From frozen tax thresholds, to council tax rises, Sarah Coles, head of personal finance at Hargreaves Lansdown, explains everything you need to know
Millions of people will pay more in tax in 2026 – but there are ways to cut down your bill.
From frozen tax thresholds, to council tax rises, Sarah Coles, head of personal finance at Hargreaves Lansdown, explains everything you need to know.
She said: “The good news is that you can beat these tax hikes, and getting started early will give you the best possible chance of avoiding some of the tax pain that 2026 holds in store.“
Frozen tax thresholds
The personal allowance – which is how much most people can earn each year before they start to pay tax – has been frozen at £12,570 until 2031. This means as your income rises over time, you risk being pushed into a higher tax bracket.
Dividend tax will rise
The rate of dividend tax will rise in April 2026. It will increase from 8.75% to 10.75% for basic rate taxpayers, and 33.75% to 35.75% for higher rate taxpayers. Venture capital trusts will also see tax relief cut from 30% to 20% in April 2026.
Frozen inheritance tax thresholds
The inheritance tax nil rate band will remain at £325,000 and the residence nil rate band at £175,000 until 2031. Meanwhile, the IHT annual gift allowance is also frozen at £3,000.
Council tax will rise
Council tax will rise again in April 2026. If you live in England, your local authority can raise council tax by up to 5% every tax year without holding a referendum.
5p fuel duty relief will be withdrawn
The 5p per litre cut in fuel duty introduced by the Conservative government in March 2022 will start to be tapered away, back to normal levels, from September 2026. Rates will gradually return to March 2022 levels by March 2027.
Tobacco and alcohol tax hike
Alcohol duty will rise by RPI inflation from February 2026. There will also be a one-off rise in tobacco duty, as previously announced in the 2024 spring Budget by Jeremy Hunt. Tobacco duty normally also rises in November, by RPI inflation plus two percentage points.
New vaping tax
A new duty will be charged on vaping products at £2.20 per 10ml of vaping liquid from October 2026.
How to cut your tax bill
Sarah Coles explained how there are five ways you can legally cut your tax bill in 2026. Her first tip was to make the most of ISA saving accounts, which enable you to squirrel away £20,000 every tax year, completely free of tax.
Next, think about your pension. You can pay up to £60,000 into a pension in the current tax year, and contributions to pensions attract tax relief at your highest marginal rate. The first 25% taken from your pension is usually tax-free.
Her third tip is to do with salary sacrifice. Some employers let you give up a portion of your salary, in exchange for a non-cash benefit such as pensions and childcare vouchers. Because your gross salary is lower, less tax and sometimes National insurance is deducted from your pay.
Next, assets that produce an income – like shares paying dividends or an investment property – can be passed between spouses or civil partners without triggering a tax bill.
Finally, if one spouse is a non-taxpayer and the other is a basic rate taxpayer, the marriage allowance lets the non-taxpayer give £1,260 of their personal allowance to their spouse in the current tax year.
