New tax year: Round-up of rate and allowance changes

Changes to individual taxation

Income

Income tax rates and the personal allowance thresholds for income tax are frozen in England, Wales and Northern Ireland until April 2031.

For taxpayers in Scotland there are some changes to the thresholds for income tax at the basic and intermediate rate for the 2026/27 tax year. The threshold for the basic rate of tax (at 20%) has risen from £15,398 to £16,538 annually, while the threshold at the intermediate rate (21%) has gone up from £27,492 to £29,527. The personal allowance is unchanged at £12,570. 

Dividend income

Tax rates payable on dividend income (for equities not held within an ISA) have gone up.

The dividend ordinary rate has risen from 8.75% to 10.75% (for basic rate taxpayers), while the dividend upper rate has gone up from 33.75% to 35.75% (for higher rate taxpayers). The additional rate remains at 39.35%. The dividend allowance is unchanged at £500.    

Venture capital trusts

There has been a reduction on the income tax relief for investors in venture capital trusts (VCTs) from 30% to 20%. The tax relief will be withdrawn if the investor disposes of their VCT within five years. The annual allowance for VCT income tax relief remains at £200,000 for the 2026/27 tax year. 

NICs for overseas workers

National insurance contribution (NIC) thresholds and rates are unchanged for employees. But for those working abroad who want to make voluntary NICs (to build up entitlement to the state pension) it is no longer possible to pay class 2 NICs for periods working abroad.  

Since 6 April 2026, individuals wishing to pay voluntary NICs must pay class 3 NICs, and new eligibility criteria applies. You must have lived continuously in the UK for 10 years previously to be eligible. NICs made in previous tax years are unaffected as are top ups to an NIC record from earlier years. 

Work from home tax relief

The income tax relief offered to employees who are required to work from home for part or all of their working week (and not already reimbursed for additional household costs by their employer) has now ended.  

It means employees who are required to work at home by their employer can no longer claim a deduction on income tax towards household costs, such as heating and phone bills.  

Previously people could apply based on their actual expenditure by showing evidence, or they could apply for the flat rate of relief, which was £6 per week, without providing receipts. 

Businesses taxation changes

Business Asset Disposal Relief (BADR)

In the past, business owners paid a reduced rate of capital gains tax when selling qualifying business assets under BADR. But this relief has been reduced. For the new tax year (2026/27) the CGT rate charged will be 18%. This is an increase from the 14% charged in the previous tax year 2025/26, and the 10% charged prior to that. The total gains eligible for BADR, known as the lifetime limit, is unchanged at £1 million. 

Making Tax Digital

One of the biggest changes for the 2026/27 tax year is the launch of HMRC's new tax regime, known as Making Tax Digital (MTD). Under MTD self-employed workers as well as landlords and property investors with income from self-employment or property of £50,000 per year or more (this will fall to £30,000 or more from April 2027), will have to file their tax information quarterly using HMRC-approved software. 

Tax changes from April 2027

• ISAs: While the ISA allowance will remain at £20,000, people under the age of 65 will only be able to allocate up to £12,000 to cash. The total overall annual ISA limit will remain at £20,000, with individuals able to invest in stocks and shares, or cash, or both, within ISAs, subject to the specified limits.
• IHT and pensions: From April 2027 most unused pension funds will be included in a person’s estate on death for inheritance tax (IHT) purposes. This means pension assets could be taxed at 40% on death where an estate is liable to IHT. Currently pension assets are not included in a deceased person’s estate.
• Increase to income tax on rental income: The tax rates on rental income from property are set to rise by 2%. For basic rate taxpayers the income tax rate will rise from 20% to 22%. For higher rate taxpayers the rate will rise from 40% to 42%, while at the additional rate, the tax rate will rise from 45% to 47%.  

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. St. James’s Place is not licensed to provide tax advice. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.

Please note that past performance is not indicative of future performance, and the value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

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This article is a general communication that is provided for informational purposes only. It should not be relied upon as financial advice, and it does not constitute a recommendation, an offer or solicitation. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. 

Please note SJP does not offer a cash ISA.