Income tax is increasing - what can I do?

On 6 April 2026, the tax rate on dividend income exceeding the dividend allowance (£500 in 2026-27) increased to 10.75% for dividend income falling into the basic rate income tax band and to 35.75% if falling into the higher rate tax band. Additional rate tax on dividend income remains at 39.35%. 

From 6 April 2027, income tax on income from property and savings income above the personal savings allowance and/ or starting rate tax band increases to 22% (basic rate), 42% (higher rate) and 47% (additional rate). Please note, no decision has yet been made on the Scottish rates of income tax to apply to income from property. 

Income from property will be treated as a separate element in the income tax hierarchy, ranking after other non-savings income (such as employment income, self-employed profits and pensions) but before savings income and dividend income. Combined with frozen allowances, this shift accelerates threshold slip and amplifies marginal tax traps. For example, a client losing their Personal Allowance where Adjusted Net Income (ANI) lies between £100,000 and £125,140 faces an effective marginal rate of 63% on property and savings income, and 53.625% on dividends.

So what actions should taxpayers consider? Here are a few ideas: 

• Maximise registered pension scheme contributions
  Member contributions to a registered pension scheme reduce ANI. So, for someone with ANI between £100,000 and £125,140, pension contributions will free up personal allowance and reduce income tax liabilities. The precise saving will depend on the type(s) of income causing loss of the personal allowance. Ensure contributions do not exceed relevant UK earnings or available Annual Allowance (including carry forward) to avoid an annual allowance charge.
• Use employer salary sacrifice
  Salary sacrifice arrangements remain highly efficient for employed clients to divert gross salary into pensions, yielding both Income Tax and National Insurance Contribution (NIC) savings. Unlimited sacrifice benefits apply until 6 April 2029, after which the NIC-exempt salary sacrifice limit drops to £2,000 per annum.
• Review owner-managed director remuneration
  Shareholding directors of limited companies receiving dividends as part of their remuneration package should review whether changing the mix of salary vs dividends vs employer pension contributions may produce an overall tax saving. There is no ‘rule of thumb’ and each director’s situation should be looked at separately. 
• Inter-spousal asset transfers
  Where spouses or civil partners pay different marginal rates of tax, the partner paying tax at the higher rate could consider transferring investments to the lower taxpayer so income and gains from those investments are taxed at a lower rate. Provided these represent genuine transfers of beneficial ownership, they benefit from no-gain/no-loss CGT treatment under and are exempt for Inheritance Tax purposes.
• Shelter yield via ISAs and VCTs
  Investing in tax-sheltered investments, such as ISAs and VCTs, that don’t produce taxable income and so possibly prevent investment income being pushed into higher rate tax bands.
  Please note: VCTs are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital.
• Deploy investment bonds for income control and tax deferral
  Investment bonds accumulate growth internally within life company funds rather than generating annual taxable income. This provides control over when and how tax is triggered, so withdrawals or encashment can be timed for years when other income is lower. For domestic UK bonds, gains carry a basic rate tax credit (20%, rising to 22% from 2027/28) reflecting tax already paid within the fund.
  As further benefits, top-slicing relief can reduce the rates of income tax payable by spreading the total gain across the policy duration and assigning individual bond segments to a lower-earning spouse shifts the eventual tax burden to their lower marginal rate - provided the assignment is a genuine gift of beneficial ownership and is not made for money or money's worth.

Capital growth vs. income generation

Capital growth orientated investments are still a useful way to limit taxable income. The current top rate of capital gains of 24% is lower than higher rate income tax. The CGT annual exempt amount for individuals and trustees has reduced substantially to £3,000 and £1,500 respectively in recent years and so it is even more important that this is used as far as possible to wash out capital gains and, for married couples, by both spouses. 

Now is an ideal time to review the tax efficiency of existing investment structures before these rate increases take full effect. To discuss how we can help you or your clients model these changes and preserve capital, please contact our team.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The information in the article is based on current laws and regulations which are subject to change as at future legislations. 

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

The value of your investments can go down as well as up, so you could get back less than you invested.

The information in this article is correct as at 18/09/2026.

The Financial Conduct Authority does not regulate tax advice, trusts or estate planning.