In 2026, a significant number of individuals will face increased tax obligations, but there are strategies available to reduce your tax liability. Sarah Coles, the head of personal finance at Hargreaves Lansdown, provides insights into navigating frozen tax thresholds and council tax hikes.
Coles emphasizes the importance of taking proactive steps early to mitigate the impact of upcoming tax changes in 2026. She highlights the opportunity to minimize tax burdens by leveraging various tax-saving approaches.
The personal allowance, set at £12,570 until 2031, poses a challenge as income growth may push individuals into higher tax brackets over time. Additionally, the dividend tax rate is set to rise in April 2026, affecting both basic and higher rate taxpayers. Venture capital trusts will also experience reduced tax relief from 30% to 20% in the same period.
Inheritance tax thresholds, including the 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 in England is expected to rise by up to 5% annually starting April 2026, authorized by local authorities without the need for a referendum.
The Conservative government’s 5p per litre fuel duty reduction, initiated in March 2022, will gradually revert to normal levels by March 2027. Alcohol duty will increase in line with RPI inflation from February 2026, and tobacco duty adjustments, previously outlined in the 2024 Budget by Jeremy Hunt, will also come into effect.
A new duty of £2.20 per 10ml of vaping liquid will be imposed from October 2026. Coles suggests five legal ways to reduce tax liabilities in 2026, such as maximizing ISA saving accounts and optimizing pension contributions for tax relief benefits.
Exploring salary sacrifice options, transferring income-producing assets between spouses, and leveraging marriage allowance for non-taxpayer spouses are additional strategies to consider for minimizing tax burdens in the upcoming tax year.