2026/27 Tax Year: What's Changed and Who Should Review Their Plans

An unusually concentrated set of changes to UK personal taxation came into force on 6 April 2026. Dividend tax rose by two percentage points for basic and higher rate taxpayers. Business Asset Disposal Relief moved from 14% to 18%. The most structural change was the cap on Business Property Relief at £2.5 million per individual, the first time the relief has had a ceiling since it was introduced in 1976. Venture Capital Trust income tax relief was reduced from 30% to 20%. Three further changes are confirmed for April 2027, affecting pensions, cash ISAs, and the rate of tax on savings interest. The standing allowances for income tax, ISAs, pensions, capital gains, and inheritance tax remain in place but most are frozen until at least 2031.

The changes share a common feature. Each affects an arrangement that has been treated as settled for a decade. The pension was held as a legacy asset because it sat outside the estate. The AIM portfolio was held because qualifying shares attracted 100% Business Property Relief, reducing the inheritance tax on those holdings to nil. Dividend-heavy extraction worked because the tax was lighter than salary. And uncapped Business Property Relief allowed family businesses to pass at death without limit. Three of these arrangements become less efficient from this April. The pension legacy structure ends next April. For the families and owners who organised their wealth around those patterns, the 2026/27 year is a useful one in which to look again.

Standing allowances at a glance

The personal allowance has been £12,570 since 2021. The higher rate threshold has been £50,270 over the same period. The additional rate threshold dropped to £125,140 in 2023 and has stayed there. The inheritance tax nil-rate band has been £325,000 since 2009 and the residence nil-rate band £175,000 since 2020. None of these moves until at least April 2031. As earnings and asset values rise, more of both falls into higher brackets without any rate changing. The £100,000 to £125,140 income band, where the personal allowance tapers away at £1 for every £2 above the threshold, produces an effective 60% marginal rate over that range.

Families with significant pension wealth

The April 2027 change to pension inheritance tax treatment is the most consequential single shift in this part of planning for a generation. From 6 April 2027, unused pension funds and most death benefits will be included in the value of an estate for IHT purposes. Pensions currently sit outside the estate, which is why standard guidance for higher earners has been to draw from ISAs and general investment accounts first in retirement, preserving the pension to pass on. From next April, the optimal drawdown sequence for many households inverts. A family with two £1 million pensions held alongside other assets may have acquired an inheritance tax exposure that did not exist 12 months ago, depending on their wider position.

The implications take longer to work through than people expect. Drawing more from the pension earlier in retirement, using pension income for structured gifting under the seven-year rule, transferring assets between spouses to balance allowances, and reviewing the order in which different pots are drawn down all become areas worth examining in light of the change. The frozen inheritance tax thresholds compound the issue because they bring more estates into IHT scope each year regardless of behaviour. The 11 months between now and April 2027 are useful because each of these options takes time to plan.

Owners of businesses valued above £2.5 million

Business Property Relief was capped at £2.5 million per individual on 6 April 2026 for the first time since the relief was introduced in 1976. Above that figure, qualifying business and agricultural property attracts 50% relief, which is an effective inheritance tax rate of 20%. The allowance is transferable between spouses and civil partners, so couples can shelter up to £5 million at full relief. Business Asset Disposal Relief also became more expensive this April, with the CGT rate on qualifying disposals rising from 14% to 18% against an unchanged £1 million lifetime limit.

For owners whose businesses exceed the threshold, the response usually requires more than incremental adjustment. Wills written before April 2026 sometimes contained clauses designed for uncapped relief that no longer behave as intended. Share class restructuring, lifetime gifting using available allowances, and the use of trust or family investment company structures all become more relevant. For owners contemplating a sale within the next two to three years, the change in BADR rate is worth re-running through any existing exit modelling.

Investors with AIM portfolios held for inheritance tax purposes

Until April 2026, qualifying AIM-listed shares held for two years attracted 100% Business Property Relief, reducing the inheritance tax due on those holdings to nil. From 6 April 2026, AIM shares attract 50% relief regardless of value, which is an effective IHT rate of 20% on those holdings. For investors who built AIM positions specifically for the IHT case, the maths has changed materially. A £500,000 AIM portfolio that previously attracted full relief now carries roughly £100,000 of IHT exposure on death.

The reduced VCT income tax relief, down from 30% to 20% from this April, narrows the relative attractiveness of that wrapper at the same time. EIS remains at 30% for income tax purposes and is now the more efficient of the two, though both should be approached on investment merit rather than primarily for the tax case. AIM portfolios held primarily for IHT relief no longer earn that role as cleanly as they did. But for investors who can no longer rely on uncapped BPR through direct business holdings, AIM at 50% relief is the closest substitute available within a liquid wrapper. The question is no longer "AIM for shelter or something else." It is whether AIM at half the relief still earns its place in the wider portfolio.

