In 2026, a significant number of individuals are expected to face higher tax payments, but there are strategies available to reduce the impact on your finances.
With tax thresholds frozen and council tax increases looming, Sarah Coles, the head of personal finance at Hargreaves Lansdown, offers insights on navigating these challenges.
Coles emphasizes the importance of early action to mitigate the tax implications anticipated for 2026. She advises that proactive planning can help individuals alleviate some of the tax burdens that lie ahead.
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The personal allowance, currently set at £12,570 until 2031, remains stagnant. This freeze means that as incomes increase, individuals may find themselves pushed into higher tax brackets over time.
In April 2026, the dividend tax rate is set to rise, climbing to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers. Additionally, venture capital trusts will witness a reduction in tax relief from 30% to 20% in the same period.
The inheritance tax nil rate band and residence nil rate band will hold steady at £325,000 and £175,000, respectively, until 2031. The annual gift allowance for inheritance tax remains fixed at £3,000.
Expect another round of council tax hikes in April 2026. Local authorities in England can increase council tax by up to 5% each tax year without the need for a referendum.
The 5p per litre reduction in fuel duty introduced by the Conservative government in March 2022 will gradually revert to pre-cut levels by March 2027, with rates incrementally returning to the levels seen in March 2022 starting from September 2026.
Alcohol duty will rise in line with RPI inflation from February 2026, and tobacco duty will experience a one-time increase, as announced during the 2024 spring Budget by Jeremy Hunt. Additionally, tobacco duty typically undergoes a separate increase in November, adjusted 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 outlines five legitimate methods to reduce your tax obligation in 2026. She suggests maximizing ISA saving accounts, which allow tax-free savings of up to £20,000 annually. Additionally, pension contributions, salary sacrifice schemes, and strategic asset transfers between spouses can help optimize tax liabilities.
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