Millions of individuals are set to face higher tax payments in 2026, but there are strategies available to reduce your tax burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, offers insights into navigating upcoming tax changes.
Coles highlights that taking proactive steps early on can help mitigate the impact of tax hikes anticipated for 2026. The freezing of the personal allowance at £12,570 until 2031 means that as incomes increase, there is a risk of moving into a higher tax bracket.
In April 2026, the dividend tax rates are scheduled to rise. Basic rate taxpayers will see an increase from 8.75% to 10.75%, while higher rate taxpayers will experience a jump from 33.75% to 35.75%. Additionally, venture capital trusts will witness a reduction in tax relief from 30% to 20% in the same period.
The inheritance tax nil rate band will stay at £325,000, and the residence nil rate band at £175,000 until 2031. Moreover, the annual gift allowance for inheritance tax remains static at £3,000. Residents in England should prepare for a council tax increase in April 2026, with local authorities able to raise council tax by up to 5% annually without a referendum.
The Conservative government’s 5p per litre reduction in fuel duty introduced in March 2022 will gradually revert to normal levels from September 2026, reaching pre-reduction levels by March 2027. Alcohol duty will rise in line with RPI inflation starting February 2026, and there will be a one-time increase in tobacco duty as announced by Jeremy Hunt in the 2024 spring Budget.
A new duty of £2.20 per 10ml of vaping liquid will be imposed from October 2026. Coles suggests five legal ways to reduce tax liabilities in 2026, including maximizing ISA saving accounts and leveraging pension contributions for tax relief. Additionally, salary sacrifice, asset transfers between spouses, and utilizing the marriage allowance for non-taxpaying spouses are recommended strategies.
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