A New Tax Landscape for Investors and Business Owners
The Finance Act 2026 brings a significant collection of personal tax changes. For those with substantial investments, business interests, or estate planning to consider, understanding both what has changed and why it has changed matters.
Why Taxes Are Rising
The UK government is facing increasing demands on public spending - including schools, hospitals, defence, benefits and social care. At the same time, a relatively high proportion of UK government debt is index-linked, meaning that debt servicing costs can rise as inflation increases. The measures introduced in the Finance Act 2026 reflect these broader fiscal pressures - alongside the ongoing effect of fiscal drag as thresholds remain unchanged.
Inheritance Tax: Changes to Business and Agricultural Relief
Full relief under Business Property Relief and Agricultural Property Relief is now capped at £2.5 million per person (£5 million for couples) across both reliefs combined. Assets above that threshold attract only 50% relief, producing an effective IHT rate of 20% on the excess. For larger estates, this is a material change requiring careful review.
Certain shares that previously qualified for 100% BPR, including many AIM-quoted holdings, may now attract only 50% relief from 6 April 2026, depending on the applicable rules.
Dividend Tax: A Modest but Notable Increase
From 6 April 2026, the ordinary rate rises from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate stays at 39.35%. The increases are modest in isolation, but meaningful across a substantial portfolio and a further prompt to review how investment returns are structured.
EIS and VCT: Mixed Signals
EIS and VCT thresholds have increased, which is positive for those backing early-stage businesses. However, VCT income tax relief has been cut from 30% to 20%. These investments continue to carry a higher risk profile; the incentive to take it on has reduced.
Selling Your Business Is Now More Expensive
The CGT rate under Business Asset Disposal Relief and Investors’ Relief has risen to 18% for disposals from 6 April 2026, up from 14% last year and 10% the year before - an 80% increase over two years and a significant shift for founders and long-term investors planning an exit.
Income Tax: The Quiet Squeeze
Rates are unchanged, but the personal allowance and basic rate limit are frozen until April 2031. With wages rising, fiscal drag is pulling more income into higher tax bands each year without a single rate needing to change. It is one of the most effective revenue-raising tools available to government precisely because it requires no headline announcement - the tax burden simply rises in the background, year after year.
What This Means in Practice
The overall picture is one of steadily increasing pressure on wealth, investment returns and business disposals - driven partly by explicit rate changes and partly by fiscal drag working silently in the background. The reliefs that remain are still worth using, but each has become less generous. The impact of these changes will vary depending on individual circumstances, asset types, and timing.
Get in Touch
If any of the changes above are relevant to your personal or business situation, I would be glad to help you think them through. Whether you are an existing client wanting to revisit your plans, or someone who has not yet taken independent financial advice, please feel free to get in touch.
This article is provided by Medical & General Independent Financial Advisers for general information only. It is not personal tax, legal, or investment advice.
