The ultimate tax planning guide 2025/26

Planning your taxes is not just about filling in forms – it's about making smart financial decisions that can significantly reduce your tax bill and maximise your savings. 

Contents

Understanding and using your personal allowances

Choosing the right investment for you

What you need to know about pensions

Charitable donations

Other planning points

Understanding and using your personal allowances

Personal

For the tax year ending 5th April 2026, most taxpayers benefit from a personal allowance of £12,570. This allowance is taken from your income and the balance of your non-savings income is then subject to tax at the following rates in England, Wales and Northern Ireland:

Band	Taxable Income	Tax rate
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 - £125,140	40%
Additional rate	Over £125,140	45%

In Scotland, the rates for non-savings income differ as follows:

Band	Taxable income	Tax rate
Starter rate	£12,571 to £15,397	19%
Scottish basic rate	£15,398 to £27,491	20%
Intermediate rate	£27,492 to £43,662	21%
Higher rate	£43,663 to £75,000	42%
Advanced rate	£75,001 to £125,140	45%
Top rate	Over £125,140	48%

Different rates and allowances apply to non-savings income such as bank interest and dividend income.

You should try to ensure you maximise both your entitlement to the personal allowance and, wherever possible, reduce your exposure to income tax at the higher rates.

You will see that where income exceeds £125,140, you pay the additional rate of income tax, which is 45% (48% in Scotland).

Where your income is between £100,000 and £125,140, you are subject to an effective tax rate of around 60%. This is because of the tapering of your personal allowance.  

After your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you go over the £100,000 tax bracket. This means that for every £100 of income you earn between £100,000 and £125,140, you only get to take £40 home. This is because £40 is deducted in Income Tax and £20 is lost by the tapering of your personal allowance. 

The good news is there may still be an opportunity to reduce your tax exposure with some simple planning techniques. In some cases, taxable income can be effectively reduced by making personal pension contributions and charitable donations (see below). This can mean you reduce your exposure to higher rate tax and maximise your allowances.

What is the Personal Savings Allowance?

Use your personal savings allowance (PSA) to maximise your tax-free savings income. The personal savings allowance is £1,000 if you are a basic rate taxpayer or £500 as a higher rate taxpayer. Additional rate payers do not get a personal savings allowance. 

If your income is below £17,570, you may be eligible for the starting rate of savings where you may be able to earn up to £5,000 of interest tax-free.

What is the Dividend Allowance?

Use your dividend allowance as dividends within this threshold are tax-free. The dividend allowance for 2025/26 is £500.

In the UK, individuals pay tax on dividends above the dividend allowance. The tax rates are: 

• 8.75% for basic rate taxpayers 
• 33.75% for higher rate 
• 39.35% for additional rate 

The dividend tax rate is lower than income tax rates. This is one of the reasons dividends can often be more tax-efficient than earned income.

What is Capital gains tax (CGT)?

Use your CGT tax-free allowance against your taxable gains. The CGT annual exemption is £3,000 and you cannot carry forward any unused exemption. The CGT rates applicable for 2024/25 and 2025/26 are as follows:

Band	2025/26	30/10/24 to 5/4/25	6/4/24 to 29/10/24
Non property
Basic rate	18%	18%	10%
Higher rate	24%	24%	20%
Property
Basic rate	18%	18%	18%
Higher rate	24%	24%	24%
Carried interest
Basic rate	32%	18%	18%
Higher rate	32%	28%	28%
BADR
Qualifying gains	14%	10%	10%
Lifetime threshold	£1m	£1m	£1m
Investors relief
Qualifying gains	14%	10%	10%
Lifetime threshold	£1m	£1m	£10m

If you are thinking of selling an asset, there are various CGT reliefs and exemptions available. Please speak to our team at TaxAssist accountants to find out more about the additional reliefs available.

What are Trading and Property Allowances?

The trading allowance is up to £1,000 of relief available to individuals with trading income. The property allowance is up to £1,000 of relief available to property owners. The allowances can be claimed instead of actual expenses or other allowances. 

