)

• The annual contributions limit for ISAs and junior ISAs remains at £20,000 and £9,000, respectively
• From April 2027 the annual cash contribution limit for under 65s will reduce to £12,000

CORPORATE TAXES

The main rate of Corporation Tax remains at 25%. Companies with smaller profits are taxed at 19%.

CORPORATION TAX

CHARITIES AND GIFT AID

Income Tax relief continues to be available for qualifying Gift Aid donations.

PENSION CONTRIBUTIONS

Individuals can claim tax relief on pension contributions of up to the lower of £60,000 or 100% of earnings. The £60,000 allowance is tapered away to a minimum of £10,000 for individuals with income in excess of £200,000.

INCORPORATION RELIEF

Sole traders and partnerships transferring a business or assets to a limited company cannot roll over the gain automatically, it will need to be formally claimed on their self-assessment tax return.

DIVIDEND REPORTING

Directors of close companies will be required to report dividends from their own company separately on their tax return. The company name, registration number and highest percentage of shares held during the tax year will need to be provided in addition to the dividends received.

CARRIED INTEREST

• A new carried interest regime began from 6 April 2026 where all carried interest will be treated as trading profits. As such, it will be subject to income tax rates and Class 4 NIC
• The amount of qualifying interest that will be subject to these tax rates will be adjusted by applying a 72.5% multiplier to the profits, making the maximum effective tax rate 34.075%

VCT RELIEF

Tax relief available to investors reduced from 30% to 20% from 6 April 2026.

CAPITAL ALLOWANCES

• The writing down allowance for asset expenditure in the main pool has been cut from 18% to 14%
• A new 40% first-year allowance was introduced on 1 January 2026 for main rate expenditure. The new FYA allows 40% of qualifying expenditure to be deducted in the year of purchase, with the remaining balance entering the main pool to attract WDV for the remaining years
• The 100% first year allowances for new zero-emission cars and electric vehicle charging points has been extended to 31 March 2027

CAPITAL ALLOWANCES

WINTER FUEL ALLOWANCE

For the 2025-26 winter onwards, an individual aged 66 or over may receive a Winter Fuel Payment as usual. However if annual taxable income exceeds £35,000, this payment is clawed back via tax code adjustments or self-assessment. The allowance can also be maintained by making requisite charitable donations subject to Gift Aid.

Those receiving Pension Credit are exempt from this repayment.

 

COMPLETING YOUR TAX RETURN EARLY

Acting now and providing your details early can make a critical difference. Here’s what you should do:

• Allow time for planning for your 31 January 2027 tax payment
• If you’re due a refund, submitting your tax return sooner will ensure it’s paid out more quickly
• If your income has fallen, you may be able to reduce your payment on account in July 2026
• If you need a mortgage, you’ll be able to provide the most recent information to the lender

TAX RELIEFS

Don’t forget to provide us with the following items, as they may reduce your tax bill:

• Gift Aid donations
• Your pension contributions, including under auto-enrollment
• Your spouse’s or civil partner’s income if you earned less
• Investments under Enterprise Investment Scheme, Seed Enterprise Investment Scheme or Venture Capital Trust

WE’LL NEED TO KNOW

• The amount of Child Benefit you or your partner received if your income was greater than £60,000
• Your student loan repayments, if applicable

 

Check the Gov.uk website for any further updates.