The 2026–27 UK tax changes will impact a wide range of taxpayers including company directors, landlords, investors, contractors and small business owners.

Higher dividend tax rates, stricter CIS compliance, and the introduction of Making Tax Digital for Income Tax mean that businesses will need to be more organised with their finances and reporting.

At S & B Accountants Ltd, we are already helping clients prepare for these changes by reviewing tax structures, improving digital record-keeping, and ensuring compliance with new HMRC requirements.

Business owners should consider reviewing:

• Director salary vs dividend strategy

• Director loan account balances

• Digital accounting systems for Making Tax Digital

• CIS compliance procedures

• Inheritance tax planning for family businesses

Taking action early can help minimise tax liabilities and avoid penalties once the new rules come into effect.

Below is a complete breakdown of the key UK tax changes for 2026–27 and what they mean for businesses and individuals.

Dividend Tax Rates Increase in 2026–27

One of the most significant changes for company directors and shareholders is the increase in dividend tax rates.

From 6 April 2026, dividend tax rates will increase by 2% for basic and higher rate taxpayers.

New Dividend Tax Rates

• Basic rate taxpayers: 10.75%

• Higher rate taxpayers: 35.75%

• Additional rate taxpayers: 39.35% (unchanged)

This change means that owner-managed businesses paying dividends instead of salary will face higher tax costs.

Although dividends remain tax-efficient compared with salary, directors should review their remuneration strategy, especially where profits are distributed regularly.

Directors’ Loan Tax Charge Increase (Section 455)

The Section 455 tax charge on directors’ loans will also rise from 33.75% to 35.75% for loans made on or after 6 April 2026.

This rule applies when:

• A close company lends money to a director or shareholder

• The loan remains unpaid nine months after the company’s year end

Most owner-managed companies fall within the definition of a close company (controlled by five or fewer shareholders).

Why This Matters

Many directors use their director’s loan account (DLA) to manage personal withdrawals from the company. However, if the balance is not repaid within the required period, the company must pay the Section 455 tax charge, which is effectively a temporary tax.

The tax can be reclaimed when the loan is repaid, but the increase makes it more expensive to leave loans outstanding.

Corporation Tax Rates Remain Unchanged

For the 2026–27 tax year, corporation tax rates remain unchanged:

• 25% main rate (profits above £250,000)

• 19% small profits rate (profits up to £50,000)

• Marginal relief applies between £50,000 and £250,000

While the rates remain stable, higher dividend taxes and loan charges increase the overall tax burden for company directors.

Business Asset Disposal Relief (BADR) Changes

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) allows qualifying business owners to pay reduced capital gains tax (CGT) when selling a business.

From 6 April 2026, the BADR tax rate increases to:

18%

This remains lower than standard CGT rates, meaning BADR still provides valuable tax savings when disposing of a business or shares.

Important: BADR Must Be Claimed

Unlike previous reliefs such as taper relief, BADR is not automatic.

A claim must be made by:

31 January following the first anniversary of the tax year in which the disposal occurs.

Most taxpayers make the claim through their Self Assessment tax return.

Frozen Income Tax Thresholds Until 2031

The UK government continues to freeze income tax thresholds, meaning taxpayers will gradually move into higher tax bands due to inflation.

Current thresholds remain:

• Personal Allowance: £12,570

• Higher Rate Threshold: £50,271

• Additional Rate Threshold: £125,140

This “fiscal drag” effectively increases the tax burden without formally raising tax rates.

Scottish Income Tax Changes

While UK thresholds remain frozen, Scotland has adjusted its tax bands.

Key Scottish income tax rates include:

• Starter rate: 19%

• Basic rate: 20%

• Higher, advanced and top rate thresholds remain frozen

These changes apply only to Scottish taxpayers.

Inheritance Tax Thresholds Remain Frozen

Inheritance tax thresholds also remain frozen.

Current allowances include:

• Nil-rate band: £325,000

• Residence nil-rate band: £175,000

These freezes continue until 2031, meaning more estates may become liable for inheritance tax (IHT) as property values increase.

Major Inheritance Tax Changes for Farmers and Family Businesses

Significant changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) take effect from 6 April 2026.

Previously, these reliefs could provide 100% inheritance tax relief on qualifying assets.

New Relief Structure

• 100% relief applies only to the first £2.5 million

• Assets above £2.5 million receive 50% relief

This effectively results in a reduced IHT rate of 20% on qualifying assets above the threshold.

Couples Allowance

Married couples and civil partners may pass on up to:

£5 million of qualifying business or agricultural assets

before reduced relief applies.

Unmarried couples will only qualify for the £2.5 million threshold individually.

Extended Payment Period

Another helpful change allows inheritance tax on these assets to be paid over 10 years, instead of the standard six-month deadline after death.

