UK tax hasn’t dramatically changed on the surface — but underneath, it’s quietly becoming more expensive year by year.

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So, here’s a clear, breakdown of where things stand now (2025/26) and what to expect going into 2026/27.

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The Personal Allowance (Still Frozen)

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For both 2025/26 and 2026/27, your Personal Allowance stays at:

- £12,570 tax-free income

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No increase. No inflation adjustment. Nothing. And the catch still applies:

• Income over £100,000 reduces your allowance

• It’s fully gone by £125,140

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This hasn’t changed — and won’t change in 2026/27 either. In real terms, this is a tax increase.

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Income Tax Rates (No Change — But That’s the Problem)

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The core tax bands remain the same for both years:

• 20% basic rate

• 40% higher rate

• 45% additional rate

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Sounds stable, right? Not quite. Because thresholds are frozen, more of your income is creeping into higher bands every year — even if your pay rise just matches inflation.

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Same rates + rising income = higher tax bill

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Fiscal Drag (The Hidden Tax Increase)

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This is the big theme heading into 2026/27.

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The UK government has locked thresholds until at least April 2028, meaning:

• More people become higher-rate taxpayers

• More high earners lose their Personal Allowance

• Tax receipts increase without “raising taxes”

It’s subtle — but very effective.

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Dividend Tax (Still Tight in 2026/27)

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If you’re a director or investor, this hasn’t improved:

• Dividend allowance stays at £500

• Tax rates remain:

o 8.75% (basic)

o 33.75% (higher)

o 39.35% (additional)

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No increase for 2026/27.

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Translation: dividends are still useful — just not the silver bullet they once were.

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Other Allowances (Holding… for Now)

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Across both tax years:

• Personal Savings Allowance remains unchanged

• Trading allowance still £1,000

• Capital Gains Tax allowance stays at £3,000

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No meaningful uplift expected going into 2026/27.

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What’s Actually Changing in 2026/27?

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On paper:

- Almost nothing

In reality:

- Quite a lot, because:

• Inflation pushes salaries up

• Thresholds stay fixed

• More income gets taxed at higher rates

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So even without headline changes, your effective tax rate increases.

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Real-World Impact (This Is What Clients Feel)

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Across both years:

• £50k earners drift closer to higher rate tax

• £100k earners get hit hardest (Personal Allowance trap)

• Company directors lose efficiency if not planning properly

• Investors feel the squeeze from lower allowances

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And the key point: Doing nothing now costs more than it did 2–3 years ago.

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Xenith Take (2025/26 → 2026/27 Strategy)

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This is where you actually win or lose money:

• Actively manage salary vs dividends — don’t set and forget

• Use pension contributions to protect your Personal Allowance

• Watch the £100k–£125k danger zone carefully

• Use all allowances every year (they don’t roll over)

• Consider timing of income and dividends across tax years

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If your structure hasn’t been reviewed recently — it’s probably outdated.

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Final Thought

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Here’s the truth most people miss:

- The UK hasn’t raised tax rates

- But it has increased the tax burden

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And that trend continues into 2026/27.

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If you want more information or assiatance with understanding your allowances, contact us! info@xenithwealth.co.uk

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