UK tax year 2026/27: income tax bands, allowances and changes

The new tax year rarely brings dramatic change, but that doesn’t mean you should overlook incremental change because what matters is how small shifts build over time.

For 2026/27, most tax rates and thresholds remain in place. At the same time, the continued freeze on allowances is quietly increasing the amount of tax many people pay.

For investors, business owners and those building wealth, this is where the real impact sits.

2026/27 tax rates and allowances at a glance

The bigger picture behind UK tax thresholds

As incomes rise and tax thresholds remain frozen, more income is pulled into higher-rate tax bands, a process economists call “fiscal drag”. Over time, this increases how much you pay in tax without any formal rise in tax rates.

This is why more people are now asking: how much can I earn before tax and has tax gone up?

Why investors are feeling the pressure

Dividend tax and reduced allowances

Dividend tax continues to tighten.

The dividend allowance remains at £500, which is a significant reduction from previous years. For those relying on dividend income, this has a direct impact on net returns.

If you are searching for what the tax-free dividend allowance is or tax on dividend income, the key point is simple.

More of your investment income is now taxable.

Dividend tax rates remain:

• 10.75% basic rate
• 35.75% higher rate
• 39.35% additional rate

For portfolios held outside ISAs or pensions, this creates an increasing tax drag.

Capital gains tax and portfolio decisions

The capital gains tax allowance is now significantly lower than it once was, which means more investors have to take this into account when rebalancing portfolios or realising gains.

The volume of searches such as capital gains tax allowance, annual capital gains tax allowance and changes to capital gains tax reflects this shift.

For those with property or larger portfolios, questions around capital gains tax on UK property or capital gains tax on gifts are becoming more common.

As a result, timing matters more. Disposals, transfers and restructuring all need to be planned carefully.

Tax on savings and cash holdings

With interest rates higher than in recent years, tax on savings has become more visible.

If you are asking whether you pay tax on savings or when you have to pay tax on savings, the answer depends on your personal savings allowance.

• £1,000 for basic rate taxpayers
• £500 for higher rate taxpayers
• No allowance for additional rate taxpayers

Savings interest does count as income, which means it can push you further into higher tax bands.

This is particularly relevant for those holding large cash balances.

Pensions remain one of the most effective tools for tax efficiency

In a tax environment where allowances are frozen, pensions continue to stand out.

The annual allowance remains £60,000, meaning you can save this amount into a pension without being taxed. If you have already dipped into any defined contribution pension, you can still save £10,000 a year free of tax.

If you’re researching pension tax relief, pension tax-free allowance or how much you can pay into a SIPP, one tip is that the value lies in reducing taxable income today while building long-term wealth.

With tax in mind, your pension can be a way to manage your income more efficiently. Using it can mean bringing you back into lower tax bands, reducing your exposure to dividends and tax on savings, as well as being an essential tool to estate planning over the long term.

Inheritance tax is becoming harder to ignore

Talking of long-term, the inheritance tax threshold remains frozen at £325,000, with the residence nil-rate band available in certain circumstances. In very simple terms, a married couple can qualify for £1 million before IHT kicks in to their estate.

This is also subject to the fiscal drag effect. As asset values rise, more estates fall within scope.

Gifting remains an important part of planning.

You can give away £3,000 each year under the annual exemption for inheritance tax rules. Larger gifts may fall under taxes on gifts of cash depending on timing.

For families with property, investments or business interests, inheritance tax planning is no longer something to leave until later.

With unused pensions becoming part of IHT from next April, putting a date in the diary to plan well ahead of a time should be on your to-do list.

Family allowances and overlooked opportunities

Historically, some allowances remain underused.

Marriage allowance allows a portion of unused personal allowance to be transferred between partners. Searching for marriage tax relief and marriage allowance calculator show how relevant this still is.

If you want to put something by for your children, the choice between a Child Trust Fund and a Junior ISA is also important when managing long-term savings.

While these may seem smaller in value, they contribute to overall tax efficiency when combined.

What this means in practice

The 2026/27 tax year is not defined by new rules, then, rather, what we feel is pressure building within the system under these main headlines:

• More income taxed at higher rates
• Less tax-free allowance for dividends and gains
• Greater exposure to tax on savings and cash
• Increasing inheritance tax risk over time (see the changes next April)

Taken together, it’s no surprise many of us feel we are paying more tax even if the rates have stayed the same.  Unwelcome though this is, it’s important to understand how and why we pay what we do.

Planning ahead in the current tax environment

You might want to consider:

• Using your ISA allowances to reduce tax on investments
• Reviewing how you take your income between salary, dividends and pensions
• Managing gains over multiple tax years
• Making use of gifting allowances early
• Reviewing pension contributions to reduce taxable income

 A more considered approach to tax

Tax planning is no longer about reacting to annual changes.

It is about understanding how frozen thresholds, reduced allowances and long-term trends affect your position year after year.

For investors and families building wealth, this requires a more structured approach.

How Foster Denovo can support you

At Foster Denovo, we focus on aligning tax planning with your wider financial strategy.

That means looking beyond individual allowances and building a plan that supports your income, investments and long-term objectives.

If you would like to understand how the 2026/27 tax year affects you, or whether your current approach remains efficient, we can help you review and plan with confidence. Book a meeting.

Frequently asked questions about UK tax 2026/27

What is the personal tax allowance in the UK for 2026/27?

The personal allowance remains £12,570. This is the amount you can earn before paying income tax.

How much can I earn before paying tax in the UK?

You can earn up to £12,570 before paying income tax. However, National Insurance and other taxes may still apply depending on your circumstances.

What are the income tax bands in 2026/27?

Income tax is charged at:

• 20% basic rate
• 40% higher rate
• 45% additional rate

These thresholds remain frozen, meaning more people may move into higher tax bands over time.

What is the dividend allowance?

The dividend allowance is £500. Dividend income above this level is taxed at your usual dividend tax rate depending on your income tax band.

Do you pay tax on savings interest?

Yes, savings interest can be taxable. It depends on your personal savings allowance, which is:

• £1,000 for basic rate taxpayers
• £500 for higher rate taxpayers
• No allowance for additional rate taxpayers

What is the capital gains tax allowance?

The capital gains tax allowance is £3,000. Gains above this level may be subject to capital gains tax depending on your total income and gains.

Is inheritance tax changing in 2026/27?

The inheritance tax threshold remains frozen at £325,000. This means more estates may become liable over time as asset values increase.

What is the ISA allowance for 2026/27?

The ISA allowance remains £20,000. This allows you to save and invest without paying tax on income or gains.

Can pensions reduce my tax bill?

Yes. Pension contributions receive tax relief and can reduce your taxable income, potentially helping you stay within lower tax bands.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

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 Financial Conduct Authority does not regulate school fees planning.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.