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Get started11 tax changes to know about in 2026
From dividend tax rises to council tax increases, several tax changes are set to affect your finances in 2026
This year will bring several tax changes that may impact your pocket, from higher dividend tax to changes to inheritance tax affecting farms, businesses and some gifts.
While these updates won't affect everyone, it's important to know what's coming, especially as another wave of major changes is already set for 2027.
Here, Which? looks at the key tax changes expected to affect your finances in 2026, starting with the earliest.
1. Tobacco and alcohol duties to rise
What it is: From February, alcohol duty rates will rise by 3.66%, which is an increase of around 2p on a pint of beer, or 10p on a bottle of wine.
In October 2026, the UK government will introduce a one-off increase to tobacco duty of £2.20 per 100 cigarettes or 50g of rolling tobacco. This aligns with a continued, annual duty rise of Retail Prices Index (RPI) + 2% to discourage smoking.
When it will change: 1 February (alcohol), October 2026 (tobacco)
- Find out more: life insurance for smokers explained.
2. Council tax rises
What it is: Many households should prepare for higher council tax bills in April 2026, as councils continue to face pressure on their budgets.
Most councils in England can currently raise council tax by up to 4.99% without holding a local referendum. However, according to the BBC, six councils in London and the south east have been given government approval to increase rates by more than this, to offset changes to how funding is distributed.
These areas include: Wandsworth, Westminster, Hammersmith and Fulham, City of London, Kensington and Chelsea, and Windsor and Maidenhead.
Alongside this, property values from 2026 will be used to calculate the high-value council tax surcharge from April 2028. This surcharge will apply to different value bands:
| House value | Surcharge |
|---|---|
| £2m to £2.5m | £2,500 |
| £2.5m to £3.5m | £3,500 |
| £3.5m to £5m | £5,000 |
The government has said it will consult on exemptions, reliefs and support for people who may struggle to pay before the surcharge is introduced.
When it will change: 1 April
- Find out more: council tax calculator 2025-26.
3. Making Tax Digital (MTD) for income tax
What it is: From April 2026, sole traders and landlords with gross annual trading or rental income of £50,000 will need to comply with Making Tax Digital (MTD) for income tax.
Those earning below this threshold will not be affected initially. However, the threshold will fall to £30,000 from April 2027, with a final phase in April 2028 bringing in people earning between £20,000 and £30,000.
Under MTD, you will need to keep digital records of income and expenses using approved software. Instead of submitting one annual tax return, you’ll send quarterly updates to HMRC and a final declaration at the end of the tax year.
When it will change: 6 April
- Find out more: 4 ways to prepare for Making Tax Digital for income tax.
4. Dividend tax hikes
What it is: Dividend tax rates will rise by two percentage points from April 2026, following announcements in the Autumn Budget 2025.
- The ordinary rate will rise from 8.75% to 10.75%.
- The upper rate will rise from 33.75% to 35.75%.
- The additional rate remains unchanged at 39.35%.
The dividend allowance will also stay at £500, meaning the first £500 of dividend income remains tax-free.
How much tax you pay depends on your other income, such as salary or pension payments, which use up your lower tax bands first and can push dividend income into higher rates.
Many company directors currently take dividends instead of a salary because dividends are taxed at lower rates, but this gap will narrow once the new rates come into force.
When it will change: 6 April
- Find out more: dividend tax explained.
5. Inheritance tax scope extended
What it is: Changes coming into force in April 2026 will affect how inheritance tax applies to farms, businesses and certain shares.
You'll still be able to pass on up to £2.5m of qualifying farm or business assets tax-free, but any value above this will be taxed at 20%. The original tax-free limit was set at £1m, but this was increased in December following opposition from farmers.
Those facing an inheritance tax (IHT) bill will be able to pay it in equal annual instalments over 10 years, with no interest charged. The first payment will be due six months after death.
In addition, some business shares that were previously exempt from IHT will now be taxed at 20%, meaning more estates are likely to fall within scope.
Couples will still be able to pass on a farm or business without an inheritance tax bill. If one partner does not use their £2.5m allowance, it can be transferred to the surviving partner, allowing up to £5m of assets to be passed on tax-free.
The government is also closing a loophole that allowed UK farmland held through overseas companies to avoid IHT. From April 2026, this land will be taxed in the same way as other UK property.
When it will change: 6 April
- Find out more: inheritance tax: thresholds, rates and who pays.
6. Change to IHT gifting rules
What it is: From April 2026, gifts left to charity in your will will need to be made directly to approved UK-registered charities or eligible amateur sports clubs to qualify for inheritance tax relief.
This follows a similar change made to lifetime gifting, which took effect immediately after the Autumn Budget.
The tax benefit itself is unchanged. Gifts to qualifying charities will continue to be free from IHT, but gifts to organisations that do not meet the UK eligibility criteria may no longer qualify.
When it will change: 6 April
- Find out more: ways to avoid inheritance tax.
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7. Tax relief for homeworking costs to end
What it is: From April 2026, the government will scrap the tax relief you can currently claim if you work from home and your employer doesn’t cover your extra costs.
However, employers will still be allowed to give staff money towards homeworking expenses without it being taxed.
When it will change: 6 April
- Find out more: tax reliefs – how to reduce your tax bill.
8. Shift cancellation pay to be taxed
What it is: From April 2026, the payments that workers receive when a shift is cancelled, moved or reduced at short notice, will be treated in the same way as wages.
This means that these payments will be subject to income tax, bringing them into line with how other earnings are taxed.
When it will change: 6 April
- Find out more: self-employed expenses you can claim.
9. Inflation increases for smaller tax allowances
What it is: Several smaller tax allowances will rise by 3.8% from April 2026, in line with September’s CPI inflation figure:
Personal tax allowances:
- blind person’s allowance – rising from £3,130 to £3,250
- married couple’s allowance (max) – rising from £11,270 to £11,700
- married couple’s allowance (min) – rising from £4,360 to £4,530
- married couple's allowance (income limit) – rising from £37,000 to £39,200.
Foster care and carer reliefs:
- qualifying care relief – the fixed amount you can earn tax-free for providing care is rising from £19,690 to £20,440.
Weekly care amounts:
- for a child under 11 – rising from £415 to £435 per week
- for a child 11+ or an adult – rising from £495 to £515 per week.
These rises come alongside hikes to other Department for Work and Pensions (DWP) benefits and the state pension.
When it will change: 6 April
- Find out more: state pension to rise by £575 in 2026.
10. Fuel duty cut to be phased out
What it is: The temporary 5p cut to fuel duty will remain in place until August 2026.
After that, duty rates will rise gradually, increasing by 1p in September 2026, a further 2p in December 2026, and another 2p in March 2027, returning rates to March 2022 levels.
The planned inflation increase for 2026 to 2027 has been cancelled, with fuel duty instead set to rise in line with RPI from April 2027.
When it will change: 1 September
11. New vape tax introduced
What it is: A new vape tax will be introduced in October 2026, adding £2.20 per 10ml to all e liquids, including nicotine-free products.
This means a 2ml pod will face an extra 44p in duty before VAT, while a 10ml bottle will increase by £2.20 plus VAT.
The policy aims to discourage non-smokers and young people from taking up vaping, following data showing that nearly 18% of 11 to 17 year olds have tried it.
At the same time, tobacco duty will rise again to ensure vaping remains a cheaper alternative to smoking.
When it will change: 1 October
