The 2026/27 UK tax year introduces a continuation of recent fiscal policy: no major headline tax increases, but a steadily rising tax burden in practice. What do these tax changes mean for you?
While many rates remain unchanged, frozen thresholds and higher dividend taxes mean individuals and business owners will likely pay more tax overall.
At Raine Accountants, we’re already helping clients navigate these changes proactively, because waiting until year-end is no longer enough.
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Key Tax Changes for 2026/27
1. Income Tax Thresholds Remain Frozen
For 2026/27, Income Tax rates and thresholds remain:
- Personal Allowance: £12,570
- Basic rate: 20% (up to £50,270)
- Higher rate: 40% (£50,271 to £125,140)
- Additional rate: 45% (over £125,140)
However, these thresholds are frozen until at least April 2028.
What this means:
As salaries increase with inflation, more of your income is taxed at higher rates, a phenomenon known as fiscal drag.
Result: You pay more tax, even though rates haven’t changed.
2. Dividend Tax Rates Increase
Dividend taxation has become significantly less favourable:
- Basic rate: 10.75%
- Higher rate: 35.75%
- Additional rate: 39.35%
- Dividend allowance: £500
Impact on business owners:
The traditional salary + dividend strategy should be reviewed, especially with the increase in corporation tax to determine the most tax efficient approach.
3. The £100k Tax Trap Still Applies
Earning between £100,000 and £125,140 continues to trigger:
- Loss of Personal Allowance
- Effective tax rate of 60%
Consequently, this remains one of the most important tax planning areas for high earners.
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Why This Matters More Than Ever
The government’s approach is clear:
- Avoid visible tax rises
- Increase revenue through threshold freezes
- Target business owners via dividend changes
Subsequently, this creates a stealth tax environment where:
- Employees drift into higher tax bands
- Business owners face reduced extraction efficiency
- High earners encounter severe marginal rates
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Strategic Tax Planning Opportunities
For Individuals
- Review income levels against tax thresholds
- Utilise pension contributions to reduce taxable income
- Consider salary sacrifice arrangements
For Business Owners
- Reassess salary vs dividend mix
- Explore pension funding through the company
- Evaluate timing of dividend payments
For High Earners
- Mitigate the £100k trap with pension contributions
- Consider income deferral strategies
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How Raine Accountants Can Help
Tax has become more complex; and more expensive for those who don’t plan ahead.
At Raine Accountants, we provide:
- Proactive tax planning
- Tailored advice for business owners and directors
- Year-round support to optimise your position
https://www.raineaccountants.co.uk
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