Millions of individuals are expected to face higher tax obligations by 2026, but there are strategies available to minimize your tax burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, sheds light on various tax-related changes and how to navigate them effectively.
Coles emphasizes the importance of taking proactive steps early on to mitigate the impact of upcoming tax hikes in 2026. One key area of concern is the frozen personal allowance, currently set at £12,570 until 2031. This freeze means that as incomes rise, individuals may find themselves pushed into higher tax brackets.
In April 2026, the dividend tax rates are slated to increase, with basic rate taxpayers facing a rise from 8.75% to 10.75%, and higher rate taxpayers seeing an increase from 33.75% to 35.75%. Additionally, venture capital trusts will experience a reduction in tax relief from 30% to 20% during the same period.
The inheritance tax nil rate band will remain at £325,000, and the residence nil rate band at £175,000 until 2031. Moreover, the annual gift allowance for inheritance tax will remain stagnant at £3,000.
Council tax is set to escalate once again in April 2026, allowing local authorities in England to increase rates by up to 5% annually without the need for a referendum.
On the taxation front, the 5p per litre reduction in fuel duty introduced earlier will gradually revert to standard levels, reaching pre-March 2022 rates by March 2027. Alcohol duty will follow the RPI inflation rate increase starting February 2026, while tobacco duty will see both a one-off hike and a standard increase in November.
A new duty of £2.20 per 10ml of vaping liquid will be implemented from October 2026, impacting consumers of vaping products.
Coles outlines five legal methods to reduce tax liabilities in 2026. These include leveraging ISA saving accounts, which allow tax-free savings of up to £20,000 annually, and maximizing pension contributions to benefit from tax relief at the highest marginal rate.
Additionally, salary sacrifice schemes, asset transfers between spouses to minimize tax implications, and utilizing the marriage allowance for non-taxpaying spouses to transfer a portion of their allowance to a basic rate taxpayer spouse are recommended strategies to optimize tax planning.
By staying informed and taking proactive steps, individuals can navigate the evolving tax landscape and potentially reduce their tax obligations in the coming years.