If you have both types of income, you can claim both reliefs if you’re eligible. 

Using the Marriage Allowance

For a basic rate taxpayer, you may also be able to transfer £1,260 of your unused personal allowance to your spouse or civil partner. You can only do this if neither of you is a higher-rate taxpayer.

This will benefit couples where one has unused allowances which can be utilised by the other.

Choosing the right investment for you

Independent financial advice should be sought to formulate an investment strategy which is suitable to your needs.

Tax free investments

Individual Savings Accounts (ISAs)

Maximise your annual ISA allowance. Individuals do not pay tax on income received from an ISA. The ISA allowance is £20,000 across all types of ISAs. This includes Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs.

A lifetime ISA is type of ISA for 18–39-year-olds looking to purchase their first home or save for later life. The limit for the Lifetime ISA is £4,000 per annum, which counts towards your annual ISA limit of £20,000.

A junior ISA is a long-term savings account for children. The annual limit for a junior ISA is £9,000. Parents can open a junior ISA for a child who then can't access the money until they're 18.

National Savings

Premium bonds are an alternative way to invest savings and while the overall return is advertised and is tax free, there is no guarantee of a return, so they wouldn’t be suitable for those looking for a regular and/or guaranteed income.

Tax efficient investments

Several Government-backed investment schemes are available which offer generous tax reliefs. A description of each follows and a summary table is included below.

Seed Enterprise Investment Scheme (SEIS)

The purpose of the SEIS is to help certain types of very small higher-risk unquoted trading companies to raise capital. It does so by providing income tax and CGT reliefs for investors in qualifying shares in these companies. Income Tax relief of 50% is available. SEIS investments are especially suitable for anyone with a recent Capital Gain they want to reduce.

Enterprise Investment Scheme (EIS)

The purpose of the EIS is to help certain types of small higher-risk unquoted trading companies to raise capital. It does so by providing income tax and CGT reliefs for investors in qualifying shares in these companies. Income Tax relief of 30% is available. EIS investments are especially suitable for anyone with a recent Capital Gains Tax liability which they want to defer.

Venture Capital Trust (VCT)

Venture Capital Trusts (VCTs) are designed to encourage private individuals to invest in smaller high-risk unquoted trading companies. While the EIS requires an investment to be made directly into the shares of the company, VCTs operate by indirect investment through a mediated fund thus reducing the risk. In effect they are like investment trusts that are obtainable on the stock exchange, albeit in a high-risk environment. Income Tax relief of 30% is available on investments of up to £200,000 per annum, and dividend income and capital gains are tax free.

	SEIS	EIS	VCT
Maximum annual investment	£200,000	£1m (£2m if at least £1m is on knowledge-intensive companies	£200,000
Income tax relief	50%	30%	30%
Dividends taxable?	Yes	Yes	No
Subject to CGT?	No after 3 years	No after 3 years	No
CGT Deferral relief?	No	Yes	Yes
CGT reinvestment relief?	Yes	No	No

What you need to know about pensions

To save tax

From a tax point of view, saving into a personal pension can be very efficient. 

If you are a basic rate taxpayer and want to save £100 into your personal pension plan, the effective cost to you is only £80. For a higher rate taxpayer, to save £100 could effectively cost you as little as £60 (£58 in Scotland). The cost drops down further to only £55 (£52 in Scotland) for an additional rate taxpayer. 

While potentially extremely tax efficient, there are several pitfalls and tax traps which you should consider before taking action. 

The amount that may be saved into a personal pension is limited by several factors. One of the most important of these is the annual allowance limit. Contributions can only be made based on relevant earnings which will normally be earned income instead of investment income/dividends.

The annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. In 2025/26 the limit is capped at £60,000. The annual allowance applies across all your pension schemes and includes contributions made by your employer. 

The annual allowance is reduced by £1 for every £2 of adjusted income which exceeds £260,000 but cannot be reduced to below £10,000. Adjusted income is net income plus occupational pension contributions plus employer pension contributions. 

Currently, you may carry forward unused annual allowances for up to three years. This is generally subject to you having been a member of a UK-registered pension scheme in those previous tax years. 

