Millions of individuals are set to face higher taxes in 2026, but there are strategies available to reduce your tax burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, details various methods to help manage upcoming tax changes.
Coles emphasizes the importance of taking proactive steps early to mitigate the impact of future tax increases. She mentions that individuals can navigate the looming tax challenges by implementing effective tax-saving strategies.
One area of concern is the frozen personal allowance at £12,570 until 2031, potentially pushing individuals into higher tax brackets as their income grows. Additionally, dividend tax rates are slated to increase in April 2026, affecting both basic and higher rate taxpayers. Venture capital trusts will also see a reduction in tax relief from 30% to 20% in the same period.
Inheritance tax thresholds will remain stagnant at £325,000 for the nil rate band and £175,000 for the residence nil rate band until 2031. Furthermore, council tax is expected to rise in April 2026, with local authorities in England able to impose up to a 5% increase annually without the need for a referendum.
The Conservative government’s 5p per litre fuel duty cut, introduced in March 2022, will gradually revert to pre-cut levels by March 2027. Alcohol duty will be adjusted in line with RPI inflation starting in February 2026, along with a one-time hike in tobacco duty as announced during the 2024 spring Budget by Jeremy Hunt. Vaping products will also face a new duty of £2.20 per 10ml of liquid from October 2026.
To navigate these tax changes effectively, Coles recommends five legal methods to reduce tax liabilities in 2026. These include maximizing ISA saving accounts, utilizing pension contributions for tax relief, exploring salary sacrifice options, transferring income-producing assets between spouses, and leveraging the marriage allowance for non-taxpayer spouses.
By being proactive and implementing these strategies, individuals can better manage their tax obligations amidst the anticipated tax hikes in 2026.