Ahead of a raft of personal finance, tax and pensions changes in April, AJ Bell’s experts look at some of the key changes set to impact household finances heading into the 2026/27 tax year:
- Another year of frozen thresholds
- State pension rises by 4.8%
- State pension age rise begins
- IHT rises for farms, businesses and AIM investors
- Expansion of Making Tax Digital for income tax self assessment
- Dividend Tax rise
- Venture Capital Trusts income tax relief cut
- Council tax rises
- Bills increase in ‘Awful April’
- Energy bills
Other personal finance changes to look out for in 2026:
Another year of frozen thresholds
April sees the start of a new tax year but, once again, taxpayers will be denied any uprating to income tax thresholds or the personal allowance. Chancellor Rachel Reeves extended the freeze to April 2031, adding another three years onto the 2028 endpoint set by Jeremy Hunt.
Likewise, the inheritance tax-free allowance remains frozen until April 2031 after the freeze was extended for another year at Budget 2025. That includes the Nil Rate Band, Residence Nil Rate Band (RNRB) and RNRB taper threshold.
AJ Bell senior pensions and savings expert, Charlene Young, says:
“Frozen tax thresholds punish taxpayers by stealth. When asset prices and wages rise but thresholds fail to track inflation, the result is higher tax bills.
“Employees face yet another year of frozen thresholds in the new tax year. Our tax bills are set to go up, despite the headline tax rate remaining the same.
“And thanks to the extension to the tax threshold freeze we’re now not set to see allowances rise until April 2031, ten years after they were last increased in April 2021.
“Frozen thresholds apply beyond tax on income as well. Astonishingly, the main Inheritance Tax free threshold won’t have changed in over two decades by the time the freeze is lifted in 2031.
“Although a new exemption has been introduced since then – the residence nil rate band – it actually doesn’t compensate for frozen thresholds. Had government done nothing whatsoever other than index the Inheritance Tax allowance to the CPI measure of inflation the standard Nil Rate Band would have ended up higher than the combined value of all IHT allowances, and we wouldn’t have had the added complexity of a new allowance.”
Under the triple lock, the state pension will rise from April in line with 4.8% earnings growth.
The full ‘new’ state pension will increase from £230.25 per week (around £11,973 per year) to £241.30 per week (around £12,548 per year) from April.
Government has also promised to implement a system to ensure anyone with state pension income but no other source of income will not have to pay any income tax. That’s in preparation for the full state pension exceeding the frozen personal allowance in April 2027.
Rachel Vahey, head of public policy at AJ Bell, comments:
“Under the triple lock guarantee, the state pension rises annually by the highest of average earnings growth in May to July, September’s inflation figure or 2.5%. With earnings growth coming in at 4.8%, the state pension will increase to around £12,548 – putting it above £12,000 for the first time and within inches of the frozen personal allowance.
“Low income pensioners have been promised that, from April 2027 when the full state pension is projected to exceed the tax-free personal allowance, nobody will pay tax if their only income came from the state pension. That measure is designed to avoid the unwelcome optics of government giving pensioners a benefit on one day, only to then ask for some of it back the next.
“It is still unclear exactly how the policy will be implemented and it’s hard to see how such a measure can last long-term. State pension incomes will continue to grow faster than the frozen personal allowance until at least 2031, by which time the tax break could be worth hundreds. But it will only apply to those with the state pension as their sole source of income and there are no plans to extend it to low income pensioners with private pension income. It means two pensioners on identical incomes could find only the one with private savings has to pay any tax.”
Rachel Vahey, head of public policy at AJ Bell, comments:
“The planned increase in state pension age starts next week, with a phased plan to raise state pension age to 67 between now and April 2028. For most people yet to receive a state pension it simply means they need to wait an extra year to get their state pension, although for those born between April 1960 and April 1961 a transitional plan means they will be able to get their pension between age 66 and 67, with a published timetable setting out exactly when they are eligible to start claiming state pension income.
“While the increase in the state pension age to 67 will come as a shock to many, this is very much the beginning rather than the end of this story. Under current plans, the state pension age will rise again to 68 between 2044 and 2046, but there is every chance this government or a future one will need to bring this forward – and possibly set out plans to increase the age further still.”
