In 2026, millions of individuals are expected to face higher tax payments, but there are strategies available to reduce this burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, details key insights to help manage tax implications.
One significant change is the freeze on the personal allowance at £12,570 until 2031, potentially resulting in individuals moving into higher tax brackets as their income grows. Additionally, the dividend tax rates are set to rise in April 2026, with basic rate taxpayers seeing an increase from 8.75% to 10.75%, and higher rate taxpayers facing a jump from 33.75% to 35.75%. Furthermore, venture capital trusts will experience a reduction in tax relief from 30% to 20% in April 2026.
The inheritance tax nil rate band will remain at £325,000 and the residence nil rate band at £175,000 until 2031, while the IHT annual gift allowance remains fixed at £3,000. Moreover, council tax is slated to rise once again in April 2026, allowing English local authorities to increase rates by up to 5% annually without the need for a referendum.
The 5p per litre fuel duty cut implemented in March 2022 will gradually revert to normal levels by March 2027, starting from September 2026. Similarly, alcohol duty will increase in line with RPI inflation from February 2026, along with a one-time hike in tobacco duty as announced in the 2024 spring Budget by Jeremy Hunt. Vaping products will also face a new duty of £2.20 per 10ml of vaping liquid starting October 2026.
To navigate these tax changes, Sarah Coles suggests five legal methods to minimize tax liabilities in 2026. Maximizing ISA saving accounts, contributing to pensions for tax relief benefits, utilizing salary sacrifice schemes, transferring income-producing assets between spouses, and leveraging the marriage allowance for couples with differing tax statuses are effective strategies to optimize tax planning.
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