Image credit: Shutterstock/ PeopleImages
This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and always obtain independent, professional advice for your own particular situation. All information in this article is correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
The tax measures announced in the last Budget mean the total taxes paid in the UK are expected to rise to £26.6 billion by 2030/31, or 38% of GDP. But while the policies might bolster the public purse and give the chancellor more fiscal headroom, this means many households across the UK can expect to pay more tax in 2026 and beyond.
Here we take a look at the areas where bills are likely to rise and find out what you can do to safeguard your finances.
What’s on this page?
The autumn Budget confirmed that income tax thresholds would be frozen for a further three years until 2031, which will mean a decade of frozen thresholds, since they haven’t changed since 2021.
Freezing tax thresholds sounds pretty innocuous on paper and doesn’t attract the same kind of criticism that increasing the rate of income tax would, for example. But this continued freeze can have a significant impact as incomes rise – either dragging more people into paying tax, or making them pay it at a higher rate.
Lucie Spencer, partner in financial planning at wealth manager Evelyn Partners, says that many more pensioners have started paying tax on their income as a result of frozen thresholds, and even more will do so in future years.
“The state pension increases annually through the triple lock, with the personal allowance remaining static until April 2031, so that the full new state pension will exceed the £12,570 allowance in 2027/28, after the next triple lock increase.”
This means that some pensioners may be paying income tax for the first time in their retirement, and potentially doing a tax return for the first time. The one piece of good news is that the government has confirmed that pensioners whose only source of income is the basic or new state pension, will not need to pay income tax (until the end of this parliament, at least).
Spencer adds: “Those with other income in addition to the state pension, for example private pensions or savings [or additional state pension under the ‘old’ state pension scheme], will also be paying additional tax, with many being dragged into the higher rate tax band.”
This has been borne out by research from pensions consultancy LCP, which shows that the number of pensioners paying tax at a rate of 40% or more has doubled to more than one million over the last four years.
Jumping up a tax band doesn’t just mean you pay more income tax: it has ramifications for the tax you pay on savings and investments too. That’s because the personal allowance for savings interest falls from £1,000 to £500 when you become a higher-rate taxpayer. The rate of tax you pay on capital gains also rises from 18% to 24%.
But there are ways to fend off tax increases and avoid going up a band. One option for those who are retired is to vary how you take income. Spencer says “For those with additional income sources such as savings or investments, drawing funds from ISAs can provide a tax-free income that avoids passing into a higher tax bracket. Ensuring that income-producing assets are held in the lower-tax-rate spouse’s name is also an effective way of mitigating income tax.”
If you haven’t already spent your tax-free cash, you can also use that to top up your income, without increasing your tax bill.
Sarah Coles, head of personal finance at Hargreaves Lansdown, says it’s also worth taking advantage of the marriage allowance, if you can. “If one spouse is a non-taxpayer and the other is a basic rate taxpayer, the marriage allowance lets the non-taxpayer give £1,260 of their personal allowance to their spouse in the current tax year.” This could save you up to £252 in tax each year.
Note that rates of income tax and thresholds in Scotland are different to the rest of the UK, although the tax-free personal allowance, and the tax you pay on savings interest, are the same. The Scottish Budget will take place on 13 January 2026.
It’s not just rising house prices that mean more people are paying inheritance tax. Arjun Kumar, founder of Taxd, says: “The inheritance tax (IHT) nil-rate band (£325,000) and the residence nil-rate band (£175,000) – the amounts of an estate that are exempt from inheritance tax – have been frozen for another year, now staying fixed until April 2031.”
The nil rate band hasn’t changed since 2009, while the residence nil rate band has been frozen since 2020.
“Crucially, the government also announced [in the 2024 Budget] that unspent pension pots will be included in your estate for IHT purposes from April 2027.”
As a result the Office for Budget Responsibility now expects IHT revenues to reach £14.5 billion a year by 2030/31, up from £8.3 billion in 2024/5.
There are many ways to reduce the amount of inheritance tax your loved ones pay, including the use of properly structured wills, giving wealth away, using whole of life insurance policies and charitable giving.
Lucinda Frostick, director of Remember A Charity, says: “Leaving a gift to charity in your will is one of the most meaningful ways to make a difference. The tax incentives of giving in this way are an added bonus for many too, helping maximising the value of an estate for loved ones and good causes alike.”
Estate planning is complex, so it’s important to consultant a specialist financial planner. They will be able to help you work out how much IHT will be payable and recommend steps to cut your bill.
.jpg?sc=max&mw=800&h=450&la=en&h=731&w=1300&hash=36E0CD7806BBB73366B4BFCFD5BEEB38)
Tax on dividend income on investments will rise by 2% in April 2026 for most people – with the rates charged depending on whether you pay basic, higher or additional-rate tax.
Laith Khalaf, head of investment analysis at AJ Bell, says: “The ordinary rate will rise from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%, however the additional rate will remain unchanged at 39.35%.”