Company directors taking income through dividends

Dividend tax rates rose by two percentage points for basic and higher rate taxpayers this April. The new rates are 10.75% for basic rate (up from 8.75%), 35.75% for higher rate (up from 33.75%), and 39.35% for additional rate (unchanged). The £500 dividend allowance remains. For a director taking £80,000 of dividend income above the allowance at the higher rate, the change adds roughly £1,600 a year in tax.

That is small at the margin. What it does is shift the relative efficiency between dividend extraction and employer pension contributions. Employer contributions attract corporation tax relief, carry no National Insurance, and avoid the dividend rate entirely. For directors of profitable companies with pension annual allowance still available, the case for routing more value through pension contributions has strengthened.

Higher-rate taxpayers holding cash outside ISAs

Two of the April 2027 changes affect cash savers specifically, and they are designed to reinforce each other. The cash ISA allowance for savers under the age of 65 falls to £12,000 of the £20,000 ISA limit, with the remaining £8,000 needing to go into stocks and shares or other qualifying products. Savers aged 65 and over retain the full £20,000 cash option. At the same time, tax on savings interest above the Personal Savings Allowance rises: 22% for basic rate (currently 20%), 42% for higher rate (currently 40%), and 47% for additional rate (currently 45%). Together they nudge cash holdings away from tax-free wrappers and into a higher tax bracket simultaneously.

For under-65s with meaningful cash outside an ISA, 2026/27 is the last year in which the full £20,000 can be deployed in a cash ISA. Using both partners' allowances fully shelters £40,000 of cash before the new treatment begins. Gilts held outside an ISA carry no CGT on capital appreciation, which makes them a useful supplementary alternative for higher-rate taxpayers facing the new savings tax rates. Fixed-rate cash held outside any wrapper is the position most affected.

Where the standing allowances still earn their keep

The standing allowances do meaningful work when used consistently. A family of four using the full adult ISA, Junior ISA, and Lifetime ISA allowances can shelter £58,000 of savings in a single year. Five consistent years of family use is £290,000 outside the tax system permanently.

Spousal allowance use has shifted from optimisation to baseline. The CGT annual exempt amount fell from £12,300 in 2022/23 to £3,000 in 2024/25 and has stayed there. With ISA, pension, dividend, and gifting allowances all multipliable across a couple, the difference between using one set and using both has become material rather than marginal.

Regular gifts from surplus income are among the most underused estate planning tools in the system. Properly documented and genuinely surplus, they sit outside the seven-year IHT rule entirely. Used consistently across a decade, they move material wealth between generations without touching a single nil-rate band.

Pension carry forward of unused allowance from the previous three tax years remains available. For higher earners who underused prior allowances, this often allows substantially more than £60,000 of contributions in a single year, which becomes more useful in light of the changes above.

The year ahead

The arrangements most worth reviewing this year are usually the ones that have not been questioned in a decade. Pensions preserved as legacy assets, AIM portfolios held for inheritance tax, dividend extraction structured for the previous regime, and family businesses left to pass under the uncapped relief were all sensible answers to the tax position that prevailed before 2026. The pension legacy structure ends from next April. The other three still work, less efficiently than they did. The change in the rules has not yet been matched by a change in the structures built around them, which is the work the next 11 months are for.

The value of investments can fall as well as rise. You may not get back what you originally invested. Tax treatment depends on individual circumstances and may change in the future. This article is for general information and does not constitute personal advice.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

BSG Financial Solutions is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.

Approved by The Openwork Partnership on 01/06/2026

BSG Financial Solutions is a chartered financial planning firm based in Radlett and London. Established 1979, BSG advises families and businesses across Hertfordshire, London and surrounding counties on financial planning, mortgages, and intergenerational wealth.

Sources: Sources: HMRC and HM Treasury, Autumn Budget 2025 and OOTLAR, December 2025. Finance Act 2026 (April 2026 changes). Finance Act 2024 (April 2027 pension IHT provisions). House of Commons Library, Direct taxes: Rates and allowances for 2026/27 (CBP-10618). Figures verified as at 6 April 2026.

FAQs

Q: What is the personal allowance for 2026/27?

A: The personal allowance for the 2026/27 tax year is £12,570. This is the amount you can earn before paying income tax. It is frozen at this level until at least April 2031. The personal allowance is tapered for those with adjusted net income above £100,000, reducing by £1 for every £2 above the threshold, and is removed entirely at £125,140.

Q: What is the higher rate tax threshold for 2026/27?

A: The higher rate income tax threshold for 2026/27 is £50,270 in England, Wales, and Northern Ireland. Income above this is taxed at 40% up to £125,140, above which the additional rate of 45% applies. Scottish income tax rates and thresholds differ.

