The 2026 tax year has started. Here’s what you need to know
The tax year countdown has officially ended and a new year has begun on 6 April, bringing with it an ISA allowance reset and silent tax hikes.
While many investors and savers will be breathing a sigh of relief, thinking they have completed their financial admin for at least a few months, being proactive at the start of the tax year can save you from a lot of stress further down the line.
The 2027/28 tax year will mark the beginning of a major shake-up to tax policies, with a number of changes to the system introduced by chancellor Rachel Reeves in last year’s Autumn Budget set to take effect.
This makes the current 2026/27 window the final opportunity to seize and utilise tax advantages before they are scaled back or snatched away entirely, while some have already kicked in.
Controversial tax changes
Significant inheritance tax changes have now been brought into force, relating to agricultural and business property relief, with a £2.5m cap now imposed before inheritance tax is due.
Prior to the new tax year, both forms of assets as well as many private company shares benefitted from from full relief against the tax, meaning assets could be passed down without being slapped with a tax bill.
From today for assets above £2.5m, only 50 per cent tax relief will apply.
Lifetime gifts and settlements made more than seven years before death will continue to be excluded from IHT on death, with taper relief available to progressively reduce the IHT rate between three and seven years.
But while this year’s changes only affect agriculture and businesses, the next tax year will introduce fresh sweeping changes which will impact estate planning.
Residual pension funds left at death will be liable to IHT, as well as lump sums from defined benefit pensions.
This means the funds will form part of a person’s estate and be subject to IHT up to 40 per cent, depending on other assets and the use of nil rate band.
Once IHT has been paid, any withdrawals from pensions will be liable to income tax at the beneficiary’s marginal rate if the person who passed was aged 75 or over.
Cash ISA slash
The government’s big plans for the London market have been at the forefront of their business policies since entering power in July 2024.
The Treasury has since announced the rollout of an advertising campaign, enacted a three-year stamp duty holiday for newly listed shares and introduced a ‘targeted support’ scheme in a bid to close the advice gap.
But Labour’s crown jewel will enter the fray next year, with the cash ISA allowance set to be slashed to the joy of online brokers and dismay of building societies.
This tax year marks the final period where both cash ISAs and stocks and shares ISA will both have a £20,000 tax-free ceiling.
From April 2027, the cash ISA tax-free ceiling will be slashed to £12,000 from £20,000 for those under 65, while the stocks and shares ISA limit will remain unchanged, in a bid to encourage more Brits to invest capital.
Louise Halliwell, group savings director at Kent Reliance said: “For savers, the year ahead presents a ‘use it or lose it’ opportunity, so if they are in a position to do so, it’s important to make the most of the ISA allowance to unlock the great benefits these products offer.”
Dividend tax hike
Dividends have also been subjected to a tax hike, in a move to push investors into both the stock market and tax-free wrappers.
Individuals who take dividends from a company or who earn dividends from shares pay different tax rates according to the income tax band they fall under.
A two percentage point increase will be inflicted on both basic rate taxpayers and higher rate taxpayers.
Basic rate taxpayers, who earn between £12,571 and £50,270 will now be charged 10.75 per cent up from 8.75 per cent.
Higher rate tax payers, who earn between £50,271 and £125,140 will be slapped with a 37.75 per cent charge up from 33.75 per cent.
Meanwhile, additional rate taxpayers will continue to shoulder a 39.35 per cent rate.
The rises are estimated to yield £1.2bn a year on average from the 2027-2028 financial year.
Other removals and freezes
Elsewhere, venture capital trust tax relief has been slashed from 30 per cent to 20 per cent on investments up to £200,000 per tax year.
Meanwhile, the maximum gross assets allowed for a company to qualify for VCT funding will increase to £30m from £15m, and the annual investment limit for standard companies will double to £10m.
The government pushed forward these measures in a bid to encourage investment into larger, mature companies, despite chancellor Rachel Reeves’ desire to turn the UK into a global scale-up hub.
The income tax threshold freeze is also in force, meaning as wages rise in line with inflation, more of people’s income will be pulled into higher tax brackets.
However, people can come back under thresholds through salary sacrifice, which will not be pared back until April 2029.
Employees can sacrifice some of their salary into their pensions to come back under thresholds, including the dreaded £100,000 threshold, to prevent them being dragged into a higher tax band and, for some, lose access to free childcare.