IHT rises for farms, businesses and AIM investors
AJ Bell senior pensions and savings expert, Charlene Young, says:
“From 6 April 2026, full IHT relief will be available on the first £2.5 million of business or agricultural assets, but the rate of relief will be slashed to 50% on assets above this limit.
“These reliefs are designed to prevent family-owned businesses and farms being forced to sell or close down to fund IHT bills. In some cases sizeable tax bills will mean families end up selling businesses, taking out a new mortgage, or getting a loan to pay the IHT bill.
“Following intense pressure from the farming community in particular, the government belatedly announced a watered down package of reforms shortly before Christmas last year. Originally it had planned to slash the full rate of relief to the first £1 million, but has since raised that threshold and allowed unused allowance to be transferred to surviving spouses, hoping to alleviate criticism that small family farms with a high notional value but modest income would be forced out of business by the need to find cash to cover an IHT bill.
“The new allowance won’t apply to investors in AIM shares. Qualifying AIM shares that have been held for at least two years before death currently benefit from 100% business property relief, exempting them from IHT. But from 6 April 2026 this will halve to 50%, meaning any IHT due will be payable at a lower rate of 20%.”
Expansion of Making Tax Digital for income tax self assessment
AJ Bell pensions and savings expert, Charlene Young, says:
“From 6 April 2026, sole traders and landlords with a qualifying income over £50,000 must submit quarterly online returns, with the qualifying threshold gradually decreasing to £30,000 from April 2027 and £20,000 the year after.
“The government hopes the move will close the tax gap, with quarterly reporting improving accuracy, and aiming to raise £780 million by 2028-29. However, for landlords and small business owners this will undoubtedly create additional admin, and a new regime of penalty points to get to grips with. Partnerships and incorporated firms will be exempt from the initial income tax roll out, although many will already be under the MTD regime for VAT.
“What’s more, taxpayers falling into MTD (or their agents) must use and pay for compatible software to file and will no longer be able to rely on HMRC’s own free system. With millions of unrepresented taxpayers using HMRC’s system to file self-assessment returns, it shows a huge change required from 6 April 2026 for those subject to the new rules.
“HMRC is giving taxpayers some time to adjust to the changes. They will not apply penalty points for late quarterly updates for the first year, but penalty points will still apply for late end of year returns.”
AJ Bell senior pensions and savings expert, Charlene Young, says:
“Dividend income over the allowance £500 allowance is usually the top layer of income taxed at your marginal rate. The dividend tax rates currently start at 8.75% for basic rate taxpayers, 33.75% at the higher rate, and 39.35% at the additional rate. From April those rates rise 2 percentage points for basic and higher rate taxpayers, meaning business owners and investors in those tax brackets will now pay 10.75% and 35.75% respectively, with the top rate unchanged at 39.35%
“It means that from 6 April 2026, basic and higher rate taxpayers face an extra tax bill of £390 on £20,000 worth of dividends compared to this year.
“Before 2016 when the current system of dividend taxation was introduced, basic rate taxpayers enjoyed zero tax on their dividend income, thanks to a notional 10% tax credit that matched their 10% tax rate. This credit was then removed to make way for a £5,000 tax-free dividend allowance, which meant many smaller investors were protected from tax. But that allowance has since been slashed by 90% and now stands at just £500.
“The double whammy of a shrinking allowance and rising tax rates has hammered taxpayers. Figures from HMRC, obtained under an FOI from AJ Bell, found that 3.7 million people are expected to pay dividend tax in the current year, more than double the number from 2021/22.”
Venture Capital Trusts income tax relief cut
AJ Bell senior pensions and savings expert, Charlene Young, says:
“The new tax year will see the upfront income tax relief for VCT investors cut from 30% to 20%. This could mean up to £20,000 less in tax relief for an investor making use of their full £200,000.
“VCTs are investment companies listed on the London Stock Exchange that invest in smaller, younger start-up firms that they believe have big growth potential. Investors buying new shares in VCTs can benefit from up to 30% tax relief – as long as they go on to hold the investment for at least five years - as well as tax-free growth and dividends.
“While the income tax relief for VCT investors will be slashed, the Chancellor has also softened eligibility rules for companies, meaning more firms can apply for funding from the schemes to help them scale up.”
Danni Hewson, AJ Bell head of financial analysis:
“Households across the UK can look forward to another council tax rise of around 5%, with seven areas given special permission for higher increases. About as welcome as a pothole at the end of the road or the bin collectors going on strike, the rise means the average Band D bill has increased by more than a quarter in 5 years, up from £1,898 in 2021 to £2,392 a year in 2026.”
