Background
As the tax year is nearing its end most pre year-end planning will have been completed or should be well under way. However, there may still be some measures which can be undertaken to improve your tax position before the end of the tax year.
Here are our top five tips to consider:
Top Five Tips
- Make full use of your personal income tax allowance and basic rate band and avoid the higher rates where possible. For higher earners the personal allowance is gradually withdrawn on income over £100,000, giving an effective rate of tax of 60% up to £125,140, so there is an added benefit of keeping income out of this bracket. For those falling into this tax band gift aid or pension contributions (subject to point 5 below) can be a tax efficient way of reducing income.
- Make full use of your annual ISA investment allowance if you can. The amount which can be invested remains at £20,000 p.a. for 2025/26 and 2026/27 (however, this is reducing to £12,000 for cash ISAs only for the under 65’s from 6 April 2027). Children under 18 can have a Junior ISA and invest up to £9,000 p.a, whilst those aged 18 to 39 can open a Lifetime ISA and save up to £4,000 p.a.. Investment can be in cash and/or in stocks and shares, but any investment needs to be made by 5th April and if you do not use all the allowance it cannot be carried forward to future tax years.
- Ensure you have utilised your capital gains tax annual exemption, currently £3,000. If you have made gains in excess of this and hold an asset which has fallen in value, consider crystallising a capital loss. You need to take care, however, not to fall foul of the anti-bed and breakfast rules so contact us for advice before undertaking any transaction. Again any unused annual allowance is not available to carry forward.
- Where possible, take advantage of the annual inheritance tax exemption of £3,000. The allowance can be carried forward for one tax year but will be lost if unused. In addition gifts which are ‘normal expenditure out of income’ can be made without limit. Such gifts must be made on a regular basis so action may be necessary before the year end to ensure a regular pattern is achieved.
- Ensure you have maximised your pension contributions if you are a Higher (40%) or Additional (45%) rate payer. Currently, higher and additional rate payers receive 40% or 45% tax relief on their pension contributions up to a maximum of £60,000 per annum, broadly meaning a £100 contribution only costs £60 (for higher rate payers) or £55 (for additional rate payers). The rules around pensions are complex and so specialist advice should be sought before finalising any contribution.
For those individuals who are shareholders of limited companies it may also be worth considering if further dividends should be paid by 5 April 2026, especially as some of the dividend tax rates are due to increase from 6 April 2026. The tax-free dividend allowance remains relatively low at £500. Currently dividend income above the £500 tax-free dividend allowance is taxed at 8.75% for a basic rate taxpayer, 33.75% for a higher rate taxpayer or 39.35% for additional rate taxpayers. These rates are increasing to 10.75% for a basic rate taxpayers and 35.75% for a higher rate taxpayers from 6 April 2026. The additional rate taxpayer rate remains unchanged at 39.35%
Business Asset Disposal Relief (BADR)
It is also worth noting that the capital gains tax relief available under BADR is due to due to decrease from 6 April 2026.
BADR offers a valuable opportunity for individuals disposing of their personal business, or interest in a partnership, as well as directors and employees selling shares in the company they work for. Broadly, under the current rules, BADR is a 14% capital gains tax (CGT) charge, rather than the standard 24%, on the first £1million of all gains on qualifying assets when a business is sold as long as it has been owned for a minimum of two years. The £1 million limit is a lifetime limit.
However, from 6 April 2026 this rate of 14% under BADR will increase to 18%. Given these reductions in the benefits of BADR, if taxpayers are considering selling assets that qualify for BADR they should consider carefully the timing of their disposal to maximise their relief available.
It should be noted that there are anti-forestalling rules which apply to certain share reorganisations so professional advice should be sought before any action is taken.
Higher Interest Rates
Savings interest has been paid without the deduction of tax for some time now and that change coincided with HMRC giving taxpayers a personal savings allowance (PSA).
It is worth noting that with the continued higher interest rates during 2025/26 individuals may have to pay tax on their savings income. A basic rate taxpayer can receive up to £1,000 in interest without having to pay tax on it. The allowance is reduced to £500 for higher rate taxpayers and is reduced to NIL for additional rate taxpayers. For the vast majority of taxpayers, this has previously meant that tax would rarely be due on their interest. The PSA has not changed and will continue at the current rates as outlined above.
This is by no means an exhaustive list but merely some ‘quick fixes’. For a more tailored tax planning review please contact our Tax Director Jenny Marks.
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