UK Tax Changes 2026/27: A Detailed Breakdown

The UK tax changes for the year 2026–2027 appear to be one of gradual tightening rather than a significant overhaul. Even though there aren’t any significant structural changes, many people’s tax obligations will subtly rise as a result of frozen thresholds, fewer reliefs, and higher rates. At the same time, specific incentives in sectors like green investment and venture capital demonstrate where the government wants funds to go.

Here’s a deeper look at each key change, what it means, and who it affects.

Making Tax Digital (MTD) Expansion

One of the most significant UK tax changes is the expansion of Making Tax Digital. Starting on April 6, 2026, self-employed people and landlords who make more than £50,000 a year must use Making Tax Digital.

• This is not just a compliance tweak. It fundamentally changes how taxes are reported
• Quarterly submissions will replace the traditional annual Self Assessment approach
• Digital record-keeping will be required using compatible software
• A final end-of-year declaration will still be necessary

What this means in practice:
Instead of just once a year, you will report your income and expenses at least five times. Because liabilities are tracked in real time, this raises administrative costs but also lowers the possibility of significant, unforeseen tax bills.

Who is most affected:

• Freelancers and consultants
• Landlords with multiple properties
• Small business owners still using spreadsheets or manual records

(Source: Making Tax Digital for Income Tax for sole traders and landlords)

Dividend Tax Rate Increase

Among the more direct UK tax changes, dividend tax rates are increasing by 2%:

• Basic rate: 10.75%
• Higher rate: 35.75%

The dividend allowance remains frozen at just £500.

Impact:
These UK tax changes will particularly impact directors of the company and dividend-dependent investors, who will directly experience a decrease in net income. Even small dividend earnings will now be subject to taxation due to the extremely low allowance. Seeking guidance from experienced accountants in London can help optimise tax strategies under the new rates.

Example:
If you receive £10,000 in dividends:

• Only £500 is tax-free
• The remaining £9,500 is taxed at your applicable rate

This makes dividend-heavy remuneration strategies less efficient than before.
(Source: Gov.UK Tax on dividends)

Business Asset Disposal Relief (BADR)

BADR continues to lose some of its appeal:

• Tax rate rises from 14% to 18%
• Lifetime limit remains £1 million

Why it matters:
Business owners who intend to sell their company will have to pay higher gains taxes. While still lower than standard Capital Gains Tax rates, the gap is narrowing.

Planning insight:
When you’re about to sell, timing is crucial. Large transactions can be greatly impacted by even a slight rate increase.
(Source: Business Asset Disposal Relief on Gov.uk)

Inheritance Tax (IHT) Relief Caps

One of the most significant changes this year is the inheritance tax reform.

• 100% Business and Agricultural Relief now capped at £2.5 million
• Any excess is taxed at an effective 20%
• Transferable between spouses, allowing up to £5 million combined

What’s changing:
In the past, qualifying business or agricultural assets could be passed on by large estates with little to no IHT. The new cap limits this advantage.

Who is affected:

• Family-owned businesses
• Agricultural landowners
• High-net-worth estates

These UK tax changes introduce potential tax liabilities for estates that were previously more protected.
(Source: How Inheritance Tax works: thresholds, rules and allowances)

Unquoted & AIM Share Relief Reduction

Inheritance tax relief on certain investments is being reduced:

• Relief drops from 100% to 50%
• Applies to unquoted shares and AIM-listed investments
• Effective tax rate becomes 20%

Why this matters:
For tax-efficient estate planning, these investments were frequently utilised. Their appeal for this purpose decreases with less relief.
(Source: How Inheritance Tax works: thresholds, rules and allowances)

National Minimum Wage Increase

Not all UK tax changes are directly tax-related, but they still affect financial planning. Effective from 1 April 2026:

• £12.71 per hour (age 21+)
• £10.85 (ages 18–20)
• £8.00 (apprentices)

Business impact:
Sectors like retail, hospitality, and care services that have large workforces will be impacted by higher wage bills.

