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Every year the same headlines appear: use your ISA, max out your pension, claim your allowance. All true. All useful. All so widely repeated that they’ve stopped being an edge.
2026 is different. Thresholds have stayed frozen since 2022, and they’ll stay frozen until 2031. Dividend rates just went up. Making Tax Digital now covers hundreds of thousands of landlords and sole traders. And a major change to pension tax on death now sits in law for 2027. These facts change what “good tax planning” means this year.
Below is what we’re telling clients at Jermyn & Co right now, including a few points that rarely make it into the generic “top 10 tax tips” articles.
1. Understand Why “Nothing Has Changed” Is the Real Story
The personal allowance (£12,570), the higher-rate threshold (£50,270), and the additional-rate threshold (£125,140) will stay frozen until April 2031. That sounds uneventful. It isn’t.
Wages generally rise with inflation, but these bands don’t move. So more of your income falls into higher tax bands every year, without a single rate ever officially “going up.” Tax professionals call this fiscal drag, and many now treat it as the biggest driver of UK tax bills — bigger than most rate changes.
The practical insight most guides miss: if your income keeps drifting upwards, don’t just check this year’s tax bill. Check your trajectory too. A salary that sat comfortably in the basic rate band three years ago might now brush the £100,000 mark, where the personal allowance starts tapering away at a brutal effective rate of 60% between £100,000 and £125,140. Planning around that zone is now one of the highest-value conversations we have with clients, and most advice outside a professional relationship skips it entirely.
2. Use Pension Contributions to Neutralise the 60% Trap
If your income sits between £100,000 and £125,140, every £100 you earn effectively costs you £60 in lost personal allowance and tax combined. A pension contribution that brings your adjusted net income back under £100,000 does more than earn standard tax relief. It restores the personal allowance you’d otherwise lose.
For many higher earners, this move delivers the best pound-for-pound tax saving available. Yet people still underuse it, because it requires you to know your income before the tax year ends, not after.
The annual pension allowance stays at £60,000 for 2026/27. You can still carry forward unused allowance from the previous three tax years, provided you belonged to a registered pension scheme in those years.
3. Rethink the “ISA First, Pension Later” Habit
For years, the standard advice for anyone planning to leave money to family ran like this: spend your ISA in retirement, preserve your pension. Pensions generally sat outside your estate for inheritance tax (IHT) purposes, so this made sense.
That assumption no longer holds. Legislation now in force (Finance Act 2026) confirms that from 6 April 2027, most unused pension funds and death benefits will count towards the value of your estate for IHT purposes, taxed at 40% above the available nil-rate band. Exemptions still apply for a surviving spouse, civil partner, or registered charity. But for everyone else, the old “keep it in the pension, it passes tax-free” logic largely disappears.
If your estate planning has assumed pensions sit outside IHT, revisit that assumption well before April 2027, not after. Personal representatives will also face new reporting obligations, so families with multiple pension pots should expect longer, more complex administration after a death under the new rules.
4. Dividend Tax Just Got More Expensive — Review Your Salary/Dividend Split
From 6 April 2026, dividend tax rates rose by 2 percentage points:
- Basic rate: 8.75% → 10.75%
- Higher rate: 33.75% → 35.75%
- Additional rate: unchanged at 39.35%
- Dividend allowance: unchanged at £500
For a typical director drawing salary plus dividends, this can add an extra £1,000–£2,500 a year in tax, depending on how much you take as dividends. The optimal salary level for most directors still sits around the personal allowance (£12,570). But the dividend side of the equation now needs a fresh look. The gap between salary tax and dividend tax has narrowed, and for some business owners, a different mix — or timing dividends across two tax years — will now save more than it used to.
Review this every year. Don’t set it once when you incorporate and forget about it.
5. Making Tax Digital Isn’t Just Admin — It’s a Planning Trigger
From April 2026, Making Tax Digital for Income Tax (MTD for IT) became mandatory for sole traders and landlords with qualifying gross income over £50,000, based on 2024/25 income. The threshold drops to £30,000 from April 2027, then £20,000 from April 2028. So even if you’re not affected yet, you likely will be soon.
The obvious burden: quarterly digital record-keeping instead of one annual return. The less obvious opportunity: quarterly reporting gives you a live, accurate picture of your profit throughout the year, not just after it ends. That creates a real chance to make tax-saving decisions — pension contributions, equipment purchases, timing of income — while you still have time to act, rather than discovering the number in January when the year has already closed. Businesses that treat MTD as nothing more than a compliance chore miss this entirely.
6. Use Your Capital Gains Allowance Deliberately, Not as an Afterthought
The annual Capital Gains Tax exempt amount now sits at just £3,000, down from £12,300 only a few years ago. Rates sit at 18% (basic rate) and 24% (higher rate) on most assets, including residential property.
Because the allowance has shrunk so much, “use it or lose it” now genuinely matters. If you and a spouse or civil partner both hold unused allowances, transfer assets between you before a sale. Transfers between spouses generally stay exempt from CGT, so this move can effectively double the tax-free amount available — a simple, legal, and still underused strategy now that £3,000 doesn’t stretch far.
7. Watch the 2027 Horizon on Property and Savings Income Too
Pensions aren’t the only thing changing. From 6 April 2027, income tax on rental income and savings interest looks set to rise: basic rate to 22%, higher rate to 42%, additional rate to 47%. If you’re a landlord or hold significant savings outside tax-efficient wrappers, factor this into decisions you make now, particularly around ISA usage (£20,000 annual allowance, unchanged for 2026/27) and whether property income should sit inside or outside a company structure.
The Bottom Line
Legal tax planning in 2026 isn’t about finding a clever loophole. Those rarely exist, and they rarely last. It comes down to three things, done consistently well:
- Use your allowances before the tax year ends — ISA, pension annual allowance, CGT exempt amount, dividend allowance.
- Plan around thresholds, not just rates. The £100,000–£125,140 band, the frozen personal allowance, and the higher-rate threshold matter more than ever while they stay frozen.
- Look one to two years ahead, not just at the current return. MTD, the 2027 pension IHT changes, and the 2027 property/savings tax rises all reward early planning and punish a wait-and-see approach.
None of this requires guesswork or unnecessary risk. It requires knowing where your numbers sit today, and reviewing that position regularly, not once a year in a rush before the January deadline.nd reviewing that position regularly, not once a year in a rush before the January deadline. Book a free consutation with us to plan ahead.
This article is for general information and does not constitute personal tax advice. Tax treatment depends on individual circumstances and current legislation, which can change. For advice tailored to your situation, get in touch with Jermyn & Co.