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Here is a summary of the key tax changes you need to be aware of in 2026 and moving into 2027, including an overview of Making Tax Digital.

 

Income Tax increases

 

Income Tax rates for dividends have already increased by 2% for basic rate and higher-rate taxpayers.  The new rates kicked in on 6 April 2026.

 

Further rate rises are in the pipeline from 6 April 2027.  This time, landlords and savers will be impacted.

 

Income Tax rates for property income and savings income (including bank and building society interest) will increase by 2%.  The new rates will be as follows:

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• basic rate  -  22%

• higher rate  -  42%

• additional rate  -  47%

 

Planning: 

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• For savers, using ISA allowances is as important as ever.​  Beyond ISAs, looking for savings products that mature before 6 April 2027 or pay interest monthly could be beneficial.

 

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ISA allowances from 6 April 2027

 

From 6 April 2027, the overall annual ISA allowance will remain at £20,000.  But £8,000 will be reserved exclusively for investments (stocks and shares) rather than cash.

 

This limitation will not apply to savers over the age of 65, who will still be able to contribute up to £20,000 to a cash ISA.  But, for under 65s, the annual cash ISA allowance will be capped at £12,000.

 

Planning:

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• Under 65s who favour cash savings over stocks and shares still have time before 6 April 2027 to make use of the current year cash ISA allowance of £20,000.

 

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Inheritance Tax on pensions from 6 April 2027

 

From 6 April 2027, the value of any undrawn pensions will be included in death estates for Inheritance Tax.

 

This is big news as it will increase the tax burden on estates that were already subject to IHT, and expose more estates to the tax for the first time.  IHT applies at 40% at death on assets not covered by available nil rate bands, exemptions or reliefs. 

 

Planning: 

 

• Previously, having undrawn pensions at death was often seen as no bad thing, since they were outside the scope of IHT.  However, the upcoming April 2027 rule change turns this logic on its head.​

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• Many will be looking to withdraw funds from pensions (or may decide not to make contributions in the first place) so they can move value down to the next generation by way of lifetime gifts.  Some may choose to spend the money instead.

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• If you are impacted by this change, it is important to seek input from your financial adviser and tax adviser before taking any action.  The tax consequences of any pension withdrawals or gifts to family members would need to be considered carefully.

 

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Making Tax Digital for Income Tax

 

MTD for Income Tax is a new system for recording and reporting income and expenses for people who are self-employed or receive property income.

 

Here are the key points:

 

• You are within MTD as of 6 April 2026 if your combined trading income and property income (before expenses) for 2024/25 exceeded £50,000.

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• If you are caught by MTD, you must keep digital income and expenditure records and submit quarterly updates to HMRC using compatible software – unless you are exempt (see below).

 

• The first quarterly submission, covering the 3-month period from 6 April 2026 to 5 July 2026 is due for submission to HMRC by 7 August 2026.  The next submission dates are 7 November 2026, 6 February 2027 and 7 May 2027.

 

• Following the fourth and final quarterly update, you must then file a year-end MTD Tax Return (in place of a regular Self Assessment Tax Return) by 31 January 2028.

 

• The MTD Tax Return is where you will make any adjustments needed to arrive at your final taxable profit for the year.  It is also the place to report any other income and gains you may have.

 

• Your tax liability is calculated in the same way as before, i.e. the usual tax rates and allowances apply.  And there is no requirement to pay the tax to HMRC any sooner.  At this stage, MTD only impacts how you keep records and report income to HMRC.

 

• MTD is being phased in and will reach taxpayers with lower incomes over time:

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• ​​If you have combined trading and property income above £30,000 on your 2025/26 tax return, you will be within MTD from April 2027.

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• If you have combined trading and property income above £20,000 on your 2026/27 tax return, you will be within MTD from April 2028.

 

• Certain taxpayers are exempt from MTD; including those who are digitally excluded, partners in partnerships, LLP members, non-residents and ministers of religion - among others.  Some exemptions are automatic and others need to be applied for, so it is important to seek advice if you believe you may be exempt.

 

Planning:

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• Get to know the rules and consider whether you are within MTD or need to apply for an exemption.

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• If you are within MTD, you need to be keeping digital records and choose your MTD software.  If you are unsure about what to do, or need an accountant guide you through the process, please do not hesitate to get in touch.