The new financial year starts this week and with it comes a number of changes affecting millions of people
Home workers are missing out on an allowance they have been able to claim for several years(Image: Getty)
The new tax year for 2026/27 begins this week, and bringing with it a number of changes. The tax year does not run from January to December, but instead from April to March.
In 2026 it begins this week, starting from Monday April 6 and there are a number of changes and updates people need to be aware of. One of the key ones is income tax which, despite a long-running campaign to raise it, has been frozen not just for the coming tax year but until at least April 2031, a decade since it was last increased to the current £12,570 in April 2021.
Other areas which affect many people are National Insurance contributions as well as inheritance tax. According to the Association of Taxation Technicians (ATT), a charity which is a leading professional body for those providing UK tax compliance services, there are several areas people need to be aware of.
Income tax
With the tax-free personal allowance for 2026/27 remaining at £12,570, and the income level for higher and additional rate tax rates in England, Wales and Northern Ireland unchanged this effectively means a cut. The ATT says: “Freezing the personal allowance and tax rate thresholds means they are not keeping up with inflation.
Where incomes rise with inflation, individuals get to keep less of any extra income they receive each year, and more taxpayers are brought into higher- and additional-rate tax bands.”
National Insurance Contributions (NICs)
Workers aged 16 or over who earn more than £242 per week or £1,048 per month, as of April 2026, and their employers pay “Class 1 National Insurance”. This is automatically deducted from employee paychecks via PAYE and paid by employers on their earnings.
From April 2026 the main thresholds and rates for these are unchanged for 2026/27 – for most employees, the main rate applicable to earnings between £12,570 and £50,270 will be 8%. Above £50,270, Class 1 NIC is due at 2%.
For employers, the rate of Class 1 NICs remains unchanged at 15% on earnings over £5,000 per year. This must also be paid by employers at 15% on the value of most benefits in kind provided to their employees.
For those who are self-employed, paying Class 4 contributions, they will pay 6% on profits between £12,570 and £50,270, and at 2% on profits above £50,270. This is also unchanged on the previous year.
Some people based overseas pay voluntary National Insurance contributions, usually to build entitlement to a UK State Pension. The ATT warned those who have previously chosen to pay this will find voluntary payments become more expensive for the 2026/27 tax year onwards. It added: “In addition, the eligibility criteria for making voluntary NIC payments for periods abroad become more restrictive from April 2026.“
Inheritance Tax
Inheritance Tax (IHT) will undergo a “significant change” from 6 April 6, 2026, affecting business owners, including farmers. The amount of property eligible for 100% Agricultural Relief and 100% Business Relief is capped at £2.5m per individual from April 2026, with a 50% rate of relief applying to assets above this limit.
The Budget in November 2025 also brought an extension of the freeze on all IHT nil-rate bands through to April 2031. The ATT advised: “By that time, the main nil-rate band will have remained at £325,000 for 21 years, meaning more estates have had to pay IHT as asset values have risen.”
Taxation of investment income and capital gains
For people who hae savings or investments there are some changes to be aware of. While the tax-free dividend allowance (for shares not held in an Individual Savings Account, or ISA) remains at £500 for 2026/27, the basic and higher rates of tax on non-ISA dividend income above this amount are each set to increase by 2%.
The ATT said: “From 6 April 2026, tax payable on dividend income will be at 10.75% (previously 8.75%) for basic rate taxpayers, and at 35.75% (previously 33.75%) in the higher rate tax band. There is no increase to the dividend tax rate for additional rate taxpayers, who will continue to pay at 39.35% during the 2026/27 tax year.
“The Personal Savings Allowance is also unchanged – basic rate taxpayers will benefit from a £1,000 tax-free band for non-ISA interest income (commonly from bank and building society accounts, or unit trust investments), whilst higher-rate taxpayers can continue to earn £500 of interest tax-free. Those paying additional rates of tax are not entitled to a Personal Savings Allowance.”
These allowances do not apply to cash or investments held within ISAs. Taxpayers can save up to £20,000 per tax year in total across all ISAs (cash, stocks and shares, innovative finance, and Lifetime ISAs).
The ATT said: “Whilst the ISA limit remains at £20,000 for the 2026/27 tax year, looking further ahead, the limit for adding cash to an ISA is set to fall to £12,000 from April 2027 for people aged 64 and under. The £20,000 total ISA limit is set to remain beyond April 2027, meaning if you’re under age 65 in 2027/28 you’ll be able to add a maximum of £12,000 to a cash ISA and £8,000 to a stocks and shares ISA. The 2026/27 tax year therefore represents an opportunity to maximise cash ISA balances before this restriction, although investment advice may be necessary before changing any investment strategy.”
The Capital Gains Tax annual exemption remains at £3,000 for the coming tax year with the rates remaining unchanged at 18% for basic rate taxpayers and 24% for higher/additional rate taxpayers.
Tax exemptions and reliefs for employees
There are two major changes to tax exemptions and reliefs affecting employees. The ATT explained: “From 6 April 2026, if an employee pays for: a flu vaccine, an eye test, or home-working equipment, their employer will be able to reimburse them for the cost without either employer or staff member incurring tax or NIC liabilities. Under previous rules, the employer generally had to pay for these items directly (or in some cases provide a voucher) in order to prevent tax and NIC complications arising.”
However less welcome for those working from home is a change in the tax relief they were allowed by HMRC for additional costs of home-working (commonly based on a £6 per week ‘flat rate’).
The ATT said: “From the 2026/27 tax year, employers can still reimburse their employees tax-free for additional home-working costs. But for employees who work from home and whose employers do not offer this reimbursement, it will no longer be possible to claim tax relief for additional costs of working at home.”