“Combined with the fact the annual tax-free dividend allowance is now just £500, that potentially opens up even relatively small shareholders to more tax on their dividends.”
Coles adds: “It’s a nasty tax hit for income investors, who have already been hit with a succession of horrible cuts in the annual dividend allowance, plus a rise in the rate in 2022. Given the government’s desire to encourage investors to hold UK equities, and that the London market is home to so many good income stocks, it means particularly harsh tax treatment.”
It is possible to avoid dividend tax (and capital gains tax) by holding investments in an ISA.
Khalaf explains: “The annual stocks and shares ISA allowance is £20,000, which is a pretty generous sum and should cover the investments of most households if used effectively. The £20,000 allowance includes both cash and stocks and shares ISAs though, so you may have to do a little planning around which tax shelter is more useful for you.”
If you have any existing holdings in general investment accounts, you may be able to transfer them into a stocks and shares ISA using the so-called ‘Bed and ISA’ process to shelter them from tax in the future. This means that you sell shares in one account and immediately buy them back within your ISA. But you’ll need to have enough ISA allowance remaining and have both accounts on the same investment platform.
While tax rates on savings interest aren’t increasing this year, you could still end up paying more tax on cash balances, if frozen thresholds mean you start paying tax at a higher rate. This would see your tax-free allowance for savings interest halve to just £500.
But, following an announcement in the Budget, tax on savings interest will rise by 2 percentage points in April 2027, meaning basic rate taxpayers will pay 22%, higher rate taxpayers 42% and additional rate taxpayers 47%.
The best way to avoid paying tax on savings interest is to use an ISA.
Khalaf says: “You can avoid higher rates of savings tax by using a cash ISA, into which you can shelter £20,000 a year. However, that allowance is falling to £12,000 from April 2027 [for under- 65s only].”
He adds: “Premium bonds are also free from savings tax, but the overall rate of income, and the random manner in which it is distributed, may make that less appealing.”
This is because premium bonds buy entrance into a draw for cash prizes and, while they are hugely popular, there are no guarantees that you will win any money.
A new ‘mansion tax’ on homes worth over £2m in England will be introduced from 2028. But, even if you live in a more modest house, you’ll still likely face a bigger council tax bill this year.
Coles says: “Council tax will rise again in April, and OBR calculations assume councils will be able to raise tax by up to 5% [in England] without holding a referendum. Given that so many local councils have been struggling to make ends meet, it’s likely that an awful lot of them will opt for the biggest possible increase. Those in worse positions will need to put taxes up even further.”
In 2025/6, the average band D council tax bill in England is £2,280. If that was to increase by 5%, 2026 bills will likely hit £2,394.
The average Band D council tax bill in Scotland for 2025-26 is £1,543. Last April council tax in Scotland rose by an average of 9.6%.
In Wales, the average Band D council tax bill for 2025-26 is £2,170. Council tax rates in Wales increased by an average of 7.2% in April.
We don’t yet know how much bills in Wales and Scotland will rise in April 2026.
Spencer says that if you’re living on a fixed income, any rises will hit harder. This means it’s essential you take advantage of any discounts or allowances you may be entitled to.
“Those on lower income can apply for the council tax reduction scheme, especially if they are claiming pension credit. If an individual has been diagnosed with dementia they may be eligible for a full exemption or discount to their council tax bill,” she explains.
"Should they be disabled, either severely mentally impaired or have a disability, they can apply for a reduction in their council tax bill. If they live with someone who qualifies under this rule then they could obtain a 25% reduction.
“This is also the case if an individual needs to live in a larger property than they would normally due to a disability, the amount of council tax they can be liable for can be reduced as though they live in a smaller home.”
Find out more about council tax and how you can reduce your bill.
Saga Legal has partnered with Co-op Legal Services, who provide regulated legal services, helping to ensure you have the right level of support and protection for yourself and your family. They can give advice on topics including how a will could reduce the impact of any potential inheritance tax, and why a trust will might better protect your home and savings. You can book a free legal review to get the guidance you need. After your free review, if you choose a product or service, they’ll explain any fees and costs to you clearly.
You can only use the free legal review service if you live in England and Wales. If you’re in Scotland or Northern Ireland, you can get estate planning help from Co-op Legal Service’s trusted partners.
Book your will and estate planning review now.jpg?la=en&h=550&w=1440&hash=D75E80A351D1CBC72428B436C3C3EE4F)
Get a FREE review of your will and £50 off follow-up services with Saga Legal. T&Cs apply. Ends 31/08/25. Quote SAGAFLR50.
Official documents reveal a £14.5bn tax haul is on the horizon – find out how to protect your legacy.
Find council tax discounts and reductions, how to appeal your band, and how to manage your payments
Regularly giving away your spare cash can help with inheritance tax planning, but there are strict rules to follow.
Our guide explains how ISAs provide tax-free growth for your savings and investments.
