What are the key tax changes for 2026-27?

Dividend tax

From 6th April 2026, the basic and higher rates of tax on dividend income will increase. The updated rates are set out below:

Tax band	Current tax rate	Tax rate from 6th April 2026
Basic rate	8.75%	10.75%
Higher rate	33.75%	35.75%

The rate for additional rate taxpayers will remain unchanged at 39.35%. Dividend income tax applies to dividend income received outside tax-efficient wrappers, such as Individual Savings Accounts (ISAs). It could also have an impact if you take a dividend as part of your remuneration package from a company you own shares in.

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax comes into effect on 6th April 2026 for the first group of taxpayers who meet the qualifying income threshold.

If you earned more than £50,000 in qualifying income from self-employment or property income during the 2024/25 tax year, you will be required to comply with the new Making Tax Digital rules. This will involve maintaining digital bookkeeping records and submitting quarterly updates to HMRC using compatible software. Further information about the requirements and how to prepare can be found here.

Capital allowances

The main rate of writing-down allowance will reduce from 18% to 14%, with effect from:

• 1st April 2026 for companies, and
• 6th April 2026 for unincorporated businesses.

Businesses that already have significant capital allowances pools can expect to receive tax relief more slowly as a result of the rate change. You can read more about the capital allowance changes in 2026 here.

Business Asset Disposal Relief

If you are a sole trader or partner in a business partnership and are disposing of all or part of your business, you may qualify for Business Asset Disposal Relief (BADR), provided the relevant conditions are met. BADR allows for gains on qualifying assets to be taxed at a reduced rate of Capital Gains Tax (CGT).

The BADR rate for 2025/26 is 14%, but this will increase to 18% for disposals made on or after 6th April 2026.

Inheritance Tax reliefs

From 6th April 2026, Business Relief (BR) and Agricultural Relief (AR) will be reformed to introduce a cap on the amount of relief available at the 100% rate. These reliefs are designed to allow smaller family businesses and farms to be passed to beneficiaries tax-efficiently, often free from Inheritance Tax. Under the new rules:

• Up to £2.5 million of qualifying BR and AR assets will continue to receive 100% relief.
• Qualifying assets above this £2.5 million limit will receive 50% relief.
• Any unused portion of the £2.5 million allowance can be transferred to a surviving spouse or civil partner, effectively allowing couples to pass on up to £5 million of qualifying assets before this relief is exhausted.

These changes apply to the combined value of assets that qualify for AR and BR in an estate and take effect from 6th April 2026. You should also note that shares trading on exchanges which are not recognised stock exchanges (e.g. AIM-listed shares) will only qualify for 50% BR, and the BR cap does not extend to these shares.

VAT relief for donations

From 1st April 2026, qualifying donations of goods to charities by businesses will not be subject to VAT, regardless of the eventual use of those goods by the charity. Currently, if the donations are used by the charity themselves or are donated to beneficiaries, a VAT charge is incurred. It is only if the donations are resold that a VAT charge does not arise.

Removing the requirement to account for VAT may make it simpler for businesses to donate surplus goods.

Fuel duty

The 5p-per-litre fuel duty cut, which is a temporary cut in the rate of fuel duty prolonged by successive governments, will continue until 31st August 2026.

From then, fuel duty will increase by 1p on 1st September 2026, 2p on 1st December 2026 and 2p on 1st March 2027. This means that you can expect to see an increase in your fuel costs later in the tax year.

It remains to be seen whether this temporary cut may be extended again due to predicted world oil and gas price rises caused by the closure of the Strait of Hormuz.

Scottish income tax bands

From 6th April 2026, there will be a small adjustment to the income tax thresholds for the starter, basic and intermediate bands for Scottish taxpayers. The revised thresholds are set out below:

Tax band	Current threshold	Threshold from 6th April 2026
Starter rate	£12,571 - £15,397	£12,571 - £16,537
Basic rate	£15,398 – £27,491	£16,538 - £29,526
Intermediate rate	£27,492 - £43,662	£29,527 - £43,662

The higher, advanced and top rate thresholds will remain unchanged and there are no changes to the Scottish income tax rates themselves.

How can TaxAssist Accountants help?

If you need any help or assistance navigating these new rates and rules, call us on 01442 268000 or use our online enquiry form.

 

Last updated 25 Mar 2026 | First published 25 Mar 2026

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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