Millions of individuals are expected to face higher tax burdens in 2026, but there are strategies available to reduce your tax liability. Sarah Coles, the head of personal finance at Hargreaves Lansdown, sheds light on various ways to navigate these upcoming tax changes.
Coles emphasized that taking proactive steps early on can help mitigate the impact of the tax increases anticipated in 2026. By staying informed and implementing smart financial choices, individuals can potentially minimize the tax challenges ahead.
One key area of concern is the freeze on the personal allowance at £12,570 until 2031, leading to the risk of individuals being pushed into higher tax brackets as their income grows over time.
In April 2026, the dividend tax rate is set to rise, with basic rate taxpayers facing an increase from 8.75% to 10.75%, and higher rate taxpayers seeing a jump 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.
Looking ahead, the inheritance tax nil rate band will remain at £325,000 and the residence nil rate band at £175,000 until 2031, alongside the frozen IHT annual gift allowance of £3,000.
Council tax is also expected to rise in April 2026, with local authorities in England having the authority to increase council tax by up to 5% annually without the need for a referendum.
Moreover, the fuel duty cut of 5p per litre introduced in March 2022 will gradually revert back to normal levels starting from September 2026, reaching pre-March 2022 rates by March 2027.
Changes in alcohol duty, tobacco duty, and the introduction of a new duty on vaping products are also on the horizon, impacting consumer costs in various ways.
To navigate these tax changes effectively, Coles outlined five legal strategies to reduce tax bills in 2026. These include maximizing ISA saving accounts, utilizing pension contributions for tax relief, exploring salary sacrifice options, leveraging asset transfers between spouses, and considering the marriage allowance for couples with differing tax statuses.
By adopting these proactive measures and staying informed about tax implications, individuals can better prepare themselves for the financial landscape in the coming years.