The 2026/27 tax year is the most consequential in a decade for business owners, dentists, farming families, and senior executives. BADR has risen to 18%, dividend tax is up across the board, BPR and APR relief is capped for the first time, and pensions will enter the inheritance tax net from April 2027. Most of what’s been written about these changes is either jargon or alarm. This is neither.
Every April brings a fresh set of numbers. Most years, the changes are incremental, a threshold frozen here, an allowance trimmed there. The kind of adjustments that matter at the margins but don’t fundamentally alter the way anyone plans.
This April is different.
The 2026/27 tax year brings a set of changes that, taken together, represent the most significant shift in how business owners, farming families, and high earners are taxed in at least a decade. Some of these were announced in the Autumn Budget of October 2024. Others were confirmed in 2025 and take effect now. A further change, pensions entering the inheritance tax net, arrives in April 2027, which means the planning window is already open and already narrowing.
“The 2026/27 tax year is not a normal one. The margin for error in financial planning has narrowed.”
Most of what’s been published about these changes falls into one of two categories: technical summaries written for other advisers, or scaremongering designed to generate urgency. Neither is particularly useful if what you want is a clear picture of what has actually happened and what, if anything, you might want to think about.
So here is the picture, as plainly as I can draw it.
Selling your business now costs more, and the gap is narrowing
Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, allows business owners to pay a reduced rate of capital gains tax when selling a qualifying business or shares. The rate has risen from 14% to 18% as of 6 April 2026. This follows a rise from 10% to 14% in April 2025. The lifetime limit remains £1 million.
In practical terms: a £1 million qualifying gain that attracted £100,000 of tax three years ago now attracts £180,000. For a couple selling together, that’s a swing of up to £160,000 compared to where things stood in 2023/24.
The less-discussed implication is the narrowing gap between BADR and the standard higher-rate CGT of 24%. The differential is now just 6 percentage points, down from 14 two years ago. For some business owners, the tax tail that once justified rushing a sale has lost most of its wag.
That doesn’t mean slowing down is the right answer for everyone. But it does mean the decision to sell, or to hold, should be driven by what makes sense for the business and the life around it, not by a closing window of tax relief.
Dividend tax has gone up, and the salary-dividend mix needs revisiting
Dividend tax rates rose by 2 percentage points from 6 April 2026. The basic rate is now 10.75% (from 8.75%), the higher rate 35.75% (from 33.75%), and the additional rate remains at 39.35%. The tax-free dividend allowance stays at £500, down from £5,000 as recently as 2016/17.
For owner-directors of limited companies, this is the change most likely to produce an immediate, visible impact on take-home pay. A director taking the typical £12,570 salary plus £37,700 in dividends will pay roughly £744 more in tax this year than last.
The conventional “low salary, rest in dividends” approach that has served owner-managed businesses for twenty years is not broken, but it is less efficient than it was, and the gap will widen further when savings and rental income tax rates rise by another 2 percentage points in April 2027.
For dentists running their own practices, business owners extracting profits, and senior executives with investment portfolios generating dividend income, the question is not whether this affects you, it does, but whether the current mix of salary, dividends, pension contributions, and salary sacrifice still represents the most sensible structure for your circumstances.
The BPR/APR cap: farming families and business owners face a new ceiling
From 6 April 2026, the 100% inheritance tax relief previously available on qualifying business and agricultural assets is capped at a combined £2.5 million per individual. Assets above that threshold receive 50% relief, resulting in an effective IHT rate of 20% on the excess. The allowance is transferable between spouses and civil partners, meaning a couple can shelter up to £5 million of qualifying assets at the 100% rate if they plan effectively.
This is the change that has generated the most anxiety, particularly among farming families, where land values can push an estate well above the cap even when there is very little liquid wealth.
The government has said around 85% of estates claiming these reliefs will be unaffected. That figure is broadly accurate but also somewhat misleading. It reflects the number of estates, not the value of the estates most affected. For the 15% that are affected, disproportionately family farms, trading businesses, and estates with a combination of both, the planning implications are substantial.
AIM-listed shares, which previously qualified for 100% BPR, now attract only 50% relief regardless of value. The £2.5 million cap does not extend to AIM holdings, the 50% rate applies to the full value. For anyone holding AIM portfolios specifically as an IHT planning tool, this is a fundamental change.
