Key 2026/2027 Tax Allowances Every UK Business Owner Should Know
Understanding tax allowances is one of the simplest ways to reduce tax legally and keep more of what you earn. Yet many people only think about allowances once the tax year has ended, when it is already too late to use them properly.
As we move into the 2026/2027 tax year, these allowances remain an essential part of smart financial planning for directors, business owners, landlords, and individuals.
Here is a clear overview of the main allowances you should be aware of and how they fit into a wider tax strategy.
Personal Allowance: £12,570
The personal allowance is the amount of income you can earn before paying Income Tax. For 2026/2027, this remains at £12,570.
For limited company directors, this allowance is often used as part of a salary strategy, allowing income to be taken tax free while maintaining eligibility for state benefits.
For sole traders and employees, it forms the foundation of basic income tax planning.
Dividend Allowance: £500
The dividend allowance for 2026/2027 is £500.
This means you can receive up to £500 in dividend income without paying dividend tax. Any dividends above this amount are taxed at the relevant dividend tax rates.
For company directors, this allowance still plays a role in income planning, although its reduced level makes overall dividend strategy more important than ever.
ISA Allowance: £20,000
The ISA allowance remains at £20,000 per person for the 2026/2027 tax year.
ISAs allow savings or investments to grow completely tax free. No Income Tax, no Capital Gains Tax, and no dividend tax on returns within the ISA.
Unused ISA allowance cannot be carried forward, so using it each year where possible is key to building long-term, tax-efficient personal wealth.
Pension Annual Allowance: £60,000
The pension annual allowance remains at £60,000, subject to tapering rules for higher earners.
For limited company directors, pension contributions made by the company are one of the most tax-efficient options available. They are deductible for Corporation Tax and are not subject to Income Tax or National Insurance.
Pensions are long-term planning tools, but when used correctly they can significantly reduce tax while building future security.
Capital Gains Tax Annual Exempt Amount: £3,000
The Capital Gains Tax annual exempt amount for 2026/2027 is £3,000.
This is the amount of capital gains you can realise in the tax year before Capital Gains Tax applies.
With the exemption now much lower than in previous years, planning the timing of asset disposals has become far more important.
Personal Savings Allowance
The personal savings allowance depends on your tax band:
Basic rate taxpayers can earn up to £1,000 in savings interest tax free
Higher rate taxpayers can earn up to £500 tax free
Additional rate taxpayers do not receive a personal savings allowance
This allowance applies to interest earned outside of ISAs and can be useful for short-term savings planning.
Trading and Property Allowance: £1,000
The trading allowance and property allowance both stand at £1,000.
These allowances apply to small amounts of trading or property income, allowing you to earn up to £1,000 without needing to declare the income or deduct expenses.
This is particularly useful for side hustles, casual income, or small rental arrangements.
Rent a Room Relief: £7,500
Rent a Room Relief allows you to earn up to £7,500 per year tax free by letting out a furnished room in your main home.
If you share the income with someone else, the allowance is split between you.
This relief can be a simple and effective way to generate additional income without triggering tax.
Inheritance Tax Allowances
Inheritance Tax planning is often overlooked, but the allowances can make a significant difference.
Key allowances include:
The standard nil rate band of £325,000
The residence nil rate band of up to £175,000 when passing a main home to direct descendants
With planning, a couple may be able to pass on up to £1 million before Inheritance Tax applies, depending on circumstances.
Inheritance Tax planning works best when started early and reviewed regularly as part of a wider estate plan.
Why These Allowances Matter
Tax allowances are not just figures on a government website. They are planning tools.
Used properly, they help you:
Reduce unnecessary tax
Build long-term wealth
Separate business income from personal security
Avoid reactive decisions later
Most allowances are use-it-or-lose-it, which makes early planning essential.
The Bottom Line
The 2026/2027 tax allowances offer valuable opportunities to reduce tax and plan more efficiently, but only if they are used correctly and on time.
If you want help understanding how these allowances apply to your situation or how to build them into a wider tax strategy, get in touch. We are here to help you plan ahead with clarity and confidence.
Meet Lewis
Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.
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