Happy New (Tax) Year!

The 2026/27 financial year is now underway, and while many headline tax rates remain unchanged, ongoing freezes and reduced allowances continue to pull more taxpayers into higher tax bands.

Here is our overview.

Personal tax rates

Personal allowances and income tax thresholds remain frozen until April 2028:

• Personal allowance: £12,570
• Basic rate limit:20% from £12,571 to £50,270
• Higher rate: 40% from £50,271 to £125,140
• Additional rate: 45% above £125,140

The additional rate threshold remains at £125,140, and individuals earning above this level do not receive a personal allowance.

For incomes over £100,000, the personal allowance is reduced by £1 for every £2 of additional income, creating an effective marginal tax rate of 60% within this band.

Dividend tax

The dividend allowance remains at:

• £500 per year

Dividend tax rates have increased by 2 percentage points to:

• 10.75% (basic rate)
• 35.75% (higher rate)
• 39.35% (additional rate)

With such a low allowance, individuals, particularly retirees and business owners, may need to report dividend income to HMRC.

Capital gains tax (CGT)

The annual exempt amount for capital gains tax remains at:

• £3,000 per individual

Rates remain unchanged:

• 18% (basic rate taxpayers)
• 24% (higher/additional rate taxpayers)

The rate for gains qualifying for business asset disposal relief has changed to 18% from 6 April 2026.

Spousal transfers on separation

The rules introduced in April 2023 continue to apply:

• Up to three years after the end of the tax year of separation to make no gain/no loss transfers
• Unlimited time where transfers are part of a formal divorce agreement
• Continued access to private residence relief in certain circumstances

Pensions

Pension rules remain significantly more flexible:

• The annual pension allowance remains at £60,000, subject to tapering
• The Money Purchase Annual Allowance (MPAA) remains at £10,000

Making Tax Digital (MTD)

The rollout of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a key development affecting many taxpayers:

• From April 2026, self-employed individuals and landlords with income over £50,000 must comply with MTD rules
• From April 2027, this will extend to those with income over £30,000

Under MTD, affected taxpayers will be required to:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC using compatible software
• File an end-of-year final declaration to confirm total taxable income

This represents a significant shift from the traditional annual tax return process and will require many taxpayers to adopt accounting software if they have not already done so.

Corporation tax rates

From the 1 April 2026 there is no change to the corporation tax rates which remain as follows:

• Small profits rate: 19% for companies with taxable profits under £50,000.
• Main rate: 25% for companies with taxable profits over £250,000.
• Marginal relief applies between £50,000 and £250,000 of taxable profits.

The thresholds are divided by the number of associated companies.

Capital allowances

Capital allowances main rate of writing down allowance (WDA) for plant and machinery has been reduced from 18% to 14% from 1 April 2026 for companies and 6 April 2026 for income tax purposes.

A hybrid rate will apply for chargeable periods that straddle 1 April 2026.

The WDA for the special rate pool remains at 6% and no changes for full expensing (for companies) or annual investment allowance.

A new 40% First Year Allowance (FYA) was introduced from 1 January 2026 for qualifying main pool expenditure for businesses unable to claim full expensing (i.e. unincorporated business or assets used for leasing).

The 100% FYA for zero-emission cars and EV charge points has been extended to March 2027.

Late Filing Penalties for corporation tax returns

For corporation tax returns with filing dates on or after 1 April 2026, the fixed penalties have been doubled as follows:

• Up to 3 months late: £200.
• More than 3 months late: Another £200.
• If your tax return is late 3 times in a row, the £200 penalties are increased to £1,000 each.

Tax returns – key deadlines and dates for 2026/27

The 2025/26 tax year has now ended (on 5 April 2026), and tax returns for that year can now be prepared and submitted.

Key dates:

• 31 July 2026
  Second payment on account due for the 2025/26 tax year
• 5 October 2026
  Deadline to notify HMRC if you need to register for self-assessment
• 31 October 2026
  Deadline for submitting paper tax returns
• 31 January 2027
  Deadline for submitting online tax returns and paying any tax due
• 5 April 2027
  End of the 2026/27 tax year – ensure ISA allowances are used

Next steps

With continued freezes, reduced allowances, and the introduction of Making Tax Digital, tax compliance is becoming more complex. If you have any questions or would like tailored advice, please get in touch, our experienced team of tax advisers will be happy to assist.