The UK Tax Landscape in 2026: What Individuals and Business Owners Need to Know
The UK tax system has undergone significant changes over the past few years, and many of the policies introduced earlier in the decade continue to affect taxpayers today.
While there may not have been the same level of political turbulence seen previously, several tax measures introduced during that period remain in force, particularly the freezing of tax thresholds and reductions in key allowances. These measures mean that many individuals and business owners are paying more tax as their income increases.
In this update, we highlight the key areas that may affect your tax position over the coming years.
Frozen Tax Thresholds Until 2028
One of the most important tax measures currently in place is the freeze on many income tax and National Insurance thresholds until April 2028.
The personal allowance remains £12,570, and the basic rate band limit remains £37,700, meaning higher earners may find themselves pushed into higher tax brackets as wages or business profits rise.
With inflation and wage growth over recent years, this “fiscal drag” is bringing more taxpayers into the 40% and 45% tax bands.
Personal Allowance and High Income
The personal allowance is gradually reduced once income exceeds £100,000.
For every £2 of income above £100,000, the personal allowance is reduced by £1, meaning it is completely removed once income reaches approximately £125,140.
This creates an effective marginal tax rate of 60% on income within that band.
Personal Savings Allowance
The Personal Savings Allowance (PSA) allows individuals to receive some savings income tax-free.
Current limits are:
- £1,000 for basic rate taxpayers
- £500 for higher rate taxpayers
- £0 for additional rate taxpayers
As more individuals move into higher tax bands due to frozen thresholds, their PSA may be reduced or removed entirely.
Dividend Allowance Reductions
The dividend allowance has been reduced significantly in recent years.
It now stands at:
£500 per year
This means the first £500 of dividend income is taxed at 0%, although it still counts towards total taxable income.
With the lower allowance, more dividend income is now subject to tax, particularly affecting company directors and shareholders of family businesses.
Capital Gains Tax Annual Exemption
The Capital Gains Tax annual exemption has also been reduced.
The allowance is currently:
£3,000 per year
This means gains above this threshold may now be subject to capital gains tax, increasing the importance of careful tax planning when selling assets such as investments or property.
Tax Incentives for Start-Up Investment
To encourage investment in new businesses, the Seed Enterprise Investment Scheme (SEIS) offers generous tax incentives for investors in qualifying start-ups.
The scheme allows investors to benefit from:
- Income tax relief on investments
- Capital gains tax advantages
- Potential loss relief
These incentives are designed to support early-stage companies seeking funding.
VAT Penalties Under Making Tax Digital
HMRC has introduced a points-based penalty system for late VAT submissions and payments under Making Tax Digital (MTD).
Businesses submitting VAT returns must now:
- Use MTD-compatible software
- File returns on time
- Pay VAT liabilities promptly
Late submissions accumulate penalty points, and once a threshold is reached, financial penalties apply.
Minimum Wage Increases
Employers must also keep up to date with increases in the National Living Wage and National Minimum Wage, which are reviewed annually.
These increases affect:
- Payroll costs
- Employment budgets
- Business profitability
Forward planning is essential to ensure businesses remain compliant.
Why Annual Tax Reviews Are Important
Given the number of changes to allowances and thresholds in recent years, it is more important than ever to review your financial affairs regularly.
An annual review can help ensure that:
- You are making full use of available tax allowances
- Your current tax structure remains efficient
- Any opportunities for tax planning are identified early
Speak to Us Before Making Major Financial Decisions
Tax rules can change frequently, and the best strategy for one person or business may not be appropriate for another.
Before making major financial or investment decisions, it is always advisable to seek professional advice.
At Merranti Accounting, we work with individuals, business owners, and company directors to ensure their tax affairs remain efficient, compliant, and aligned with current legislation.
If you would like to review your tax position or discuss planning opportunities, please get in touch with our team.
