Quick Answer
The 2026/27 UK tax year started on April 6, 2026. It is defined by two big themes from HMRC: the launch of mandatory Making Tax Digital (MTD) for Income Tax, and the continuation of frozen tax allowances that quietly drag more people into higher tax brackets.
If you are a sole trader, landlord, dividend earner, or higher rate employee, the changes affect you.
The short answer
The 2026/27 UK tax year started on April 6, 2026. It is defined by two big themes from HMRC: the launch of mandatory Making Tax Digital (MTD) for Income Tax, and the continuation of frozen tax allowances that quietly drag more people into higher tax brackets.
If you are a sole trader, landlord, dividend earner, or higher rate employee, the changes affect you.
This guide is general information for the 2026/27 tax year, not personal financial advice. Always check with a certified accountant before acting on any of it.
Making Tax Digital for Income Tax is now live
The biggest structural change of the year is the launch of Making Tax Digital for Income Tax on April 6, 2026, after several years of delays.
If you are a sole trader or landlord with qualifying gross income above £50,000, you are now legally inside MTD. That means:
- You must keep digital records using HMRC compatible software.
- You must submit quarterly updates of income and expenses to HMRC, not just one annual self assessment.
- You then complete an end of year finalisation step, which replaces the traditional once a year tax return for affected taxpayers.
Looking ahead, the £50,000 threshold drops to £30,000 in April 2027, pulling millions more sole traders and landlords into the system.
How frozen allowances act as a "stealth tax"
HMRC has not raised the main income tax thresholds in line with inflation. The freeze, originally extended several times, now runs through to at least April 2031.
The result is fiscal drag: as wages rise with inflation, more people quietly cross into higher tax bands without any change in their real purchasing power.
- Personal Allowance: frozen at £12,570.
- Basic rate (20 percent): applies to income from £12,571 to £50,270.
- Higher rate (40 percent): threshold frozen at £50,270.
- Additional rate (45 percent): applies to income above £125,140.
Dividend tax rates are rising
For business owners and investors who take income via dividends outside an ISA, the 2026/27 tax year brings a direct hit. The tax free dividend allowance stays at just £500, and the rates above that allowance have gone up by 2 percentage points across the basic and higher bands.
- Basic rate dividend tax: now 10.75 percent (up from 8.75 percent).
- Higher rate dividend tax: now 35.75 percent (up from 33.75 percent).
- Additional rate dividend tax: unchanged at 39.35 percent.
For owner managed businesses, this narrows the gap between paying yourself in dividends and paying yourself in salary. It is worth modelling both for the year ahead.
What is happening with Capital Gains Tax
Capital Gains Tax (CGT) requires careful navigation in 2026/27. The headline numbers:
- Annual exempt amount: £3,000 for individuals.
- Main CGT rates: 18 percent for basic rate taxpayers and 24 percent for higher rate taxpayers on most assets.
- Business Asset Disposal Relief: the CGT rate has risen from 14 percent to 18 percent for qualifying disposals on or after April 6, 2026.
If you are planning a business sale or a large share disposal, the timing and structure of the transaction now have a meaningfully bigger impact on the final tax bill than they did in the 2024/25 year.
Pensions: still the most powerful tax shelter
The standard pension Annual Allowance remains at £60,000 for 2026/27. For higher earners, this is still the single most efficient way to reduce taxable income.
Maxing out pension contributions can:
- Pull adjusted net income below the £100,000 threshold, restoring the personal allowance.
- Reduce exposure to the 60 percent effective tax band between £100,000 and £125,140.
- Lock investment growth into a wrapper that is free of income and capital gains tax.
ISA rules in 2026/27 (and what is changing in 2027)
The total ISA allowance stays at £20,000 for the 2026/27 tax year, split however you prefer between Cash, Stocks and Shares, and Innovative Finance ISAs.
The bigger story is what is coming next. From April 2027, the amount of fresh cash you can add to a Cash ISA is expected to be capped at £12,000 per year, with the remaining allowance steered toward investing wrappers.
For cash heavy savers, that makes 2026/27 the last full tax year to put the entire £20,000 into a Cash ISA without restriction. If keeping money in cash is part of your strategy, front loading this year is worth considering.
A quick MTD readiness checklist for the 2026/27 year
- Confirm whether your gross self employment or rental income exceeds £50,000.
- Pick HMRC compatible bookkeeping software (most major tools now have an MTD module).
- Set quarterly reminders for the four MTD update windows.
- Talk to your accountant about whether you should change accounting period or move to cash basis.
- Review your dividend versus salary mix in light of the new dividend rates.
Important disclaimer
This article summarises publicly announced HMRC changes for the 2026/27 UK tax year. It is general guidance and does not constitute personal tax, legal, or financial advice. Your situation may include reliefs, allowances, or restrictions not covered here. Always consult a qualified accountant or tax adviser before making decisions based on any of this information.
The takeaway
The 2026/27 UK tax year is less about new tax cuts and more about new compliance work. Making Tax Digital for Income Tax has finally arrived for sole traders and landlords above £50,000, allowances stay frozen, and dividend earners face a clear 2 percentage point hit.
If you are inside the affected groups, the practical move is the same: get on MTD compatible software early, keep pension and ISA contributions front of mind, and have a structured review with your accountant before the next quarterly deadline arrives.
