In 2026, a significant number of individuals are expected to face higher tax payments, but there are strategies available to reduce this financial burden. Sarah Coles, the head of personal finance at Hargreaves Lansdown, sheds light on various methods to minimize tax liabilities.
Coles emphasizes the importance of taking proactive steps early on to mitigate the impact of impending tax increases in 2026. She highlights that individuals can proactively manage their tax obligations to alleviate the potential financial strain.
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One key aspect affecting tax payments is the frozen personal allowance at £12,570 until 2031. This freezing of thresholds could result in individuals being pushed into higher tax brackets as their income grows over time.
Furthermore, changes in dividend tax rates are anticipated in April 2026, with basic rate taxpayers facing an increase from 8.75% to 10.75% and higher rate taxpayers from 33.75% to 35.75%. Additionally, venture capital trusts will experience a reduction in tax relief from 30% to 20% in April 2026.
The inheritance tax nil rate band and residence nil rate band are set to remain unchanged until 2031 at £325,000 and £175,000, respectively. Simultaneously, the IHT annual gift allowance will stay frozen at £3,000.
Council tax in England is expected to escalate once more in April 2026, allowing local authorities to raise it by up to 5% annually without the need for a referendum.
The government’s 5p per litre fuel duty reduction, introduced in March 2022, will gradually revert to pre-cut levels by March 2027, starting in September 2026. Alcohol duty will increase in line with RPI inflation from February 2026, and a one-time tobacco duty increase will also be implemented as previously announced.
A new duty of £2.20 per 10ml of vaping liquid will be enforced starting October 2026, impacting vaping product consumers.
Coles outlines five legitimate ways to reduce tax liabilities in 2026. Strategies include maximizing ISA saving accounts with tax-free allowances of up to £20,000 annually, optimizing pension contributions for tax relief, utilizing salary sacrifice schemes, leveraging asset transfers between spouses, and capitalizing on the marriage allowance for tax optimization between partners.