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Tax changes and an ongoing freeze in many allowances from April 2026 are likely to place even greater pressure on our already-stretched finances, but there are steps you may be able to take to reduce the burden.
High living costs are already making it difficult for many of us to make ends meet, with the price of fuel, food, energy and other essential costs all remaining high.
Here we take a look at some of the tax changes that are due to come into effect in the 2026/27 tax year – and what you might be able to do to minimise the impact of these on your finances.
1. Dividend tax increase
Dividend tax rates were 8.75% for basic rate taxpayers and 33.75% for higher rate taxpayers in the 2025/26 tax year, but these rose to 10.75% and 35.75% respectively in April 2026.
This is likely to have a significant impact on income investors, who’ve already had to contend with a series of cuts to the tax-free dividend allowance. This fell from £2,000 to £1,000 in the 2023/24 tax year, and was reduced again to £500 from April 2024. It remains frozen at this level in the current 2026/27 tax year. If you receive more than your tax-free allowance in dividends in the tax year outside an individual savings account (ISA), you’ll pay tax on this income. Learn more in our article How are dividends taxed?
What can you do about it?
Any dividends you receive on investments held within an ISA are tax-free, so if possible, it’s worth making use of your stocks and shares ISA allowance.
The ISA allowance for the current 2026/27 tax year stands at £20,000, and you get a new allowance at the start of each new tax year from April 6. It’s a case of use it or lose it with your ISA allowance, as you cannot carry it over into the following tax year. Read more about ISAs in our article Everything you need to know about ISAs.
Dividends received within a pension are also free from tax, and any pension contributions benefit from tax relief at your marginal rate, too. However, pension withdrawals above the 25% tax-free cash lump sum are taxed as income. Learn more in our guide How much tax will I pay on pension withdrawals?
This 2026/27 tax year, you can pay up to £60,000 or 100% of your earnings (whichever is lower) into your pension and benefit from tax relief. You are also able to carry forward unused annual allowances from up to three previous tax years, under carry forward rules. Find out how these rules work in our article Pension carry forward explained.
Depending on your personal situation and employment status, using the carry forward rule can be complicated and you may need the help of a tax and/or a professional financial advisor. If you want help from an accountant, you can find a qualified chartered accountant in your local area using the Institute of Chartered Accountants in England and Wales’ (ICAEW) directory of chartered accountants.
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2. Income tax thresholds unchanged
Most people will end up paying more tax in the 2026/27 tax year due to the ongoing freezing of income tax allowances and so-called ‘fiscal drag’. This is the process by which people end up paying more tax when tax rates and thresholds don’t change, as they earn more and their assets rise in value. The current tax thresholds are £12,570 (basic rate), £50,270 (higher rate), and £125,140 (additional rate).
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Income tax and National Insurance thresholds will be frozen until 2031, and between now and then, every pay rise will mean you pay more tax and creep ever closer to crossing a tax threshold.
“It means some people will be pushed over the personal allowance and be forced to pay income tax and National Insurance for the first time, while others find themselves facing higher or additional rate tax. At that point, it’s not just more income tax you have to worry about, but potentially higher rates on everything from dividend tax to capital gains tax, and a shrinking personal savings allowance.”
What can you do about it?
If you’re looking to reduce the amount you pay in income tax, it’s worth checking you’re on the right tax code, as you can get a refund of income tax payments if you’ve paid too much. Sometimes new employees are put on emergency tax codes when they change jobs, meaning they’ll be charged at a higher rate. You can use the government’s online tool to work out how much income tax you should be paying. You may be due a refund, you can apply for this here.
If you’re married, you may be able to use the Marriage Allowance to reduce the overall amount of tax you pay, by transferring up to 10% of your personal allowance to your partner. The personal allowance is £12,570 in the 2026/27 tax year, which means you can transfer £1,260. This gives your partner an increased personal allowance, and reduces their tax bill. You can also backdate your claim to any tax year since 2022/23. Find out more about this allowance and whether you might be eligible in our article Marriage Allowance explained.
