Millions of individuals are set to face higher tax payments in 2026, but strategies exist to reduce your tax burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, offers insights on navigating frozen tax thresholds and impending council tax hikes.
According to Coles, taking proactive steps early on can help mitigate the impact of the tax changes expected in 2026. She emphasizes that planning ahead is key to minimizing potential tax liabilities.
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The freeze on the personal allowance at £12,570 until 2031 means that as incomes rise, individuals may find themselves pushed into higher tax brackets over time.
Starting in April 2026, the dividend tax rates will increase, with basic rate taxpayers facing a hike from 8.75% to 10.75%, and higher rate taxpayers seeing an increase from 33.75% to 35.75%. Additionally, venture capital trusts will experience a reduction in tax relief from 30% to 20% in April 2026.
Inheritance tax thresholds will remain unchanged until 2031, with the nil rate band at £325,000 and the residence nil rate band at £175,000. The annual gift allowance for inheritance tax will also stay at £3,000.
Residents in England can expect a council tax increase in April 2026, with local authorities authorized to raise council tax by up to 5% annually without a referendum.
The phased reversal of the 5p per litre cut in fuel duty introduced in March 2022 will commence in September 2026, gradually returning to pre-cut levels by March 2027.
Alcohol duty will rise in line with RPI inflation from February 2026, and there will be a one-time hike in tobacco duty as announced in the 2024 spring Budget by Jeremy Hunt. Tobacco duty typically increases in November by RPI inflation plus two percentage points.
A new levy of £2.20 per 10ml of vaping liquid will be implemented from October 2026.
Coles outlines five legitimate ways to reduce your tax liability in 2026. Maximizing ISA savings accounts, utilizing pension contributions for tax relief, exploring salary sacrifice options, transferring income-producing assets between spouses, and leveraging the marriage allowance for non-taxpaying spouses are all effective strategies to cut your tax bill.
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