Key tax changes and year end planning considerations for 2025/26

As we approach the end of the 2025/26 tax year, several important policy changes are set to influence how individuals, families and business owners plan ahead. Many thresholds remain frozen, new rates come into force over the next two years and longer‑term reforms are shaping decisions in advance of 5 April.

This section brings together the key updates to be aware of to help you understand what’s changing and where it may be worth taking action before year end.

Tax rates and allowances

Income tax rates and bands for 2025/26 are determined by which part of the UK someone lives in, and what type of income they have.

Rates and bands: English, Welsh and Northern Irish taxpayers 2025/26

With the exception of dividend rates (covered below) income tax rates and thresholds remain the same for 2026/27. Taxable income is income in excess of the personal allowance. Non-savings income broadly comprises earnings; pensions; trading profits and property income.

Change coming: It has been announced that the rules which govern the order in which reliefs and allowances are allocated against income will change from 6 April 2027. This means that the personal allowance and other reliefs will be set against income from employment, trading or pensions first. They will only be applied to property, savings and dividend income after this. Currently, the order of offset is a matter of choice.

Taxing savings and dividend income

Savings allowance: The savings allowance applies to savings income, such as bank and building society interest, with the amount available based on the marginal rate of tax. Broadly, those taxed at up to the basic rate of tax have an allowance of £1,000: higher rate taxpayers have an allowance of £500. Additional rate taxpayers do not receive the savings allowance.

Savings income within the savings allowance still counts towards the basic or higher rate band. It can thus impact the rate of tax paid on savings and dividends above the savings allowance.

0% starting rate for savings income: Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. This remains at £5,000 until 5 April 2031. The 0% rate is not available if taxable non-savings income (broadly earnings; pensions; property income and trading profits, less allocated allowances and reliefs) is more than £5,000.

Change coming: The rate of income tax for savings income will go up from 6 April 2027.

Dividend allowance: The dividend allowance is available to all taxpayers, regardless of the marginal rate of tax. It charges the first £500 of dividends to tax at 0%. Dividends received above this are taxed at the rates shown in the table at the head of the page. Note that dividends within the dividend allowance still count towards the basic or higher rate band and can thus impact the rate of tax payable on income above the allowance.

Change coming: The rate of income tax applicable to dividends will increase from 6 April 2026. Note that the additional rate remains unchanged.

Inheritance tax: Forthcoming changes

Two major changes require consideration:

• The extension of IHT to unused pension funds and death benefits from 6 April 2027
• Restrictions to business property relief (BPR) and agricultural property relief (APR) applying from 6 April 2026, and the impact of last-minute amendments to the original proposals which were announced at the end of 2025.

IHT change for pension funds

In a move aimed to stop pension saving being used as a tax planning vehicle to transfer wealth without an IHT charge, rather than to fund retirement, unused pension funds and death benefits payable from a pension are brought into the value of an estate for IHT from 6 April 2027.

This does not include death in service benefits payable from registered pension schemes. Note, too, that where the pension fund is left entirely to a spouse or civil partner, there is no IHT charge. Where there is an IHT liability, however, pension assets will be exposed to IHT at 40%.

It will be the personal representatives’ responsibility to report and pay any IHT due. They will, however, be able to direct the scheme administrators to keep back 50% of the taxable benefits for up to 15 months from the date of death, and use this to pay HMRC, in certain circumstances.

Read more here.

The personal allowance

In principle, everyone is entitled to a basic personal allowance before any income tax is paid. This meant that many people pay no income tax on the first £12,570 of income received, and those with lower levels of income may pay no income tax at all.

The personal allowance can be higher if someone is eligible for the blind person’s allowance.

The freeze to the personal allowance and higher and additional rate thresholds has been extended until 5 April 2031.

Action point: Prioritise efficiency

The fiscal drag caused by the freezing of the personal allowance and tax thresholds such as the national insurance limits and the inheritance tax nil rate band will have significant effect over time, adding to tax bills and pushing individuals into higher rates of tax. It is therefore all the more important to make sure that your affairs are structured as tax efficiently as possible, and we can help you review your position.

Separate tax rate for property income

There will be separate tax rates for property income from 6 April 2027, applying to income from letting land and buildings. In England and Northern Ireland, the rates are expected to be:

The treatment of residential finance costs for tax purposes remains the same, with individuals receiving basic rate relief as a tax reduction. Relief will therefore be given at the property basic rate from 2027/28.