Bills increase in ‘Awful April’
Danni Hewson, AJ Bell head of financial analysis:
“Adding to the pain for households in April is another chunky increase in water bills. Although the size of the increase depends on where in England and Wales you live, the average hike will be 5.4% which adds up to an extra £33 a year.
“And staying connected is also going to cost more from April with broadband providers increasing prices by between £3 and £4 a month. If you are one of those people who is out of contract then the increase is likely to be significantly higher so it is worth checking because you could save money by shopping around.
“That’s also the case for mobile phone contracts and a quickly texting the word ‘INFO’ to 85075 will helpfully tell you if you are still in contract, when it ends and if there are any exit fees to pay. Again, shopping around can save you pounds especially when it comes to sim only deals.”
Danni Hewson, AJ Bell head of financial analysis:
“For a change the energy price cap is going down in April, thanks to the government’s decision to shift some green levies onto general taxation.
“That means many households will find their bills will fall with an average dual fuel household expected to save £117 a year, a little shy of the promised £150 cut but still a helpful boost for cash strapped households.
“But the gains will be short lived thanks to the Iran war which has sent energy costs surging again and July’s price cap is expected to rise by at least £300 a year. Whilst long days and summer weather will help take some the sting out of that increase; the big worry is where the next price cap will be set. Households on fixed tariffs will still be cushioned until their current deal comes to an end but finding a new deal may prove difficult with many tariffs having been taken off the market.”
- Other personal finance changes to look out for in 2026:
Third State Pension age review
Rachel Vahey, head of public policy at AJ Bell, comments:
“Government last year launched the third review of state pension age, a process required under the Pensions Act 2014. Led by Dr Suzy Morrissey it will consider whether the rules around pension age are still appropriate based on the latest life expectancy data and other evidence around the long-term sustainability of the state pension. It is possible that government may be told to accelerate plans to raise state pension age to 68, although it is under no obligation to accept those suggestions. In any event, given the pressure around the public finances, the report may well provide the grounds for the main political parties to begin thinking about their policy on the state pension and what that might look like when the next General Election looms into view.”
Final rules on Cash ISA allowance cut
AJ Bell public policy director, Tom Selby:
“The Cash ISA allowance will be cut to £12,000 from April 2027 for under 65s but we still need to see the final detail behind the rules, especially those impacting investors with cash in their portfolio. HMRC is expected to set out plans in the near future.
"Cash and cash-like investments play a central role in retail investing through ISAs, so any move to drastically restrict either would risk undermining the very product the government wants to encourage people to use. Creating a tax charge for cash would undermine the tax-free status of Stocks and Shares ISAs, one of the key attractions of the product, while discouraging the use of cash-like investments risks penalising sensible investing behaviour.
“For example, a parent using a Stocks and Shares ISAs to pay for their child's university fees would likely want to reduce the risk in those investments as they approach accessing the money. Fundamentally, the government is not going to encourage retail investing through new taxes, restriction of choice and more complexity. Allowing cash to be held tax-free in ISAs, provided it is for the purpose of investing, and ditching plans to restrict cash-like investments would be a pragmatic approach from April 2027. HMRC can then monitor behaviours to make sure the reforms are working as intended."
Rachel Vahey, head of public policy at AJ Bell, comments:
“Despite a deluge of criticism government has decided to press ahead with plans to apply IHT to unused pensions on death. The changes will come into force from April 2027, meaning pension investors now have a year within which to make any necessary changes to their estate planning. Although most savers will be unaffected and should not need to change their financial plans, some now face difficult choices about how best to arrange their finances. Many have saved and invested in good faith and now face the possibility of punitive rates of taxation when passing pension money to their loved ones.
“Bereaved families also face a huge administrative burden, with the government insisting they settle the IHT bill within six months, or else face excruciatingly high interest on late payments. Many people have complex financial affairs, especially those who die unexpectedly, meaning settling the bill quickly may not be straightforward.
“AJ Bell and the wider pensions and financial advice industry have argued long and hard that there were far simpler and easier ways of achieving the policy and financial aims that would sidestep this distress. As we hurtle towards 6 April 2027, it will become more obvious the administrative distress this policy decision will cause.”