Up-and-coming tax changes to be mindful of

Income Tax

The government has confirmed that Income Tax will be increasing on rental income, savings interest and dividend payments. These changes may affect how much tax you pay on money earned from property, savings and investments.

The rates will increase on rental income and savings interest by 2% (to 22%, 42% and 47%) from April 2027. The increase in tax on dividends will take effect from April 2026 with the basic and higher rates increasing to 10.75% and 35.75% respectively. The additional rate will remain unchanged at 39.35%.

In addition, the freeze on the tax-free personal allowance and the points from which 40% and 45% tax becomes payable have been extended for a further three years until April 2031. This will see a growing number being dragged into paying higher rates of tax as incomes increase.

This continued freeze on allowances and the increase in tax on rental, savings and dividend income makes it more important than ever to take advantage or your ISA allowance to protect income and gains from tax. 

Inheritance Tax (IHT)

The Chancellor recently announced that the tax-free allowance of £325,000 and the additional amount available if passing your home to a 'direct descendant' will be frozen for an additional year until April 2031.

From April 2026 a cap will be introduced limiting the combined value of qualifying agricultural and business assets that can be passed on free of IHT to £2.5m per person. Any unused part of the £2.5m allowance can be transferred to a surviving spouse / civil partner. A couple will be able to pass on up to £5m of qualifying assets free of IHT. Qualifying assets above this limit will be eligible for 50% relief, meaning half the value will be exempt from IHT while the remainder will be included in the calculation.

The changes which come into effect from April 2026 will have a significant impact on farmers, landowners and business owners. It's important to take advice on the new rules and how they impact you and your family. 

Pensions

Pensions have largely been left untouched in recent announcements.

However, the Chancellor has announced plans to cap the benefits of salary sacrifice, where an employee gives up part of their earnings in exchange for an employer pension contribution. Currently neither the employer nor the employee pays National Insurance on the amount 'sacrificed'. From April 2029, only the first £2,000 of employee pension contributions made via salary sacrifice will remain exempt from National Insurance. Any employee contributions above this level will be subject to both employer and employee National Insurance. Employer pension contributions themselves will continue to be fully exempt from National Insurance.

As previously announced most unspent pension funds will be included in the Inheritance Tax calculation on death from April 2027.

Despite this, pensions remain one of the most tax-efficient ways to invest. In addition to tax relief on what you pay in, any growth is free from UK Income Tax and Capital Gains Tax. Up to 25% of your fund can be taken as a tax-free lump sum (capped at £268,275 unless you have protection).

If you think you may be impacted by any of these changes, it's important to take advice before making any decisions. 

ISA Allowances

The continued freeze on the tax-free Income Tax Personal Allowance, Dividend Allowance, Savings Allowance and Capital Gains Tax exemption makes it more important than ever to take advantage of your ISA allowance to protect income and gains from tax.

The allowances remain at £20,000 per adult and £9,000 per child each tax year. 

In the 2025 Autumn Budget the Chancellor announced plans to limit the cash ISA allowance for the under 65s to £12,000 each tax year from April 2027, with the remainder of the £20,000 allowance being available to invest in stocks and shares ISAs. 

Key tax changes and when they may affect you

We've outlined some of the key tax changes and when they will come into effect below.

*Tax rates are different in Scotland.