The inheritance tax on the excess can be paid over ten years at the reduced 20% rate, which is a genuine concession. But the need to review wills, consider lifetime gifting strategies, and ensure both spouses’ allowances are properly utilised is now urgent in a way it was not twelve months ago.
The change that hasn’t happened yet, but the clock is running
From April 2027, most unused pension funds will be brought into the scope of inheritance tax for the first time. This is not a 2026/27 change, but it is the most consequential planning point of this tax year, because the window for action is the twelve months between now and implementation.
The received wisdom of the past decade, spend the ISA, leave the pension untouched because it passes free of IHT, has effectively inverted. For clients with substantial pension pots alongside other assets, the sequencing of withdrawals, the role of lifetime gifts, and the structure of death benefit nominations all need re-examining.
This deserves its own piece, and it will get one. But the point to register now is that a pension strategy designed before October 2024, when this change was announced, may no longer be doing what it was intended to do.
Income tax thresholds remain frozen: the change that isn’t a change
The personal allowance stays at £12,570. The higher-rate threshold stays at £50,270. The additional-rate threshold stays at £125,140. These freezes have been in place since 2021/22 and are now confirmed through to at least 2027/28.
In isolation, this looks like nothing happened. In practice, with wages rising steadily, frozen thresholds are the single most effective tax-raising mechanism the government has. More people are paying higher-rate tax than at any point in modern history, not because the rate changed but because their income crossed a line that hasn’t moved in five years.
The state pension, incidentally, has risen to £12,547.60 a year, within £23 of the personal allowance. That proximity is going to create problems, and they won’t be small ones.
What this means in practice
The temptation with a list of changes this long is to reach for urgency. Act now. Review everything. Call your adviser immediately. That impulse is understandable but not always useful.
What is useful is to recognise that the 2026/27 tax year is not a normal one. The cumulative effect of these changes, rising rates, capped reliefs, frozen thresholds, and the pension IHT change on the horizon, is that the margin for error in financial planning has narrowed.
A salary-dividend structure that was optimal three years ago may not be now. A will drafted before October 2024 may contain clauses that produce unintended consequences under the new BPR/APR rules. A pension strategy built on the assumption that pension funds pass outside inheritance tax may need rethinking within the next twelve months.
None of this requires panic. All of it benefits from a conversation.
Start a planning conversation
If any of these changes affect you, as a business owner, dentist, farming family, or senior executive, we’d be glad to talk through what they mean for your specific circumstances. No pressure, no jargon. Just clarity.
[Book a discovery meeting →]
Frequently asked questions
What is the BADR rate for 2026/27? Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, charges capital gains tax at 18% for qualifying disposals made on or after 6 April 2026. This follows a rise from 10% to 14% in April 2025. The lifetime limit remains £1 million. The gap between BADR and the standard higher-rate CGT of 24% has narrowed to just 6 percentage points.
How much has dividend tax gone up in 2026? Dividend tax rates increased by 2 percentage points from 6 April 2026. The basic rate rose from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%. The additional rate remains 39.35%. The tax-free dividend allowance stays at £500.
What is the BPR and APR cap for inheritance tax? From 6 April 2026, Business Property Relief (BPR) and Agricultural Property Relief (APR) are capped at a combined £2.5 million per individual for 100% IHT relief. Qualifying assets above this threshold receive 50% relief, resulting in an effective IHT rate of 20% on the excess. The allowance is transferable between spouses and civil partners, meaning a couple can shelter up to £5 million at the 100% rate.
When do pensions become subject to inheritance tax? From April 2027, most unused pension funds will be brought into the scope of inheritance tax for the first time. The twelve months between April 2026 and April 2027 represent a planning window for anyone whose pension strategy was built on the assumption that pension funds pass outside IHT.
Do I need to review my financial plan after these changes? The 2026/27 changes, taken together, represent the most significant shift in how business owners, farmers, and high earners are taxed in a decade. A salary-dividend structure, will, or pension strategy designed before October 2024 may no longer be optimal. A review with a qualified financial planner can identify whether any adjustments are needed for your circumstances.
