Five Tax Changes to Watch Out for in 2026

As we navigate through 2026, several significant tax changes are taking effect now and in the near future that could fundamentally alter your financial planning. Whether you own a business, hold investments outside tax-sheltered accounts or have built substantial pension wealth, understanding these changes and acting before key deadlines could save you tens of thousands of pounds.

This guide focuses on five critical tax changes affecting personal finances: dividend tax rates, capital gains tax, Business Asset Disposal Relief, AIM shares and the major inheritance tax change bringing pensions into estates from April 2027. Each represents a substantial shift in the tax landscape that demands attention now, not later.

1. Dividend Tax Rates: The Increase You May Have Missed

Dividend tax rates changed between the 2024/25 and 2025/26 tax years, affecting anyone taking dividends from their company or holding dividend-paying investments outside ISAs and pensions. This may affect you 31 January self-assessment tax return.

What Changed

Dividend tax rate will increase by 2% in all but the higher band.

From April 2026, the basic rate increases from 8.75% to 10.75%, the higher increases from 33.75% to 35.75 , but the additional rate remains at 39.35% .

The dividend allowance remains at just £500 for both 2025/26 and 2026/27, meaning only the first £500 of dividends are tax-free.

What This Means for You

If your received dividends from investment, in excess of £500 you will likely pay more tax.

For company directors who traditionally extract profits through a combination of salary and dividends, this rate increase adds to the already complex calculation of optimal remuneration strategies. With employer National Insurance now at 15% and the secondary threshold down to just £5,000, the tax efficiency of different extraction methods has shifted considerably , make an appointment with your accountant to check tax strategy on your income.

2. Capital Gains Tax: The Rates That Have Already Jumped

Capital Gains Tax rates increased substantially from 30 October 2024, and these higher rates continue through 2025/26 and 2026/27.

The Rate Increases

Prior to 30 October 2024, CGT rates stood at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers on most assets (excluding residential property not qualifying for Private Residence Relief).

From 30 October 2024 onwards, these rates jumped to 18% for basic rate taxpayers and 24% for higher rate taxpayers. This represents an 80% increase for basic rate taxpayers and a 20% increase for higher rate taxpayers.

The annual CGT exemption stands at just £3,000 for individuals for both 2025/26 and 2026/27.

What This Means for You

For anyone holding substantial investments outside ISAs and pensions, second properties or other assets with significant gains, these rate increases materially affect the tax cost of disposing of those assets.

3. Business Asset Disposal Relief: The 2026 Rate Increase

For business owners planning an exit or retirement, Business Asset Disposal Relief rates are changing again in April 2026.

Understanding Business Asset Disposal Relief

Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) provides a preferential CGT rate on qualifying business disposals up to a lifetime limit of £1 million. To qualify, you typically need to have owned at least 5% of a trading company for at least two years.

The rate has been increasing in stages:

• 2024/25: 10%
• 2025/26: 14%
• 2026/27: 18%

What This Means for You

If you are a business owner contemplating a sale or retirement, the timing of that disposal has enormous tax implications. The direction of travel for Business Asset Disposal Relief has risen from 10% to 14% to 18% over three tax years. Every year you delay has cost an additional 4% in tax on gains up to £1 million.

This is not a decision to rush, but equally, delaying beyond April 2026 when you are otherwise ready to sell could prove extremely costly. Work with advisers to model different sale scenarios and understand the full tax impact of timing.

4. AIM Shares: The IHT Relief Restriction from April 2026

For investors who have used AIM shares as an inheritance tax planning vehicle, significant changes take effect in April 2026.

AIM Shares: The IHT Relief Reduction from April 2026

5. Pensions and Inheritance Tax: The 2027 Bombshell

This represents perhaps the single most significant change for anyone with substantial pension wealth, taking effect from April 2027.

The Current Position

Under the rules applying now and through 2026/27 tax year, pension funds sit outside your estate for IHT purposes. When you die, your pension can pass to your nominated beneficiaries without attracting IHT, regardless of the value.

If you die before age 75, your beneficiaries typically inherit your pension completely tax-free. If you die after 75, they pay income tax at their marginal rate when they draw money from the inherited pension, but crucially, no IHT applies to the fund itself.