Pension contributions also reduce income for the purposes of a number of other aspects of taxation.

Personal allowance

As mentioned above, after your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you go over the £100,000 tax bracket. Making pension contributions reduced the income which is tested against the £100,000 threshold.

High income child benefit charge

Child benefit payments received are subject to a tax charge where the claimant and/or his or her partner has income of over £60,000 in the tax year. For every £200 that the higher earner’s income exceeds £60,000, he or she will suffer an income tax charge of 1% of the child benefit received. Where the income is £80,000 or more, a 100% charge applies, thus cancelling out the benefit. Making pension contributions reduced the income which is tested against the £60,000 threshold.

Tax free childcare

Parents can claim up to £500 every three months (up to £2,000 a year) for each of their children to help with the costs of childcare. This goes up to £1,000 every three months if a child is disabled (up to £4,000 a year). When either parent has income more than £100,000, the family won’t be eligible to claim. Making pension contributions reduces the income which is tested against the £100,000 threshold.

There is no longer a lifetime allowance limit, and when this came to an end it was set at £1,073,100 which is still relevant when taking tax free cash from a pension (see below).

The pension landscape is complicated and there are a variety of ways you may make provision for later years. You also need to be aware there are other factors which can limit the amount you may save, and you should seek professional help if you are not sure about the rules.

You may also need to take investment advice from a registered pension adviser. We work with TaxAssist Financial Services who can advise you on all aspects of your financial affairs, including independent advice on pensions and retirement planning.

Tax free income

From the age of 55 (57 from April 2028) individuals can usually access their pensions in a flexible way. A lump sum of 25% can be taken tax-free with the remainder being taxable income. The limit on the 25% which can be taken tax free is based on the former lifetime allowance limit of £1,073,100 so the maximum which can be taken tax free is £268,275.

Charitable donations

Charitable donations made under Gift Aid can reduce the income tax liability for individuals who pay tax at the higher rate and the charity also benefits from Gift Aid.

Qualifying donations also reduce income for the purposes of eligibility for the personal allowance, HICBC and tax-free childcare (see above)

Be careful not to sign a Gift Aid declaration unless you have paid sufficient tax in the first place for the charity to reclaim otherwise you could end up paying more. Some employers also offer a payroll giving scheme.

Other planning points

Self-assessment

It is a good idea to prepare your tax return as early as possible after 5th April so that you can prepare for any tax liabilities, and you can claim back any overpayment of tax sooner if there is one. This is very important if you are paying payments on account in January and July. This may also allow you to pay your tax liability through your tax code if you have a suitable PAYE source of income.

Inheritance Tax (IHT) planning and wills

For all individuals, regardless of age/marital status, with the increased complexity of Inheritance Tax, it is more important than ever to ensure your will is up to date and minimizes your IHT liability and ensures your estate is distributed in accordance with your wishes.

Potentially Exempt lifetime gifts can be used to reduce the value of your estate during lifetime for inheritance tax purposes. With early planning a significant amount of inheritance tax can be avoided on death for individuals and married couples whose assets exceed their anticipated IHT thresholds.

Trusts

Trusts can provide an effective means of transferring assets out of an estate whilst still allowing flexibility in the ultimate destination and/or permitting the donor to retain some control over the assets. Provided that the donor does not obtain any benefit from the trust the property is removed from the estate, and legal advice should be sought.

Transfer of assets to spouse/civil partner/wider family

It may make sense to gift some or all an income/gain producing asset to your partner if they pay tax at lower rates, or if additional allowances can be used, and as with most planning steps, professional advice, including again, legal advice, should be taken before doing so.

Assets can also be passed on to children as they also benefit from the tax-free personal allowances, although this will more commonly involve adult children rather than minors.

Need more help with your tax planning?

Whatever your tax planning needs are, we will explore ways to find a tax saving scheme to suit your circumstances. Ready to get started on your tax plan? Please contact us to book a free consultation

Last updated 29 Aug 2025 | First published 29 Aug 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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