What tax changes are taking effect in the 2026/27 tax year?

The 2026/27 tax year brings significant tax changes from the November 2025 Budget. State pension rises 4.8% to £241.30 weekly, but taxes increase on dividends, savings interest and property income. Cash ISA limits fall to £12,000 from April 2027, and frozen tax thresholds will push millions into higher tax bands. VCT tax relief drops from 30% to 20% from 6 April 2026. Maximise ISA and pension contributions before the tax year-end to shelter investments from higher taxes.

Preparing for the new tax year

Just as you are slapping yourself on the back for having completed your tax return on time, a new tax year looms. The November budget may seem like ancient history, but many of the changes it introduced only come into effect from the start of April. There was plenty to digest, and a little preparation can mitigate its impact.

What's the good news for the 2026/27 tax year?

There are nuggets of good news. For retirees, April will bring about a chunky rise in their state pension. Under the triple lock formula, the pension will rise 4.8%. Someone receiving the full new state pension will see it rise to £241.30 a week, or approximately £12,548 a year.

How are taxes changing on investments and savings?

However, the government may be giving with one hand, but it is taking away with another. The start of this tax year sees higher taxes on ‘unearned’ income, such as income from investments, from property, and from cash savings. For investments held outside a tax wrapper such as an ISA or pension, the rate of A type of tax you pay on any dividends you receive which exceed a certain threshold. The rate of Dividend Tax payable depends on your usual tax bracket. will increase from 8.75% to 10.75% for lower rate taxpayers, and from 33.75% to 35.75% for the upper rate from April 2026[1]. The additional rate remains unchanged at 39.35%.

This will also affect small business owners and the self-employed who operate through limited companies, who often pay themselves through A payment made by a company to its shareholders, typically representing a distribution of the company's profits.. Given the significant rise in A tax that limited companies pay on their profits.under the last government, many of the tax advantages of operating through a A limited company is separate from its owners, so if the business gets into debt or fails, the owners only lose what they've invested - their personal savings, homes and other assets are protected. are being eroded. It is worth doing your sums on whether it is still worth it.

There will be a similar increase on any income from cash savings, which will increase by 2 percentage points across all tax bands: the basic rate will rise from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47% from April 2027. Property income will see similar rises, hurting those who support their retirement through buy to let properties.

Should I move investments into ISAs and pensions?

The cumulative effect of these tax changes, in addition to the recent changes to capital gains tax, means that it is increasingly expensive to hold assets outside a A type of account that shelters your savings or investments from tax. The most common tax wrappers in the UK are ISAs (Individual Savings Accounts) and pensions. When you hold investments or savings in a tax wrapper, you don't pay tax on the income or gains they generate. For example, dividends and interest earned within an ISA are tax-free, and you won't pay capital gains tax when you sell investments held in an ISA or pension. By contrast, investments held in a general investment account (sometimes called a 'taxable account' or 'unwrapped' account) are subject to income tax on dividends and interest, and capital gains tax when you sell.. As far as possible, investors should be maximising their contributions to ISAs and pensions, and using Bed and ISA or Bed and Sipp arrangements to put ‘unwrapped’ investments into a tax shelter. ‘Bed and…’ is simply the process of selling assets in a general investment account and immediately rebuying them in a SIPP or ISA. You will need to ensure that you have sufficient ISA or pension allowance left to do it, but it should result in a more tax efficient structure in the long-term.

How do frozen tax thresholds affect employees?

Working people will also see defaqto tax rises. Successive governments have fallen back on the neat trick of freezing tax and national insurance thresholds. While they can technically claim that they have not raised taxes, more and more people are brought into high rates of tax as inflation and pay rises take effect.

Over time, the impact can be significant. Income tax thresholds have now been frozen since 2021. By the 2027/28 tax year, it is estimated that an extra 12 million people will be higher rate taxpayers, and a further two million will pay the additional rate of income tax[2]. This was the biggest single revenue raising measure in the budget.

It is not just income tax bands that are frozen. The £100,000 threshold after which you start to lose your personal allowance has remained the same since it was introduced in April 2010. Up to 700,000 earners are caught in the trap. The £60,000 level over which people start to lose their child benefit is also unchanged for the 2026/27 tax year. The government also announced in the recent budget that the repayment threshold for Plan 2 student loans would be frozen at its April 2026 level (£29,385) for three years, instead of increasing with inflation.

What's happening to Cash ISA limits?

There was also a blow for Cash ISA savers, with the limit reduced to £12,000. The Chancellor is trying to encourage people to invest rather than save, and the changes are being accompanied by a wider campaign to explain the benefits of stock market investment. The changes to Cash ISAs don’t come in until April 2027, so savers have another year to make full use of the allowance. Advisers generally recommend that investors only hold the equivalent of three to six months' net expenditure in cash, with the remainder of their savings in higher growth assets.

What are the alternatives to Cash ISAs?

For investors looking at their ISA options, it is worth remembering that it doesn’t have to be all or nothing. There are shades of grey between a higher risk equity fund and low risk cash. There are a range of lower risk options including bond fund, or equity income fund. If you put an income-generating fund into an ISA, you can start to build up a valuable tax-free income stream over time.

Are VCT tax reliefs changing?

A final change worth noting is the changes to upfront tax relief on Venture Capital Trusts are UK government-backed investment vehicles designed to encourage investment in small, early-stage companies with high growth potential. VCTs pool money from individual investors to fund young, innovative businesses that are typically privately owned and not listed on public stock exchanges., which comes in from 6 April 2026. Tax relief will fall from 30% to 20%. However, the £200,000 annual limit stays in place and there have been some changes to the rules on the underlying companies so that VCTs can support companies for longer. If someone is thinking of investing in a VCT, it makes sense to do so before the end of this tax year to secure the higher rate of tax relief.

There are some significant changes taking place at the start of the new tax year. At the very least, it should prompt some spring-cleaning on where and how you hold your savings. There are more changes to come in 2027 and 2028, including limits on salary sacrifice and a potential ‘mansion tax’. You can take steps to get your finances in shape and mitigate the impact.

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[1] GOV.UK

[2] Professional Paraplanner, April 2025