Plan ahead for 2026-27: Preparing for rising income and dividend taxes

With several key tax increases scheduled for the coming years, now is the ideal time for individuals to review their personal tax position and make sure their planning is fit for purpose. At Dafferns, we are already helping clients prepare for these changes and mitigate the impact wherever possible.

From 6 April 2026, dividend tax rates will rise to:

• 10.75% for dividends within the basic rate band
• 35.75% for higher rate taxpayers
• 39.35% for additional rate taxpayers (unchanged)

A year later, from 6 April 2027, income tax on savings and property income will also increase:

• 22% for basic rate taxpayers
• 42% for higher rate taxpayers
• 47% for additional rate taxpayers

These rising rates come at a time when tax allowances and thresholds remain frozen – meaning more individuals are being pushed into higher tax bands or affected by marginal rate “cliff edges”.

For example:

• Those earning between £100,000 and £125,140 experience an effective tax rate as high as 61% on savings/property income and 53.625% on dividend income due to the tapering of the personal allowance.
• Individuals subject to the high income child benefit charge (income above £60,000) will also see higher marginal rates as more income becomes taxable.

Key planning opportunities

Here are some practical steps you may wish to consider ahead of April 2026-27

1. Pension contributions
   Pension planning remains one of the most effective tools for managing taxable income. A personal pension contribution can reduce Adjusted Net Income (ANI), helping to:
   – Restore some or all of the personal allowance
   – Reduce exposure to high marginal tax rates
   – Deliver income tax relief at 40%, 45%, or even effective rates of 60%+ in the taper zone
   
   Important: Contributions must be within annual allowance limits and cannot exceed relevant UK earnings (or £3,600 for those with no earnings)
   
   
2. Salary sacrifice
   For employees, salary sacrifice remains attractive:
   – Until April 2029, unlimited salary can be sacrificed tax-efficiently, saving both income tax and national insurance
   – After April 2029, this becomes restricted to £2,000 per year
   Reviewing arrangements now is key.
   
   
3. Income shifting between spouses
   Where one spouse pays tax at a lower rate, transferring income-producing assets can reduce the overall household tax burden. Care is needed to ensure transfers are effective for tax purposes.
   
   
4. Maximising tax-sheltered investments
   ISAs continue to be a simple and flexible shelter for income and gains, helping prevent creeping into higher rate bands.
   
   
5. Financial planning review
   For some, focusing on capital growth rather than income may reduce exposure to the new higher income tax rates. Even with the top CGT rate at 24%, this remains lower than higher-rate income tax.
   With the annual CGT exemption now just £3,000 (£1,500 for trustees), it is more important than ever to use these allowances each year – particularly for couples who can make use of two sets of exemptions.
   

Dafferns are here to help

These increases represent a significant shift in the tax landscape. At Dafferns, we can help you identify where these rising rates may affect you and build a tailored plan to stay ahead of the changes.