Contributed by Jo Lawless FCA CTA, Senior Technical Writer, Croner Ltd
Over this and the next tax year, UK taxpayers face increasing rates of tax on investment income, frozen rates and allowances and a change in how allowances and reliefs can be used.
Personal allowance and income tax bands
- personal allowance: £12,570;
- basic rate band: first £37,700 of taxable income;
- higher rate band: taxable income between £37,700 and £125,140; and
- additional rate: taxable income above £125,140.
- starter rate on taxable income up to £3,967;
- basic rate on taxable income above £3,967 and up to £16,956;
- intermediate rate on taxable income above £16,956 up to £31,092;
- higher rate on taxable income above £31,092 up to £62,430;
- advanced rate on taxable income above £62,430 up to £125,140; and
- additional rate on income above £125,140.
Dividend tax rates
From the start of the 2026–27 tax year, the ordinary and upper rates of tax on dividend income have increased by 2% to 10.75% and 35.75% respectively. The additional dividend rate has not changed and remains at 39.35% (meaning the trust dividend rate also remains unchanged).
The dividend nil rate (or dividend allowance) also remains unchanged at £500 per person for the tax year.
For business owners looking to extract profit efficiently, it remains more tax efficient for smaller amounts (up to approximately £139,000) to take a salary to use the personal allowance and dividends for the remainder. Noting that a detailed calculation needs to be undertaken for each individual as marginal rates of tax can vary where the individual is subject to the high income child benefit charge or has student loans, for example.
Other rate changes in 2027–28
- profits of a UK or overseas property business;
- any adjustment income when moving to or from the cash basis;
- rent receivable in connection with mineral royalties;
- rent receivable for UK electric line wayleaves; and
- post-cessation receipts from a UK property business.
Income ordering rules and use of reliefs and allowances
- income which is not property, savings or dividend income; then
- property income; then
- savings income; then
- dividend income.
(1) first from income which is not property, savings or dividend income, before they can be
(2) deducted from property, savings or dividend income.
Making tax digital for income tax (MTD for IT)
The use of MTD for IT is mandatory from 6 April 2026, for those individuals with gross business income (from self-employment or property) of more than £50,000. That threshold is reduced to £30,000 from 6 April 2027 and £20,000 from 6 April 2028.
Those taxpayers affected must:
- keep records of income and expenditure digitally;
- submit quarterly updates on each self-employment and property business using an MTD compatible software; and
- submit a final MTD tax return for the year.
There are several exemptions to the requirement to use MTD for IT; some are temporary and some will apply indefinitely.
There are also new penalty regimes – notably for late filing of returns, and late payment of tax – for those within MTD for IT from April 2026 onwards. It appears that these will be rolled out to non-MTD self-assessment taxpayers from April 2027 onwards.
Conclusion
For those individuals who are business owners, or receiving significant income from savings or investments, remuneration and income tax planning is key in order to manage the changes to rates and offset of reliefs.
Useful links
For commentary on MTD for ITSA, see Direct Tax In-Depth at ¶180-300A onwards, and for rates of income tax, see ¶148-060.
Legislation: FA 2026, s. 1–10 , Sch. 1 and Sch. 2 .
Navigate Tax module: Extracting profits from OMBs.
If you have any comments on this article, please e-mail the editorial team at tax-weekly@croneri.co.uk.
Document downloaded on 24-04-2026 from Croner Navigate, the UK’s leading online research service for tax, audit and accounting professionals. Find out more at www.croneri.co.uk or call 0800 231 5199.
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