Making Tax Digital for Income Tax Begins

The rollout of Making Tax Digital (MTD) for Income Tax Self Assessment begins in 2026.

From April 2026, the first group affected includes:

• Sole traders

• Landlords

• Self-employed individuals

with annual income above £50,000.

Affected taxpayers must:

• Keep digital records

• Submit quarterly income updates

• File an annual final declaration

The first quarterly reporting deadline will be 7 August 2026.

Nearly 900,000 taxpayers will be required to comply in this first phase.

Personal Savings Allowance and ISA Changes

The Personal Savings Allowance remains unchanged:

• £1,000 for basic rate taxpayers

• £500 for higher rate taxpayers

• £0 for additional rate taxpayers

However, future ISA changes are planned for April 2027, including:

• Reduction of cash ISA allowance to £12,000

• Continued encouragement of stocks and shares ISAs

Taxpayers may wish to maximise ISA contributions while current limits remain available.

New Rules for Umbrella Companies and Recruitment Agencies

New legislation aims to strengthen compliance in labour supply chains.

From 6 April 2026, a joint and several liability rule applies.

This means that if an umbrella company fails to deduct PAYE and National Insurance, the liability may transfer to the recruitment agency involved.

The measure is designed to reduce tax avoidance and strengthen enforcement of off-payroll working (IR35) rules.

Venture Capital Trust (VCT) Tax Relief Reduced

Tax relief for Venture Capital Trust (VCT) investments will reduce.

Income tax relief falls from:

30% → 20%

For example, someone investing the maximum £200,000 would see tax relief reduced from:

£60,000 to £40,000

However, investment limits for companies receiving funding will increase.

Enterprise Investment Scheme (EIS) Changes

Changes to the Enterprise Investment Scheme (EIS) focus mainly on company eligibility thresholds.

For companies outside Northern Ireland:

• Gross asset test before investment increases from £15m to £30m

• Post-investment gross asset limit increases to £35m

Investor limits remain unchanged.

Enterprise Management Incentive (EMI) Share Scheme Expansion

Changes to Enterprise Management Incentive (EMI) share option schemes make them available to larger companies.

The gross asset limit increases from £30 million to £120 million.

This allows more businesses to offer tax-efficient share options to employees, helping attract and retain talent.

Construction Industry Scheme (CIS) Rules Tightened

From 6 April 2026, contractors must submit a monthly CIS return even if no subcontractors were paid.

Previously, some contractors did not file returns in months with no activity.

Increased Compliance Powers

HMRC will also gain stronger powers where CIS fraud is suspected.

If fraud is identified within a supply chain:

• Gross payment status can be cancelled immediately

• Penalties of up to 30% of lost tax may apply

Companies with gross payment status must now take extra care when verifying subcontractors and supply chains.

State Pension Increase

The new State Pension increases by 4.8%.

Weekly payment rises to:

£241.30 per week

Equivalent to £12,547.60 annually.

This brings the state pension very close to the personal allowance (£12,570).

Child Benefit Increase

Child benefit payments are also increasing.

New weekly rates:

• £27.05 for the eldest or only child

• £17.90 for each additional child

This equates to:

• £1,406.60 per year for the first child

• £930.80 per year for additional children

The two-child benefit cap under Universal Credit will also be removed.

How Businesses Should Prepare for the 2026–27 Tax Year

With higher dividend taxes, stricter compliance rules, and the rollout of Making Tax Digital, business owners should review their tax strategies early.

Key actions include:

• Reviewing director salary vs dividend strategy

• Managing director loan accounts carefully

• Preparing for MTD digital record keeping

• Checking CIS compliance procedures

• Reviewing inheritance tax planning for business owners

Professional advice can help minimise tax exposure and ensure compliance with the new rules.

FAQ Section

What are the new dividend tax rates for 2026–27?

From April 2026, dividend tax rates will increase to 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers, while the additional rate remains 39.35%.

What is the new directors’ loan tax charge in 2026?

The Section 455 tax charge increases to 35.75% for loans made to directors or shareholders by close companies that remain unpaid after nine months of the accounting period.

What is the Business Asset Disposal Relief rate in 2026?

From 6 April 2026, the BADR tax rate increases to 18%, still lower than the standard capital gains tax rates.

When does Making Tax Digital for Income Tax start?

Making Tax Digital for Income Tax will start from April 2026 for self-employed individuals and landlords with income above £50,000.

What changes are happening to CIS rules in 2026?

From April 2026, contractors must submit monthly CIS returns even when no subcontractors were paid, and HMRC gains stronger powers to cancel gross payment status where fraud is suspected.

Are income tax thresholds changing in 2026?

No. The personal allowance remains £12,570, and income tax thresholds will remain frozen until 2031.