The start of a new tax year brings a familiar mix of hope and anxiety for workers across the UK, and 2026/27 is no exception. With the personal allowance frozen at £12,570, millions of employees and self-employed individuals face a tax system that hasn’t moved its headline threshold since 2022 — yet costs them more in real terms every year.
What Is the UK Personal Allowance in 2026?
The personal allowance is the amount you can earn before paying income tax. For the 2026/27 tax year, it remains at £12,570 — unchanged since April 2022, and confirmed to stay there until April 2031. The freeze may look neutral on paper, but with wages rising, more workers are being quietly pulled into higher tax brackets through a process known as fiscal drag. A pay rise that felt generous could nudge you into a band where you suddenly owe substantially more.
Income Tax Bands for 2026/27
For taxpayers in England, Wales, and Northern Ireland, the bands remain as follows. The basic rate of 20% applies on earnings from £12,571 up to £50,270. The higher rate of 40% kicks in between £50,271 and £125,140. Above £125,140, you pay the additional rate of 45%. If your income exceeds £100,000, your personal allowance begins to taper — losing £1 for every £2 earned above that threshold. Once you hit £125,140, you lose it entirely, creating a brutal effective marginal rate of 60% in that range. Pension contributions are one of the best tools to manage this.
Dividend Tax Rises Take Effect
One of the most tangible changes for the 2026/27 year affects those receiving dividend income. From 6 April 2026, the ordinary dividend rate rises from 8.75% to 10.75%, and the upper dividend rate climbs from 33.75% to 35.75%. The additional rate stays at 39.35%. For limited company directors who pay themselves partly in dividends — a widely used tax-planning strategy — this shift is meaningful and worth reviewing with an accountant before the end of the financial year.
Making Tax Digital: A Major New Obligation
The biggest administrative shift in the 2026/27 tax year is the first rollout of Making Tax Digital (MTD) for Income Tax. Sole traders, landlords, and self-employed people earning more than £50,000 annually must now register and file quarterly digital updates to HMRC via approved software. Approximately 900,000 taxpayers are caught in this first wave, with the first quarterly deadline falling on 7 August 2026. Penalties are expected to be enforced, so anyone yet to register should act now. Future waves will lower the threshold to £30,000 and then £20,000 in subsequent years.
Inheritance Tax Changes for Farms and Businesses
From 6 April 2026, reformed rules on Inheritance Tax relief for business and agricultural property took effect. The first £2.5 million of the combined value of qualifying property still attracts full 100% relief. But assets above that level now face a 20% rate rather than the full 40%. For farming families and business owners with significant assets, careful estate planning has become essential. Trusts, wills, and intergenerational gifting strategies should all be on the agenda for anyone potentially affected.
National Insurance and Savings: No Changes
National Insurance rates and thresholds for employees are unchanged from 2025/26. The main rate remains at 8% on weekly earnings between £242 and £967. The Personal Savings Allowance is also static: basic-rate taxpayers keep a £1,000 tax-free interest threshold, higher-rate taxpayers have £500, and additional-rate taxpayers receive nothing. With interest rates still elevated compared to the pre-2022 era, more savers are finding their interest income exceeds these limits — making ISAs an increasingly practical option.
What Should You Actually Do?
The 2026/27 tax year may not have introduced sweeping changes, but frozen thresholds, rising dividend taxes, and new digital obligations are adding up. The most practical responses are fairly straightforward. Max out your ISA allowance to shelter savings and investments from tax entirely. If you’re approaching the £100,000 income threshold, use pension contributions to bring your adjusted net income below it and reclaim your personal allowance. And if you’re self-employed or a landlord earning over £50,000, get your MTD-compliant software set up now rather than scrambling before that August deadline. Small, deliberate actions now can make a real difference to what you owe come January 2027.