Wider effect:
Additionally, as companies pass on higher costs to customers, inflationary pressure may rise.
(Source: National Minimum Wage and National Living Wage rates)

Remote Working & Benefit Changes

The government is removing the flat-rate work-from-home tax relief:

• £6 per week relief is scrapped
• Employees can no longer claim directly from HMRC

However:

• Employer reimbursements remain tax-free
• Eye test benefits are still exempt

What this means:
Unless their employer pays the expenses directly, employees lose a tiny but steady tax savings.
(Source: Income Tax: removal of the tax relief for additional homeworking expenses)

ISA & Savings Limits

The UK tax changes maintain current ISA limits:

• ISA allowance: £20,000
• Junior ISA: £9,000

Looking ahead:

In April 2027, a £12,000 cap on Cash ISAs for individuals under 65 will be implemented.

Interpretation:
Instead of encouraging people to save a lot of money in cash, the government is quietly pushing them to invest.
(Source: Individual Savings Accounts (ISAs) Gov.uk)

Income Tax Threshold Freezes

Thresholds remain fixed:

• Personal Allowance: £12,570
• Higher Rate: £50,270
• Additional Rate: £125,140

The real effect: fiscal drag
Inflation or promotions cause a rise in incomes, pulling more individuals into higher tax brackets without any official rate increase.

Example:
A small pay increase might put you in a higher tax bracket, which would lessen its benefits.

High Income Child Benefit Charge (HICBC)

Within the broader UK tax changes, HICBC remains largely the same:

• Starts at £60,000
• Fully withdrawn at £80,000
• Based on the highest individual earner

It has been confirmed by the government that a household income model will not be adopted.

Implication:
Under this system, families with unequal income distribution might still experience problems with fairness.
(Source: High Income Child Benefit Charge Gov.UK)

Venture Capital & EMI Expansion

This is one of the more positive updates:

• EMI eligibility expands to companies with up to 500 employees
• Gross asset limit increases to £120 million
• VCT and EIS schemes extended to 2035

Why it matters:
More businesses can now offer tax-efficient share options, making it easier to attract and retain talent.
(Source: Venture Capital & EMI Expansion from HM Treasury)

Non-Dom Transition (Final Year)

For non-domiciled individuals:

• Temporary Repatriation Facility (TRF) remains at 12%
• Final year before it rises to 15% in April 2027

Planning window:
This is the last opportunity to bring overseas funds into the UK at a reduced tax rate.

VCT & EIS Investment Adjustments

Changes include:

• VCT income tax relief reduced from 30% to 20%
• Annual funding limits increased to £10 million

Interpretation:
Relief is being reduced, but the government is allowing larger investments into growing businesses.
(Source: Venture Capital Trusts, Enterprise Investment Scheme)

Green Investment Incentives

The UK tax changes continue to support sustainability:

• 100% First-Year Allowance for EV charge points extended
• Zero-emission vehicle incentives extended to March 2027
• Full cost can be deducted from profits

Business takeaway:
Investing in green infrastructure continues to be one of the most cost-effective options.
(Source: Capital allowances: extension of first-year allowances for zero-emission cars and chargepoints)

Gambling & Indirect Tax Changes

Several sector-specific changes:

• Remote Gaming Duty increases from 21% to 40%
• Bingo Duty is abolished
• Landfill Tax rises to £130.75 per tonne

Policy direction:
Taxes on online gambling and its effects on the environment are increased, but traditional industries like bingo are exempt.
(Source: Gambling duty changes Gov.uk)

Final Thoughts

The overall theme of the UK tax changes for the year 2026/27 is subtle but steady pressure. Instead of introducing entirely new taxes, the government is:

• Freezing thresholds
• Reducing reliefs
• Increasing selected rates

At the same time, these UK tax changes highlight clear priorities; it is encouraging investment in the following:

• High-growth businesses
• Sustainable infrastructure

Compliance is no longer the only important factor. It is proactive planning. Individuals who make early adjustments will be in a much stronger position because small changes across several areas can add up quickly.

For individuals and businesses, especially those working closely with accountants in London, staying ahead of these changes is key to managing tax exposure effectively and making informed financial decisions.