Have you ever felt like your paycheck is shrinking even when your salary isn’t? That’s the sneaky reality for many of us heading into 2026. With inflation still lingering in the background and government budgets under pressure, a series of tax adjustments and cost increases are rolling out this year. Some are direct rate hikes, others are more subtle – like frozen thresholds pulling more people into higher brackets. It’s not all doom and gloom, though; being aware early gives you time to plan ahead and potentially ease the sting.
What Tax Shifts Should You Watch in 2026?
In my experience covering personal finance, these kinds of changes often catch people off guard. One year everything feels stable, the next you’re wondering why your take-home pay dipped or your bills crept up. This time around, we’re looking at around a dozen notable shifts affecting everything from investments to everyday spending. Let’s break them down one by one, with practical thoughts on what you might do about them.
Dividend Tax Rates Climbing Higher
If you hold shares outside of tax wrappers and enjoy those regular dividend payouts, brace yourself. Starting in April, the tax on dividend income is going up for most taxpayers. Basic-rate payers will see their rate jump from 8.75% to 10.75%, while higher-rate taxpayers face a rise from 33.75% to 35.75%. Additional-rate taxpayers stay put at 39.35%, which feels a bit unfair to everyone else.
The good news? You still get that handy £500 dividend allowance – any dividends below this are tax-free, no matter your bracket. But cross that threshold, and the new rates kick in immediately from 6 April.
I’ve always thought ISAs are one of the simplest wins in personal finance. If you’re receiving dividends, prioritising your annual ISA allowance can shield them completely from tax. You can transfer existing shares into an ISA gradually (bed and ISA process) or wait for the new allowance in April. It’s straightforward and often overlooked.
Business Asset Sales Facing Steeper Capital Gains
For business owners or those with qualifying shareholdings, the relief formerly known as entrepreneurs’ relief is changing again. The special lower rate for capital gains on business asset disposals is increasing from 14% to 18% come April.
Timing matters here. If you’ve been considering selling a business or certain assets, doing so before the tax year ends could lock in the lower rate. Of course, tax shouldn’t be the only driver – your overall financial picture comes first – but it’s worth running the numbers with an adviser.
The Silent Income Tax Increase: Fiscal Drag
Perhaps the most widespread impact won’t come from headline rate changes – income tax rates themselves aren’t moving. Instead, it’s the continued freeze on thresholds and the personal allowance that’s doing the heavy lifting.
The personal allowance stays at £12,570, the basic-rate band up to £50,270, and so on, all frozen until 2031 in England, Wales, and Northern Ireland. As wages rise – even modestly – more of your income creeps into higher bands. It’s called fiscal drag, and it’s remarkably effective at raising revenue without announcing “tax rises.”
Scotland has its own banded system, but the same principle applies: no inflation adjustments mean more tax over time.
- Pension contributions remain one of the best countermeasures. Every pound you put in reduces your taxable income and gets tax relief at your marginal rate.
- Salary sacrifice through work can be even more efficient, cutting national insurance too.
- Self-employed? A SIPP offers the same benefits with flexible contributions.
In my view, if you’re not already maximising pension inputs, this freeze is the nudge you needed.
Venture Capital Trust Relief Reduction
VCTs have long been attractive for higher earners seeking tax relief while backing growing UK companies. The upfront income tax relief is dropping from 30% to 20% from 6 April onwards.
That’s a notable cut in the immediate sweetener, though dividends and capital gains remain tax-free. The annual investment limit stays at £200,000.
If you’ve been eyeing VCTs primarily for the relief, acting before April secures the higher rate. But remember – these are higher-risk investments supporting early-stage businesses. The tax break shouldn’t overshadow the underlying risk.
Air Passenger Duty Going Up Again
Flying isn’t getting cheaper. From April, APD rates increase, with short-haul economy flights facing an extra £2 or so, and premium cabins double that. Long-haul sees bigger jumps.
Airlines bake this into ticket prices, so it appears seamlessly. Shopping around and staying flexible with dates remains the best defence.
End of Work-from-Home Tax Relief
One small COVID-era perk is disappearing: the ability to claim tax relief on additional household costs if working from home without employer reimbursement. No more £6 weekly claims through HMRC.
If your employer offers any home-working allowance, make sure you’re receiving it.
Company Car Benefit-in-Kind Rates Rising
Electric vehicles have enjoyed ultra-low BiK rates, encouraging adoption. From April 2026, the rate for EVs increases from 3% to 4%, with further scheduled rises ahead.
Petrol and hybrid drivers face the usual CO2-based increments too. If you’re choosing a company car, factor in the full multi-year cost.
Energy Bills and the Price Cap
Right from 1 January, the energy price cap brought a slight uptick – average dual-fuel households paying around £1,758 annually until the end of March. That’s only £3 more than the previous quarter, but directionally upward.
Smart meters can help identify usage patterns. Small behavioural changes often add up more than people expect.
Water Bills on the Rise
Further increases are confirmed for 2026/27 and beyond. Exact figures vary by region, but upward pressure continues.
If you’re on an unmeasured tariff and suspect low usage, switching to a meter could save money. Many suppliers fit them free, and online calculators help estimate potential savings.
Council Tax Hikes Expected
Most English councils can raise bills by up to 5% from April without referendum. Some struggling authorities have permission for larger increases.
Check your local authority announcements – the variation can be significant.
TV Licence Fee Likely Increase
The annual fee usually rises with inflation. An April adjustment is expected, though not yet confirmed. Current colour licence stands at £174.50.
Fuel Duty Freeze Ending
After years of freezes and temporary cuts, fuel duty will begin rising with inflation from September 2026. Motorists have enjoyed a long reprieve, but it’s phasing out.
Alcohol Duty Inflation Link
From February, duties increase by RPI – around 3.66%. That translates to roughly 11p on Prosecco, 13p on wine, and 38p on spirits.
Not enormous on individual bottles, but it adds up for regular buyers.
Taken together, these changes paint a picture of gradual but persistent upward pressure on household costs and tax liabilities. None are catastrophic in isolation, yet they compound – especially alongside wage growth that’s often barely keeping pace with living costs.
The common thread? Planning pays off. Whether that’s maximising tax-efficient accounts, reviewing spending habits, or simply staying informed about deadlines, small actions now can make a real difference by year-end.
I’ve found that the people who feel least squeezed are usually those who review their finances annually – almost like an MOT for your money. Maybe 2026 is the year to start that habit if you haven’t already.
Being prepared doesn’t eliminate increases, but it certainly helps you keep more of what you earn.
Stay ahead, adjust where you can, and remember – financial resilience is built over time, not overnight.
