All the ways Rachel Reeves will raid your bank account in 2026

IF you thought 2025 was painful, brace yourself.

As we hurtle towards 2026, Rachel Reeves is sharpening her axe for a fresh round of raids on your wallet.

The Chancellor promised she wouldn’t tax “working people” — but if you’re planning to retire, earn a slightly better wage or looking to invest next year, you are firmly in the firing line.

From the “Granny Tax” trap that will drag millions of pensioners into the red, to the fresh assault on family businesses, nobody is safe.

Here is the full Sun Money breakdown of every single way Labour is coming for your cash in 2026.

The stealth wage snatch

The single biggest threat to your personal finances next year is the government’s continued freeze on income tax thresholds, which Labour extended until 2031 in the November Budget.

This policy keeps the personal tax-free allowance locked at £12,570, creating a financial trap known as “fiscal drag” where rising wages force people to pay more tax.

As your salary increases to keep up with inflation, these frozen thresholds mean that even a modest pay rise could unexpectedly push you into the 40% higher tax bracket for the first time.

While the government often highlights increases to the minimum wage, the refusal to raise the tax allowance means that many of the lowest earners will also lose their tax-free status.

Currently, you can work approximately 21 hours a week on the minimum wage without paying a penny in income tax, but this safety net is rapidly disappearing.

The Institute for Fiscal Studies warns that nearly one million people who currently pay nothing will be dragged into the tax system by the end of the decade.

Under the current rules, the first £12,750 you earn is tax-free, earnings between that and £50,270 are taxed at 20% and above that are 40%.

Because these brackets are not moving, roughly 790,000 workers are expected to be pulled into the higher rate band, while almost a million others will start paying income tax for the very first time by 2031.

Our calculator below can now show you exactly how much of your hard-earned cash this stealth tax will cost you.

WHAT YOU CAN DO ABOUT IT: To fight back, consider funneling more cash into your workplace pension to lower your taxable salary.

This “tax relief” is added directly to your pension pot as free cash.

For example, if you are a basic-rate taxpayer, your contribution of £80 is automatically topped up to £100 by the government.

That extra £20 is the tax you would have paid on that £100 of your earnings.

If you are a higher-rate taxpayer, you get that same £20 top-up and can also claim another £20 back from the tax office.

This means your £100 contribution effectively only costs you £60.

By redirecting your tax money into your pension or getting it back, you lower the total amount of income tax you pay for the year.

To increase your contributions or make a one off lump sum log in to your pension portal or contact your HR and payroll rep.

When you pay into a workplace pension, the government gives you back the tax you would have paid on that money.

The granny tax trap

The freeze on income tax thresholds also creates a hidden financial trap for retirees who expected the triple lock to be their safety net.

In April 2026, the full new state pension is set to rise by roughly 4.8%, bringing the total annual payment to approximately £12,548.

Although this increase appears beneficial, the Chancellor has refused to raise the personal tax-free allowance, which remains stuck at £12,570.

This decision leaves pensioners with an incredibly slim tax-free buffer of just £22 for the entire year.

While the government has promised that retirees relying solely on the state pension will not pay income tax during this parliament, millions will still face a new tax bill very soon.

If you have any additional income at all – such as a small private pension or even modest interest from savings – you will immediately exceed that tiny buffer and be dragged into the tax system from April 2026.

For many retirees who have never had to pay tax on their pension before, this means the taxman will effectively claw back a significant portion of the increase provided by the triple lock.

WHAT YOU CAN DO ABOUT IT: If you are married, check if you can claim Marriage Allowance to transfer unused tax-free cash from your partner to boost your own buffer.

The Marriage Allowance is designed for couples where one person earns less than the tax-free personal allowance of £12,570.

This means the lower earner has some “unused” tax-free allowance that they are not using.

This allowance lets the lower earner transfer a £1,260 portion of their unused allowance to their partner.

This transfer increases the partner’s tax-free allowance, making it bigger than the standard amount.

The investor slap

Savers and small business owners are facing a direct hit from April 6, 2026, as the tax on dividends is officially going up.

Whether you are a director paying yourself in dividends to keep a business afloat or a prudent investor with shares outside of an ISA, Reeves demands a bigger slice of your returns.

