While you might have been prepared for the end of the 2025/26 tax year, how ready are you for the start of a new one?
Research has found that preparing in advance for the next tax year can enhance your wealth.
For example, according to IFA Magazine, 9% of Cash ISA savers wait until the end of the tax year before depositing their money. However, if they had instead deposited the full £20,000 at the start of the tax year, they might have been £860 better off (deposited into an account with a 4.3% interest rate).
To help you get ahead this tax year, keep reading to discover new tax rules that may affect your personal finances, as well as key allowance resets you can take advantage of sooner rather than later.
The ordinary and upper rates of Dividend Tax have increased by two percentage points
A major change impacting investors, business owners, and anyone else who owns shares in a company and receives dividends from its profits is the increase to Dividend Tax rates.
For the 2026/27 tax year, these are:
- Basic rate: 10.75% (2% increase)
- Higher rate: 35.75% (2% increase)
- Additional rate: 39.35% (unchanged)
The Dividend Allowance will remain unchanged at £500 for the 2026/27 tax year.
If you rely on dividends for income, this change might have a considerable impact on your current or future wealth.
Look for ways to mitigate the impact of this tax rise, such as placing your investments in ISAs, which are free from Dividend Tax, Capital Gains Tax (CGT), and Income Tax up to the annual ISA subscription limit of £20,000.
New £2.5 million thresholds for Agricultural Relief (AR) and Business Relief (BR) have taken effect
First announced in the 2024 Autumn Budget, the revised Inheritance Tax (IHT) rules regarding Agricultural Relief (AR) and Business Relief (BR) also took effect from 6 April.
The new thresholds cap 100% relief for qualifying agricultural and business assets at a combined £2.5 million per person (increased from an initial proposed threshold of £1 million due to government backtracking).
For reference, agricultural assets refer to land or pasture that is used to grow crops or rear animals, and business assets include property, buildings, unlisted shares, and machinery.
If you have assets that qualify for AR and BR but exceed the threshold, then the excess is charged at 20%, which is half the standard rate of IHT.
AR and BR thresholds are per individual, meaning that if you are married or in a civil partnership, you can combine reliefs, offering you up to £5 million of IHT protection for your qualifying assets.
Capital Gains Tax has increased for business sales
If you’re a business owner (or have shares in a business that meet certain criteria) and are looking to sell, you could be liable to pay more CGT due to an increase in the rate of Business Asset Disposal Relief (BADR).
BADR was introduced to reduce the amount of CGT payable on sold (or “disposed of”) business assets.
Previously, if your assets qualified for BADR, you would be liable to pay CGT at 10%, regardless of what Income Tax bracket you are in.
However, from 6 April, BADR is increasing to 18%, bringing it in line with the main lower rate for CGT (note that BADR relief is capped at £1 million on qualifying lifetime gains).
There are various rules you need to meet to qualify for BADR. If you’d like to know how you’re affected, get in touch with your Engage financial planner.
Thresholds for Inheritance Tax and Income Tax remain frozen until 2031
Fiscal drag will continue in the 2026/27 tax year as the nil-rate bands (NRB) and residence nil-rate band (RNRB), which provide relief from IHT, remain frozen until April 2031.
Currently, they are fixed at:
- £325,000 for the NRB – the standard tax-free threshold available for everyone.
- £175,000 for the RNRB – available if you are passing your main residence to a direct descendant.
Similarly, Income Tax bands have also been frozen until April 2031:
- Basic rate: 20% tax on income between £12,571 and £50,270.
- Higher rate: 40% tax on income between £50,271 and £125,140.
- Additional rate: 45% on income over £125,140.
Fiscal drag is a form of stealth tax. As inflation causes wages to increase, more people are dragged into higher tax brackets.
According to FTAdviser, combined HMRC tax and National Insurance contributions (NICs) raised an extra £72.6 billion between April 2025 and February 2026 compared to the same period a year before. And this figure is likely to increase as time goes on.
Take advantage of annual allowance resets for ISAs, pensions, CGT, and more
As mentioned previously, the turn of a tax year also means that many allowances and reliefs have reset.
These include:
- ISA allowance (£20,000 for a Stocks and Shares ISA or Cash ISA, £9,000 for a Junior ISA, £4,000 for a Lifetime ISA – all free from Dividend Tax, CGT, and Income Tax)
- Pension Annual Allowance (tax relief on contributions up to £60,000 or 100% of your earnings, whichever comes first)
- Dividend Allowance (Dividend Tax-free up to £500)
- Annual Exempt Amount (£3,000 CGT-free allowance).
Make sure that you maximise the tax-efficient opportunities of each of these allowances and reliefs before the end of the next tax year, if you can afford to.
Taking advantage of these tax wrappers early in the tax year might also boost your wealth compared to waiting until tax year end. For example, investing in a Stocks and Shares ISA early could mean you see more significant tax-efficient growth over the course of the year due to longer exposure to compound interest.
Get in touch
If you’d like help knowing which allowances you can take advantage of this tax year, or what new tax rules are most likely to affect your wealth, get in touch with your Engage Wealth Management financial planner today.
Email us at [email protected], or call 01273 076 587.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
