Pillar Guide · Updated June 2026
UK Tax Changes April 2026: What Is New This Year
A new tax year, a fresh set of rules. From 6 April 2026 the most significant change for millions of investors and company directors is the rise in dividend tax — the ordinary rate climbs from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%, while the dividend allowance stays pinned at just £500. The Section 455 charge on overdrawn directors loans rises in lockstep to 35.75%. Income tax thresholds remain frozen, deepening fiscal drag; Making Tax Digital for Income Tax begins for the self-employed and landlords over £50,000; and electric company cars are taxed at 4%. This guide walks through every change that bites this April — and flags the bigger shifts already scheduled for 2027/28.
Dividend Tax Rise to 10.75% / 35.75%
The change with the widest reach is the increase in dividend tax rates from 6 April 2026. The two lower rates each rise by 2 percentage points:
| Band | 2025/26 | 2026/27 |
|---|---|---|
| Ordinary (basic) rate | 8.75% | 10.75% |
| Upper (higher) rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% (unchanged) |
The dividend allowance — the slice of dividends taxed at 0% — remains at just £500, having been cut from £2,000 in recent years. Together, the rate rise and the tiny allowance mean dividend income is taxed harder than at any point in recent memory.
The people most affected are company directors who pay themselves with a small salary plus dividends, and investors holding shares outside an ISA. Work out your liability with the dividend tax calculator and read the full dividend tax guide.
S455 Directors Loan Charge Rises to 35.75%
The Section 455 charge applies when a close company lends money to a participator (typically a director-shareholder) and the loan is not repaid within nine months of the year-end. It is deliberately set equal to the upper dividend rate, so directors cannot sidestep dividend tax by extracting money as a loan instead. When the upper dividend rate rose to 35.75%, S455 followed.
For loans made on or after 6 April 2026, the S455 charge is 35.75% of the outstanding balance. It is refundable once the loan is repaid, but in the meantime it ties up real cash with HMRC. Directors with an overdrawn loan account should plan to clear it before the relevant year-end. The company director tax guide covers the mechanics.
Frozen Thresholds and Fiscal Drag
There is no headline cut to income tax rates — but there is no relief either. The Personal Allowance stays at £12,570 and the higher-rate threshold at £50,270, both frozen rather than rising with inflation.
This freeze is fiscal drag in action. As wages and pensions rise, more income is pulled into tax and into the 40% band — even when real spending power is flat or falling. A cost-of-living pay rise can tip part of someone's income into higher-rate tax for the first time. Fiscal drag is one of the Treasury's largest revenue raisers precisely because it is invisible on a payslip.
Pension contributions and salary sacrifice remain the cleanest ways to reduce the income exposed to these frozen thresholds. See the UK tax rates page for the full 2026/27 bands.
Making Tax Digital for Income Tax Begins
From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) becomes mandatory for the first tranche of taxpayers: self-employed people and landlords whose combined gross income from self-employment and property exceeds £50,000.
Those affected must keep digital records and submit quarterly updates to HMRC using compatible software, then a final declaration after the year-end. The familiar once-a-year Self Assessment return is replaced for these income sources by this rolling, software-based process. A lower £30,000 threshold follows from April 2027, bringing many more people into scope.
This is a significant administrative shift. Read the full Making Tax Digital for Income Tax guide for who is in scope, the software you need and how to prepare.
Electric Car Benefit-in-Kind at 4%
The benefit-in-kind rate for fully electric company cars rises to 4% of list price in 2026/27, up from 3%, and is scheduled to climb by one percentage point a year thereafter. The increase is modest and the EV advantage remains enormous.
At 4%, an electric company car or salary-sacrifice EV is taxed on a fraction of the benefit that a comparable petrol or diesel car would attract — those can reach BIK rates of 25% or higher. Read the electric car savings guide for the numbers.
Already Scheduled: Changes for 2027/28
Two further changes are on the horizon but do not take effect this April. They are scheduled for April 2027 (the 2027/28 tax year):
- Savings and property income rate rise: the rates applying to savings interest and rental profits are due to increase by 2 percentage points — to 22%, 42% and 47%. For 2026/27, these income types are still taxed at the normal 20%/40%/45% rates.
- MTD ITSA £30,000 threshold: Making Tax Digital extends to self-employed people and landlords earning over £30,000 from April 2027.
Flagging these now gives time to plan — for example, landlords reviewing whether to incorporate, or savers maximising ISA and pension shelters before the higher savings rates arrive.
What You Should Do
- Directors: review the salary-versus-dividend mix, consider employer pension contributions, and clear any overdrawn loan before the year-end to avoid the 35.75% S455 charge.
- Investors: use your £20,000 ISA allowance and consider a bed-and-ISA move to shelter dividend-paying shares from the higher rates.
- Self-employed and landlords over £50k: get MTD-compatible software in place and start keeping digital records now.
- Higher earners: use pension contributions and salary sacrifice to manage income against the frozen £50,270 threshold.
- Savers and landlords: plan ahead for the 2027/28 savings and property income rate rises.