Income tax planning

Income tax thresholds (except possibly in Scotland) are set to remain unchanged for 2026/27.
• The Personal Allowance (PA), below which income is not taxed, is £12,570.
• The higher rate threshold (at which the tax rate moves from 20% to 40%) is £50,270.
• Top rate tax (45%) begins when income exceeds £125,140.

Scotland has different tax rates and bands for non-savings, non-dividend income (e.g. employment income, business profits, rental income and pension income).

Many Scottish taxpayers now pay a significantly higher amount of tax than those elsewhere in the UK (although some lower earners pay slightly less than in the rest of the UK).

The Scottish rates and bands for 2025/26 are:

For 2026/27, the 19% and 20% thresholds rise to £16,537 and £29,526 respectively; all others are unchanged.

Dividend tax rates
These are due to increase from 6 April 2026, as follows:
• Dividends falling in the basic rate band will be taxed at 10.75%, rather than the current 8.75% rate.
• Dividends falling in the higher rate band will be taxed at 35.75%, rather than 33.75%.

There is no change to:
• the dividend tax rate for top rate taxpayers, which will remain at 39.35%; nor
• the dividend allowance, which taxes the first £500 of dividends at a nil rate, rather than at the rate that would otherwise apply.

Personal Allowance
The PA of £12,570 is progressively withdrawn for individuals with income of more than £100,000, leading to a marginal rate of 60% on income between £100,000 and £125,140. This rate is different in Scotland and for those who have dividend income within this band.

Tax planning points
• Consider taking action to reduce taxable income, particularly where income falls just above one of the thresholds. There are various options to achieve this, including pension contributions and Gift Aid donations.
• Income that can easily be moved from year to year includes:
• bonus from your own company;
• dividends from your company; and
• withdrawal of taxable income from pension schemes in ‘drawdown’.
• Consider advancing dividends from your own company to be received before 6 April 2026, so that they will be taxed at a lower rate (if you are a basic or higher rate taxpayer). In doing so, make sure that the extra income does not push you into a higher tax bracket or cause you to be subject to the High-Income Child Benefit Charge (HICBC), which is payable if income exceeds £60,000.
• Income can also be moved between spouses, in order to make sure that PAs and lower rate tax bands are utilised. This is not always easy to do, but permissable methods include:
• make an outright gift of investments that produce taxable income;
• put savings and investments into joint names and share the income; and
• employ the spouse or partner in the other person’s business.
• HMRC can challenge some of these methods if they think the arrangement is not genuine. Always take tax advice to be sure that your plan will work.
• If you have children, it may be possible to switch income from one spouse to the other (as discussed above), so that both spouses’ incomes remain below the £60,000 threshold for the HICBC.