This has made pensions extraordinarily tax-efficient wealth transfer vehicles. Many individuals with substantial assets have deliberately preserved pension wealth, drawing from other sources first in retirement, specifically to maximise the IHT-free wealth transfer to the next generation.

What Changes from April 2026

From April 2026, unused pension funds will be brought into your estate for IHT purposes.

This means that on death, your pension value will be added to your other assets when calculating IHT, potentially creating a tax liability of 40% on the pension fund.

What This Means for You

The numbers become stark when you model this change.

Someone with a £500,000 pension fund, a £500,000 home and £300,000 in other assets has a total estate of £1.3 million. Under current rules, the pension sits outside the estate. After the nil rate band (£325,000) and residence nil rate band (£175,000) if applicable, the taxable estate is £300,000, creating an IHT liability of £120,000.

From April 2026, the pension is added to the estate. The total estate becomes £1.3 million. After the same allowances, the taxable estate is £800,000, creating an IHT liability of £320,000. The inclusion of the pension has increased the IHT bill by £200,000.

You have just over a year to review your potential liability and take action.

Action Point: What to Review in 2026

This change fundamentally alters the calculation about whether to preserve pension wealth or spend it during your lifetime. This is a complex area and it would be wise to gain the upper hand and engage professionals to help you. Strategies you should consider reviewing in 2026 include:

1. Know your potential tax liabilities – identify legitimate way to reduce your bill.

2.Pension Withdrawal Strategy Model whether taking larger withdrawals from your pension makes sense, particularly if you can use the funds for spending, gifting or other planning purposes rather than leaving them in your estate.

3. Gifting Programmes Consider drawing pension funds and gifting the money to family members. Regular gifts from income can be immediately exempt from IHT if they meet certain conditions. Larger capital gifts start the seven-year clock, potentially removing those funds from your estate if you survive the full period.

4. Estate Modelling Work with advisers to model your estate under the new rules. Understand the full IHT impact of your pension being included, and ensure your overall estate plan reflects this change.

5. Beneficiary Tax Planning Consider the tax position of your intended beneficiaries. If they are higher rate taxpayers, the combined IHT and income tax charges could be particularly severe.

 

The Timing Consideration

The critical point is that these pension changes take effect from April 2027, which is now just over twelve months away. Any strategies that rely on establishing patterns of regular gifts from income, or that require survival periods, need to be implemented well before the rule change.

For those in ill health or with limited life expectancy, accelerating pension withdrawals before April 2026 may be beneficial despite the income tax cost, simply to prevent the larger IHT charge. This is a delicate calculation that depends heavily on individual circumstances.

Taking Action Now

These five tax changes represent some of the most significant shifts in personal finance taxation in recent memory. The combination of higher dividend tax rates, increased CGT rates, rising Business Asset Disposal Relief charges, restrictions on AIM share IHT relief and the pension IHT bombshell creates a materially different tax landscape.

What unites all these changes is the importance of reviewing your position now, not waiting until after the changes fully take effect. Some changes have already happened others are coming.

The reality is that professional financial planning has never been more valuable than in this environment of rapid tax change. The cost of failing to plan, or of implementing strategies incorrectly, can easily run to tens or hundreds of thousands of pounds in additional tax.

If any of these changes affect your situation, the single most important step you can take is to seek personalised advice now. Book a consultation to review your specific circumstances, model the impact of these changes on your financial position and implement appropriate planning strategies whilst there is still time to make a meaningful difference.

Your financial future deserves more than a wait-and-see approach. Act now, whilst the window for effective planning remains open.

 

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BE AWARE

This information is for guidance only and does not constitute regulated financial advice. To ensure you have personalised advice for your particular set of circumstances, you must make an appointment and speak to one of our professional advisers. Please note these services are chargeable. The facts in this article were correct at time of writing, but you may be reading it in the future. Always check rates and allowances before taking action or speak to a qualified financial planner. All investments carry an element of risk, they can fall as well as rise and you may not get back what you pay in. Errors & omissions excepted.

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