3. Higher council tax bills
Most councils are increasing council tax bills by 5% this April, with some hiking costs by much more than this. The average household in England in Council Tax band D, for example, is £2,392 in the 2026/27 tax year– an increase of £111 or 4.9% compared to 2025/26, according to the Ministry of Housing, Communities and Local Government.
You can find out how much your council tax is increasing by finding your local council, if you don’t already know what this is, using the Gov.uk tool, and look at its website. Check your latest bill to find out which council tax band your home falls under – these range from A to H.
What can you do about it?
You’re sent a council tax bill every April which details how much you’ll pay, and usually payments are spread over a period of 10 months. However, you can choose to pay over 12 months to reduce your monthly payments.
You may be able to claim a reduction in your council tax bill ranging from 25% to 100% if you live alone, you’re claiming certain benefits, on a low income, or have caring responsibilities. You can find out more from your local authority and apply to them directly for a council tax reduction. See if you’re eligible and find out more about how to apply at Gov.uk.
Find out more about ways you might be able to reduce your council tax in our guide 6 ways you might be able to save money on your Council Tax.
4. Inheritance Tax threshold frozen
The current Inheritance Tax threshold, called the ‘nil-rate band’, has been frozen yet again at £325,000 in the 2026/27 tax year. It has stood at this level since April 2009, and any assets over and above this amount are usually subject to tax at 40%. There’s also a main residence allowance. This allowance applies in addition to the existing nil rate band, but only where the person who has died is transferring a property that was once their home, to their direct descendants (i.e. children or grandchildren). The residence nil-rate band is currently £175,000, having increased to this limit in April 2020.
These thresholds will continue to be frozen at this level until at least 2031, seeing more people paying this tax on death, as property prices rise. Find out more in our guide Understanding Inheritance Tax.
What can you do about it?
You can take some simple steps to reduce the amount of Inheritance Tax you pay. For example, you can give away up to £3,000 each tax year without this money being subject to your estate for Inheritance Tax purposes. If you’re married or in a civil partnership, you can make as many gifts to your spouse or partner as you want during your lifetime, free from IHT. Read more in our articles Which gifts are exempt from Inheritance Tax?
Other ways you might be able to reduce your liability to Inheritance Tax include taking out a life insurance policy that’s written in trust. Read more in our article Six ways to reduce Inheritance Tax bills. Bear in mind, though, that some of these options may not be suitable for you, so you should seek professional financial advice if you’re looking for specific recommendations based on your personal circumstances. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide How to find the right financial advisor for you.
5. Fuel duty relief withdrawn
In her 2025 Autumn Budget, the Chancellor Rachel Reeves announced that she would maintain the 5p freeze in fuel duty for the fifth consecutive year, saving drivers more than £3 a tank.
However, from September 2026, this freeze will be reversed “through a staggered approach” and from April 2027, fuel duty rates will be increased annually by the RPI measure of inflation.
This will see drivers hit with a 1p rise in September 2026, the first increase in 15 years, meaning more financial pain for motorists who are already facing much higher fuel costs due to the Iran war.
What can you do about it?
There is a new ‘Fuel Finder’ service available, which all petrol stations need to report their prices to, allowing customers to find the cheapest fuel wherever they are. The Fuel Finder data is available on a range of third-party mapping and price comparison tools, including:
It’s also worth considering other modes of transport if you’re able to so that you can save on motoring costs. You can find out more in our article 14 ways to save on car and travel costs.
How to reduce your outgoings
Rising taxes are just one of the ways your finances may feel more squeezed over the next financial year.
Inflation remains higher than the government’s 2% target, and is expected to increase in the coming months due to conflict in the Middle East pushing up oil prices, placing our finances under additional strain. Many of us may therefore be looking at how to save money to help make ends meet. You can find plenty of tips in our article How to save money – 21 money saving tips.
Although the energy price cap fell in April, it is forecast to rise by 18% in July, according to Cornwall Insight. However, there may be ways you can reduce your costs or get help with your bills. Read more in our articles The energy bills crisis: What can you do about soaring costs?, Energy saving tips: how to reduce your bills, and Are you eligible for help with heating costs?
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