UK Tax Changes 2026 Explained: Making Tax Digital, Dividend Tax Rises, & Inheritance Tax Reforms

A practical guide for business owners and directors

The new tax year, starting on 6 April 2026, brings one of the most significant waves of tax reform in recent years. From inheritance tax relief changes to full rollout of Making Tax Digital for Income Tax, these measures affect millions of individuals, businesses, and landlords across the UK.

Understanding what’s changing is crucial for business owners, self-employed individuals, and anyone managing investments or property. These changes impact everyday tax compliance, increase reporting responsibilities, and, in some cases, increase liabilities. This guide sets out the key updates in plain English so you can prepare ahead.

1. Making Tax Digital becomes mandatory for more taxpayers

The Making Tax Digital (MTD) programme enters a new phase this April, with fresh obligations for self-employed individuals and landlords. From April 2026:

• Digital record-keeping and quarterly updates become mandatory for sole traders and landlords with combined annual income from trading and/or property of more than £50,000.

• These updates, along with an annual end-of-year submission, must be submitted via compatible commercial software, as HMRC will not provide its own free platform.

• Over the next two tax years, the entry threshold will reduce again:

  • April 2027: £30,000 gross income

  • April 2028: £20,000 gross income

Businesses falling into these thresholds will need to factor in software costs, ensure timely reporting, and adopt digital processes if they haven’t already. Failure to comply will trigger the new penalty regime under MTD.

2. Tightening of inheritance tax reliefs

Previously, agricultural and business property often qualified for 100% inheritance tax relief, meaning many family businesses and farms could be passed down without triggering tax. From April 2026:

• Combined relief for Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at £2.5 million per person, or £5 million for couples.

• Value above this limit will only qualify for 50% relief, leading to an effective tax rate of 20% on the excess.

This change significantly affects high-value estates, trusts, and family-run businesses. Early succession planning and professional valuations will become even more important.

3. Dividend and investment income hit harder

If you take income from dividends (whether as a company director, investor, or shareholder) you’ll feel the impact of these changes:

• Dividend tax rates rise by 2 percentage points:

  • Ordinary rate: 10.75% (up from 8.75%)

  • Higher rate: 35.75% (up from 33.75%)

  • Additional rate remains 39.35%

The tax-free dividend allowance remains at just £500, continuing from the previous year.

Carried interest (performance fees for fund managers) will now be taxed as income rather than capital gains, at effective rates up to 47%, removing a major tax advantage.

For many small business owners taking low salary and high dividends, now is the time to revisit remuneration strategies with your accountant.

4. Business and household costs on the rise

Several measures will increase outgoings for companies and individuals:

• End of work-from-home tax relief: The £6-per-week income tax relief for homeworking costs is scrapped from April. While employer reimbursements remain tax-free, individuals who previously claimed the allowance lose the relief.

• Council tax rises: Caps allow English councils to raise rates by up to 4.99%, with some cases going as high as 8.99% where approved. Scotland, Wales, and Northern Ireland also implement increases.

• Electric company cars more expensive: The benefit-in-kind rate for zero-emission company vehicles rises from 3% to 4%, adding hundreds of pounds to annual tax bills for employees.

5. Targeted changes for employers and investors

Employers should note:

• Employment benefits relief expanded: Certain small, reimbursed expenses, eye tests, corrective appliances, and flu vaccinations will be exempt from tax and National Insurance from April 2026.

• Vehicle Excise Duty rises: Standard Road tax increases to £200 per year for most vehicles, including hybrids and electric cars. The surcharge for expensive vehicles rises from £40,000 to £50,000 for EVs.

Investors will see:

• Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) limits increase, allowing larger companies to use these schemes, but VCT income tax relief drops from 30% to 20%.

• Capital gains tax treatment tightens: Rates of 18% (basic) and 24% (higher/additional) on residential property remain, but reliefs such as Business Asset Disposal Relief (BADR) still apply for qualifying disposals, subject to new conditions.

6. Top tips for taxpayers and business owners

• Start digitising your books ahead of Making Tax Digital deadlines to avoid last-minute disruption.

• If you draw dividends, review your mix of salary and dividends, and consider timing of distributions.

• For family-owned businesses and farms, assess the impact of new IHT caps and explore succession planning options now.

• Employers should budget for higher NI liabilities and increasing employee benefit reporting.

• Company car policy? Revisit choices in light of stricter benefit-in-kind rules for EVs.

• Maximise use of tax allowances still available, being ISA (£20,000) and pension (£60,000) remain valuable tools for individuals.

• Seek professional advice before making disposals or large lifetime gifts to mitigate capital gains and inheritance tax exposure.

7. How Halliday Styan Chartered Accountants can help

Navigating this extensive set of tax changes can be challenging, whether you’re a business owner adjusting to new reporting requirements, or an individual trying to minimise unexpected tax bills. At Halliday Styan, we combine Big Four experience with a personal, practical approach to ensure clients stay compliant.

We can help you:

• Transition smoothly to Making Tax Digital with the right bookkeeping systems and processes.

• Stay on top of year-end filings, management accounts, and business planning under the new regime.

If you’d like to discuss what these changes mean for you or your business, get in touch with our team. We’re here to provide clear advice and practical solutions for a tax environment that’s growing more complex every year.