Q: What is the ISA allowance for 2026/27?

A: The total ISA allowance for 2026/27 is £20,000 per adult, which can be split across cash ISAs, stocks and shares ISAs, Innovative Finance ISAs, and Lifetime ISAs (up to £4,000 in the LISA within the £20,000 overall). The Junior ISA allowance is £9,000 per child. From April 2027, savers under 65 will only be able to contribute up to £12,000 into a cash ISA.

Q: What is the pension annual allowance for 2026/27?

A: The standard pension annual allowance for 2026/27 is £60,000, or 100% of relevant UK earnings if lower. For higher earners with adjusted income above £260,000, the allowance is tapered by £1 for every £2 of income above the threshold, down to a minimum of £10,000. Unused allowance from the previous three tax years can typically be carried forward.

Q: What is the capital gains tax allowance for 2026/27?

A: The CGT annual exempt amount for 2026/27 is £3,000 per individual. Gains above the allowance are taxed at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Trusts have a separate annual exempt amount of £1,500.

Q: What are the inheritance tax thresholds for 2026/27?

A: The nil-rate band is £325,000 per person, and the residence nil-rate band is £175,000 per person where a home is passed to direct descendants. Married couples and civil partners can combine their allowances, potentially passing up to £1 million tax-free. These thresholds are frozen until at least April 2031. The residence nil-rate band tapers for estates worth more than £2 million.

Q: How have dividend tax rates changed for 2026/27?

A: Dividend tax rates have risen by 2% for basic and higher rate taxpayers. The new rates are 10.75% for basic rate (up from 8.75%), 35.75% for higher rate (up from 33.75%), and 39.35% for additional rate (unchanged). The £500 dividend allowance remains.

Q: What is the new Business Property Relief allowance from April 2026?

A: From 6 April 2026, the 100% Business Property Relief and Agricultural Property Relief allowance is capped at £2.5 million of combined qualifying business and agricultural property per individual. The allowance is transferable between spouses, so couples can shelter up to £5 million at full relief. Value above the cap attracts 50% relief, equivalent to an effective inheritance tax rate of 20%. AIM-listed shares attract only 50% relief regardless of value.

Q: How have AIM shares changed for inheritance tax purposes from April 2026?

A: Until April 2026, qualifying AIM-listed shares held for two years attracted 100% Business Property Relief, reducing the inheritance tax due on those holdings to nil. From 6 April 2026, AIM shares attract 50% relief regardless of value, which is an effective IHT rate of 20% on those holdings. The shares remain part of the estate. The change materially affects the inheritance tax case for AIM portfolios.

Q: What is the Business Asset Disposal Relief rate for 2026/27?

A: The BADR rate has risen from 14% to 18% for disposals on or after 6 April 2026. The lifetime limit remains at £1 million of qualifying gains. To qualify, the disposal generally needs to involve a 5% or more shareholding in a trading company held for at least two years, with the seller being an officer or employee.

Q: When do the pension inheritance tax changes take effect?

A: From 6 April 2027, unused pension funds and most death benefits will be included in the value of an estate for inheritance tax purposes. Currently, pensions generally sit outside an estate for IHT.

Q: What is the dividend allowance for 2026/27?

A: The tax-free dividend allowance for 2026/27 is £500 per individual. This is the amount of dividend income you can receive each tax year before any dividend tax is due. The allowance is unchanged from 2025/26.

Q: What is the Personal Savings Allowance for 2026/27?

A: The Personal Savings Allowance is £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers. It applies to interest earned on savings outside an ISA. From April 2027, the tax rates applied to savings interest above the PSA will rise to 22% / 42% / 47%.

Q: What is the marriage allowance for 2026/27?

A: The marriage allowance allows up to £1,260 of personal allowance to be transferred from one spouse or civil partner to the other, where the lower earner has income below the personal allowance (£12,570) and the higher earner is a basic rate taxpayer. The transfer can save the receiving partner up to £252 in tax.

Q: What is the annual IHT gifting exemption?

A: Every individual can give away up to £3,000 each tax year free of inheritance tax. Unused allowance can be carried forward for one year, giving a maximum exemption of £6,000 in a single year. Additional reliefs exist for regular gifts from surplus income, gifts to a spouse or civil partner, gifts to charity, and small gifts to individuals.

Q: Is there a deadline for using my 2026/27 ISA allowance?

A: Yes. The 2026/27 ISA allowance must be used by the end of the tax year, which is 5 April 2027. Unused allowance cannot be carried forward into the following tax year. For savers under 65 specifically, 2026/27 is the last year in which the full £20,000 can be put into a cash ISA before the £12,000 restriction takes effect from April 2027.