Millions of individuals are set to face higher tax payments by 2026, but there are strategies available to reduce your tax burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, sheds light on various methods to mitigate these tax increases.
Coles emphasized that taking proactive steps early on can help individuals navigate the looming tax changes in 2026 successfully. She mentioned that staying informed and acting promptly are key to minimizing the impact of the upcoming tax adjustments.
The personal allowance, which denotes the threshold at which individuals begin paying taxes, has been fixed at £12,570 until 2031. This means that as incomes increase, there is a risk of moving into a higher tax bracket.
In April 2026, the dividend tax rates are slated to rise. Basic rate taxpayers will see an increase from 8.75% to 10.75%, while higher rate taxpayers will experience a bump from 33.75% to 35.75%. Additionally, venture capital trusts will witness a reduction in tax relief from 30% to 20% during the same period.
The inheritance tax nil rate band and the residence nil rate band will remain unchanged at £325,000 and £175,000, respectively, until 2031. The annual gift allowance for inheritance tax remains at £3,000.
Council tax is set to escalate in April 2026. In England, local authorities have the authority to raise council tax by up to 5% annually without the need for a referendum.
The 5p per litre reduction in fuel duty implemented in March 2022 will gradually revert to normal levels starting from September 2026, ultimately reaching the levels observed in March 2022 by March 2027.
Alcohol duty will be adjusted in line with RPI inflation starting in February 2026. Additionally, tobacco duty will see a one-time increase, as announced in the 2024 spring Budget by Jeremy Hunt. Normally, tobacco duty also rises in November by RPI inflation plus two percentage points.
A new duty will be imposed on vaping products, with a charge of £2.20 per 10ml of vaping liquid effective from October 2026.
Sarah Coles outlined five legal methods to reduce tax liabilities in 2026. She recommended maximizing ISA saving accounts, which allow tax-free savings of up to £20,000 per tax year. Additionally, individuals should consider maximizing pension contributions and leveraging salary sacrifice schemes to lower taxable income. Transferring income-producing assets between spouses or civil partners and utilizing the marriage allowance for non-taxpaying spouses were also advised as effective tax-saving strategies.