Millions of individuals are set to face increased tax obligations by 2026, but there are strategies available to mitigate these expenses.
Sarah Coles, who heads personal finance at Hargreaves Lansdown, sheds light on various changes impacting taxes, such as frozen tax thresholds and council tax escalations.
Coles emphasizes the importance of taking proactive steps early on to minimize the impact of forthcoming tax adjustments in 2026.
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One significant change affecting taxpayers is the freeze on the personal allowance at £12,570 until 2031. This freeze could potentially push individuals into higher tax brackets as their earnings increase.
Additionally, the dividend tax rate is set to rise in April 2026, with basic rate taxpayers facing an increase from 8.75% to 10.75%, and higher rate taxpayers from 33.75% to 35.75%. Furthermore, venture capital trusts will experience a reduction in tax relief from 30% to 20% starting April 2026.
Inheritance tax thresholds remain unchanged at £325,000 for the nil rate band and £175,000 for the residence nil rate band until 2031. The annual gift allowance for inheritance tax is also fixed at £3,000.
Council tax is expected to escalate in April 2026, allowing local authorities in England to raise it by up to 5% annually without a referendum.
The 5p per litre reduction in fuel duty implemented in March 2022 will gradually revert to normal levels starting from September 2026, with rates returning to March 2022 levels by March 2027.
Alcohol duty will increase in line with RPI inflation from February 2026. There will be a one-time hike in tobacco duty, as previously announced in the 2024 spring Budget by Jeremy Hunt. Tobacco duty typically rises in November by RPI inflation plus two percentage points.
A new duty of £2.20 per 10ml of vaping liquid will be imposed starting October 2026.
Sarah Coles has outlined five legal strategies to reduce tax liabilities in 2026. Suggestions include maximizing ISA saving accounts, contributing to pensions, utilizing salary sacrifice schemes, transferring income-producing assets between spouses, and leveraging the marriage allowance for non-taxpaying spouses.
By adopting these effective tax planning measures, individuals can navigate the changing tax landscape in the years ahead.