If you are an investor who buys shares in large companies like Shell or HSBC, the dividend is the reward the company pays you for owning a piece of their business.

If you are a small business owner or a freelancer running your own limited company, dividends often function differently, serving as your primary income instead of a standard salary because they have historically attracted lower tax rates.

However, many people do not realise that this income is not entirely tax-free.

Currently, you can only earn a very small amount in dividends – specifically £500 – before the government requires you to pay tax on the rest.

However, the basic rate of dividend tax is jumping from 8.75% to 10.75%, while the higher rate is surging to 35.75% in April 2026.

This hike punishes aspiration and investment, forcing you to hand over an extra £200 to the Treasury for every £10,000 of dividend income you receive.

It is a tax on prudence that hits the self-employed and careful savers the hardest.

WHAT YOU CAN DO ABOUT IT: Use your Stocks and Shares ISA to shelter your investments from tax as soon as possible.

You can move existing holdings into an ISA with a “bed and ISA” transfer so future growth and dividends are tax free.

Dividends paid inside a Stocks and Shares ISA are free from UK tax and do not use up your dividend allowance.

If your ISA dividends are above £500, holding them in an ISA will save you tax.

The same protection applies to future income and gains, which means less money to the taxman and more staying invested.

Act before the tax year ends so you do not lose this year’s ISA allowance (£20,000).

If you are unsure, speak to a qualified adviser to check the right approach for your circumstances.

The family business killer

Families hoping to pass on a lifetime of hard work to their children still face a brutal new reality from April 6, 2026, despite a major government climbdown.

Usually, when a person passes away and leaves money or property to their family, the government charges a tax on it called inheritance tax.

However, it is vital to remember that every single person in the UK automatically gets a standard tax-free allowance of £325,000, meaning the first chunk of their wealth is never taxed regardless of what they own.

For a long time, a special rule known as a “relief” allowed family farms and small businesses to be passed down completely tax-free to prevent families from having to sell their livelihood just to pay a bill.

While Ministers originally planned to cap this tax-free protection at just £1million, Sir Keir Starmer has executed a last-minute U-turn following months of furious protests.

The Government has now announced it will raise the inheritance tax relief threshold for farmers and businesses to £2.5million.

Crucially, this farm allowance is fully transferable between husbands and wives, meaning a surviving spouse can combine their allowances to eventually pass on up to £5million of farming assets to their children tax-free, on top of their combined standard inheritance tax allowances (£650,000).

For a single person owning a farm, the maths is now much simpler because they can stack their new £2.5million farm relief on top of their standard £325,000 personal allowance to pass on assets worth up to £2.825million completely tax-free.

However, if that single farmer leaves behind a farm worth £3 million, the first £2.825million is safe, but the remaining £175,000 will be caught by the taxman.

At the new effective rate of 20%, the family would be hit with a tax bill of £35,000.

Overall, the reforms are now expected to result in up to 1,100 estates across the UK paying more inheritance tax in 2026-27, which is a reduction from the 2,000 estates originally forecast to pay more at the Autumn Budget 2024 and the 1,400 predicted at Budget 2025.

Despite fewer families being caught in the net, critics warn that since many farmers are asset-rich but cash-poor, those who still face a bill may be forced to sell off land, potentially destroying the farm’s ability to operate.

WHAT YOU CAN DO ABOUT IT: Consider gifting assets to your children early, as items given away seven years before you die are usually tax-free.

You could also take out a life insurance policy written in trust specifically to pay the tax bill so the land stays safe.

Council tax clawback

While the government claims to be protecting working people, they have quietly given the green light for your local bills to skyrocket.

Ministers have refused to step in and lower the cap on council tax rises, meaning almost every town hall in the country is now free to hike your bill by a maximum of 5% next April without asking your permission in a referendum.

This decision effectively passes the buck to local councils to raid your household budget to plug their own financial black holes.

For a typical Band D property, this refusal to freeze the cap means an annual bill increase of over £114, according to PropertyData.

It is a “soft” raid that doesn’t appear on your payslip but will leave you with less cash to spend on groceries and essentials every single month.

WHAT YOU CAN DO ABOUT IT: Check your council tax band online immediately, as thousands of homes are in the wrong category and paying too much.

If you live on your own, do not forget to claim the single person discount to slash 25% off your bill instantly.