UK households are bracing for a series of tax hikes set to take effect in 2026, following a range of policy changes by Labour Party Chancellor Rachel Reeves. These adjustments will increase the financial burden on millions across the country.
During the 2010s, the personal allowance for income tax rose significantly, increasing by 61% in real terms between 2010-11 and 2019-20. This uplift benefited many taxpayers, especially those on lower incomes, by reducing their income tax liabilities. However, since 2021, this personal allowance and several other tax thresholds have been frozen, effectively erasing nearly half of the hard-won gains since 2010-11.
The impact has been compounded by high inflation, which has diminished the real value of these frozen thresholds, causing tax revenues to surge beyond initial expectations. This trend contributes to an anticipated post-war record high tax burden by 2026-27.
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Originally scheduled to last until 2025-26, the freeze on tax thresholds was extended to 2027-28 by the previous Conservative government. With Chancellor Reeves reportedly facing the need to raise between £20 and £30 billion to address rising public expenditure, there is growing speculation that this freeze may be prolonged further, despite earlier government assurances to the contrary.
Beyond the threshold freeze, other tax increases are poised to affect households:
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Dividend Tax Increase (April 2026): The basic rate will rise from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate remains at 39.35%. Tax relief on venture capital trusts will also drop from 30% to 20%.
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Savings and Property Income Tax (From April 2027): Tax rates will increase across all bands—22% for basic-rate taxpayers, 42% for higher-rate, and 47% for additional-rate taxpayers—impacting savers, investors, and buy-to-let landlords significantly.
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Council Tax Increases: Expected to rise by 5% annually to fund local services, including police funding, though local authorities may opt for smaller increments.
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Fuel Duty Adjustments: While immediate fuel duty rises are ruled out, staged increases will begin in September, removing parts of the 5p cut introduced in 2022. This aims to recoup an estimated £3 billion loss from the frozen duty.
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Alcohol and Tobacco Duties: Alcohol duty will increase in line with RPI inflation from February 2026. Tobacco duty is expected to rise by RPI inflation plus 2 percentage points in November, maintaining the government’s approach to tobacco taxation.
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New Vaping Duty: Starting October 2026, a duty of £2.20 per 10ml of vaping liquid will be introduced, marking a first for vaping products.
These changes will elevate the tax burden for many UK households, making tax planning and financial management increasingly vital in the coming years.