In 2026, many individuals will face increased tax burdens, but there are strategies available to reduce your overall tax liability.
Sarah Coles, the head of personal finance at Hargreaves Lansdown, sheds light on various aspects affecting taxes, such as frozen tax thresholds and upcoming council tax hikes. Coles emphasizes that early planning is key to mitigating the impact of the tax changes expected in 2026.
The personal allowance, set at £12,570 until 2031, determines the threshold at which individuals start paying income tax. As this allowance remains static, rising incomes may push taxpayers into higher tax brackets over time.
Come April 2026, the dividend tax rates will increase, with basic rate taxpayers facing a rise from 8.75% to 10.75%, and higher rate taxpayers from 33.75% to 35.75%. Additionally, venture capital trusts will experience a reduction in tax relief from 30% to 20% in the same period.
Other tax-related figures, such as the inheritance tax nil rate band at £325,000 and the residence nil rate band at £175,000 until 2031, remain unchanged. The council tax in England is expected to escalate by up to 5% annually starting April 2026.
Furthermore, the fuel duty reduction of 5p per litre, implemented in March 2022, will gradually revert to pre-cut levels by March 2027. Alcohol duty will increase in line with RPI inflation from February 2026, and tobacco duty will undergo a one-time hike as announced in the 2024 spring Budget by Jeremy Hunt.
A new duty of £2.20 per 10ml of vaping liquid will be implemented in October 2026.
Coles outlines five legitimate ways to reduce your tax bill in 2026. These include maximizing ISA saving accounts, contributing to pensions for tax relief, utilizing salary sacrifice schemes, transferring income-generating assets between spouses, and taking advantage of the marriage allowance if applicable.
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