The new UK tax year has begun with few headline changes, but the underlying tax position continues to shift. Frozen thresholds and reduced allowances are increasing exposure for many taxpayers, while further reforms already under discussion could have a significant impact from April 2027.
2026/27 UK Tax Year Overview
The 2026/27 UK tax year began on 6 April with relatively few direct changes to headline tax rates and allowances. However, this stability is superficial. A series of earlier policy decisions continue to increase tax exposure in real terms, while further reforms already under discussion may significantly affect taxpayers from April 2027.
The central feature of the current system is fiscal drag. With thresholds frozen and asset values rising, more individuals are being drawn into higher tax bands without any formal rate increases. At the same time, planning opportunities have narrowed as allowances have been reduced over recent years.
Income tax thresholds remain frozen
Income tax rates and thresholds for England, Wales and Northern Ireland remain unchanged for the 2026/27 tax year. The personal allowance stays at £12,570, with basic rate tax applying up to £37,700, higher rate from £37,701 to £125,140, and additional rate above that level.
The personal allowance continues to taper for those earning over £100,000, creating an effective marginal rate of 60 percent within that band.
- Personal allowance remains at £12,570
- Higher rate threshold remains at £50,270
- Additional rate threshold remains at £125,140
- Thresholds remain frozen until at least April 2028
In practice, this means more taxpayers are paying higher rates over time as earnings increase, even where their real income has not significantly changed.
Dividend and savings income
Dividend tax rates remain unchanged at 8.75 percent for basic rate taxpayers, 33.75 percent for higher rate taxpayers and 39.35 percent for additional rate taxpayers. The dividend allowance remains at £500.
Savings income tax rates also remain unchanged, with personal savings allowances continuing at existing levels depending on the taxpayer’s marginal rate.
There are no confirmed increases to dividend or savings tax rates for the current tax year, despite earlier speculation.
Capital gains tax position
Capital gains tax rates remain stable for 2026/27. Basic rate taxpayers pay 18 percent, while higher and additional rate taxpayers pay 24 percent on most gains.
The annual exempt amount remains at £3,000 for individuals and £1,500 for trusts. This represents a significant reduction compared to historic levels and continues to increase the effective tax burden on disposals.
Reliefs such as Business Asset Disposal Relief and Investors’ Relief remain available, but tighter conditions and reduced allowances have limited their overall benefit.
Pension allowances
Pension contribution limits remain unchanged for the current tax year. The annual allowance is £60,000, and the Money Purchase Annual Allowance is £10,000.
- Annual allowance set at £60,000
- Money Purchase Annual Allowance set at £10,000
- Lump sum allowance set at £268,275
- Lump sum and death benefit allowance set at £1,073,100
Although the lifetime allowance has been removed, pension planning remains complex, particularly where large funds or multiple pension arrangements are involved.
Inheritance tax thresholds and reliefs
Inheritance tax thresholds remain unchanged. The nil rate band is £325,000, and the residence nil rate band can apply up to £175,000 where conditions are met.
- Nil rate band remains at £325,000
- Residence nil rate band remains up to £175,000
- Thresholds have been frozen for an extended period
There is currently no enacted legislation introducing a cap on Business Property Relief or Agricultural Property Relief. While reform has been discussed in policy and political contexts, no changes have taken effect for the 2026/27 tax year.
Looking ahead to April 2027
Attention is now shifting to potential reforms expected to take effect from April 2027. The most significant proposal under discussion is the inclusion of pension death benefits within the scope of inheritance tax.
At present, pension funds are generally excluded from the estate for inheritance tax purposes, although beneficiaries may face income tax depending on the circumstances of death.
Proposals indicate that unused pension funds could be brought within the inheritance tax framework. However, this change has not yet been legislated and remains subject to consultation and further policy development.
Claims that tax on inherited pensions could reach 67 percent are based on combined inheritance tax and income tax scenarios, rather than a standard rate applied in all cases.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
