Millions of individuals are set to face increased tax payments by 2026, but there are strategies available to reduce your tax obligations. Sarah Coles, the head of personal finance at Hargreaves Lansdown, provides insights into navigating tax challenges.
Coles emphasizes the importance of taking proactive measures to mitigate the impact of upcoming tax changes in 2026. By starting early, individuals can potentially minimize the financial burden associated with the anticipated tax adjustments.
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Key tax changes include the freeze on the personal allowance at £12,570 until 2031, potentially leading to individuals being pushed into higher tax brackets as their income rises. The dividend tax rate is set to increase in April 2026, affecting both basic and higher rate taxpayers. Furthermore, 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 will remain static until 2031, alongside the frozen IHT annual gift allowance at £3,000. Council tax is expected to escalate in April 2026, with local authorities in England permitted to raise council tax by up to 5% annually without a referendum.
The phased reversal of the 5p per litre fuel duty cut introduced in March 2022 will commence in September 2026, gradually returning to pre-cut levels by March 2027. Alcohol duty will undergo RPI inflation adjustments from February 2026, and tobacco duty will see a one-time increase as outlined in the 2024 spring Budget by Jeremy Hunt.
A new duty of £2.20 per 10ml of vaping liquid will be implemented in October 2026. Coles suggests five legitimate ways to reduce your tax liability in 2026, including maximizing ISA savings accounts and leveraging pension contributions for tax relief at your highest marginal rate. Additionally, exploring salary sacrifice options, transferring income-producing assets between spouses, and utilizing the marriage allowance for tax optimization are recommended strategies.