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Several important tax changes are happening in 2026 that could affect how individuals and business owners manage their wealth.
Whether you’re a retiree, an investor, or an entrepreneur, understanding what’s changing and how to prepare could help you make informed decisions that keep your financial plan on track.
Indeed, as the freeze on Income Tax thresholds continues, more people could be dragged into a higher-rate tax band, or even the “60% tax trap” that can affect higher earners. That’s why diligent tax planning is crucial if you want to continue progressing towards your financial goals – be they to retire early or grow your business.
Keep reading to learn about four key tax reforms that will come into effect in 2026 and discover practical ways to build these changes into your financial plan.
1. Your Council Tax could increase by 4.99% or more
Most households with adults over 18 must pay Council Tax to fund local services, such as rubbish collection, road maintenance, and policing. As such, increases are likely to have a wide-ranging impact.
How much you pay depends on which Council Tax band you fall into – you can check this on the government’s website – and where you live.
It’s expected that most local authorities will increase Council Tax rates in April 2026 to help cover rising service costs and ease financial strain.
The majority of councils in England are allowed to increase Council Tax by up to 4.99% without holding a referendum. Some councils in London and the south-east have been granted the flexibility to raise rates by more than this.
It’s also worth noting that the value of your home in 2026 will be used to calculate the “mansion tax” surcharge that takes effect from April 2028 for properties worth more than £2 million.
How to prepare:
- Review and adjust your monthly budget now to accommodate a potential increase in Council Tax rates, so that any rise feels like less of a shock.
- Check if you qualify for any discounts or exemptions, such as the 25% single-person discount.
- Ask your local authority if you can spread payments over 12 months instead of 10 to help you manage cash flow.
2. Dividend Tax rates will rise by 2%
You might pay Dividend Tax if you:
- Receive dividends from shares or equity funds outside ISAs and pensions
- Are a company director who takes dividends instead of salary.
The first £500 of dividend income is tax-free. Beyond this allowance, any dividends you earn that exceed your Personal Allowance (the maximum amount of income you can earn before paying tax), once combined with any other sources of income, will usually trigger a tax charge.
From 6 April 2026, the standard Dividend Tax rate will rise from 8.75% to 10.75% for basic-rate taxpayers and 33.75% to 35.75% for higher-rate taxpayers, while the additional rate will remain at 39.5%.
Any tax due is usually collected through your Self Assessment form or by adjusting your tax code.
How to prepare:
- Consider bringing forward dividends into the 2025/26 tax year if cash flow allows, so that more is taxed at the lower pre-April 2026 rates.
- Make full use of annual allowances for ISA and pension contributions, where dividends are not subject to Dividend Tax.
3. A 100% Inheritance Tax relief cap will apply to qualifying agricultural and business assets
In the 2025/26 tax year, business owners can claim up to 100% Inheritance Tax (IHT) relief on qualifying business and agricultural assets. This allows many families to pass their estates on free from IHT.
However, from 6 April 2026, a significant reform of Agricultural Property Relief (APR) and Business Property Relief (BPR) will take effect. As a result, a new £2.5 million 100% relief allowance will apply to the combined value of assets eligible for Agricultural Relief (AR) and Business Relief (BR), as they will be known.
Any qualifying assets that exceed this threshold will only receive 50% relief. As the standard IHT rate is 40%, this effectively creates a 20% IHT charge on the excess.
The allowance will renew every seven years for lifetime gifting, and it will increase in line with the Consumer Prices Index from April 2031, pending government approval.
Unused portions of the £2.5 million allowance can be transferred between spouses and civil partners, even if the first death occurred before 6 April 2026.
How to prepare:
- Review the current and projected value of relevant assets to assess how much of your assets could fall into the 50% relief band.
- Consult a financial planner who can use advanced cashflow modelling software to show you the potential impact of any extra IHT exposure and update your estate plan accordingly. This might include taking out appropriate life insurance to help your beneficiaries pay for a potentially higher IHT bill and ensuring that available allowances are fully used across the family.
4. The rate of Capital Gains Tax will increase for business owners and investors selling qualifying assets
Capital Gains Tax (CGT) is a tax on the profit or “gain” you make when you sell or dispose of an asset that has increased in value.
The main CGT change for 2026 is a rate increase for business owners and long-term investors who sell assets that qualify for Business Asset Disposal Relief (BADR) or Investors’ Relief (IR).
In the 2025/26 tax year, the standard CGT rate for basic-rate taxpayers is 18% and 24% for higher- and additional-rate taxpayers.
BADR and IR were introduced to reduce these rates for certain qualifying gains. However, the rate for both increased from 10% to 14% in April 2025, and is set to rise to 18% from April 2026, making these reliefs less generous.
How to prepare:
- Consider bringing forward the planned sale of qualifying assets to the 2025/26 tax year, if this is practically and commercially viable.
- Speak to a financial planner who can model your potential CGT exposure under the new rates and explore options for mitigating any increased costs. For example, phasing disposals across several tax years could allow you to make the most of your CGT Annual Exempt Amount of £3,000 (2025/26).
Get in touch
If you’re feeling overwhelmed or confused by the tax reforms happening in 2026, please get in touch. Our financial planners can help you understand and prepare for these changes, so that you stay on track to achieve your goals.
To learn more, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group Ltd on 19/2/26