By Shivam Modi
With the 2025-26 tax year end in sight, now is an ideal time to review your personal tax position. This article looks at how you can take full advantage of the tax planning opportunities available, helping you to reduce your personal tax liability and strengthen your finances.
Allowances and reliefs
Personal Allowance: The personal allowance for the 2025–26 tax year remains at £12,570, meaning you can pay yourself up to £12,570 salary for the year (£1047.50 a month) without paying any income tax.
Dividends Allowance: For the 2025-26 tax year, the Dividend allowance is £500, meaning you can receive this amount without paying any tax. Dividends exceeding this allowance are taxed at the following rates:
- Basic rate taxpayers: 8.75 percent
- Higher rate taxpayers: 33.75 percent
- Additional rate taxpayers: 39.35 percent
Pension contributions: The annual allowance for tax relief on pension contributions is £60,000 for the 2025-26 tax year and any unused allowance can be carried forward for up to three years. All UK residents are entitled to contribute up to £3,600 gross (£2,880 net) towards a pension, regardless of their income. Tax relief is not available for those aged over 75.
Marriage Allowance: This allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife, or civil partner, resulting in saving of income tax of £252 in the tax year. To qualify, you must be married or in a civil partnership, one partner’s income is below the personal allowance (£12,570) and the other partner is a basic rate taxpayer. Any unused allowance can be backdated for up to four years, provided the couple met the eligibility criteria in those years.
Capital Gains Tax (CGT): For the 2025–26 tax year, the CGT annual allowance is £3,000. This applies to selling or disposing of assets such as shares, property, or business interests. Married couples can combine allowances by transferring assets between spouses. However, the allowance cannot be carried forward into the preceding tax years.
Inheritance tax (IHT): The annual allowance for IHT is £3,000 for the 2025-26 tax year. This gives family members the opportunity to gift amounts up to £3,000 without triggering any IHT. Exceeding this amount would mean IHT would only be payable if the donor dies within seven years of giving. Small gifts to individuals not exceeding £250 in total per tax year per recipient are exempt. The exemption cannot be used to cover part of a larger gift.
If you haven’t used your IHT allowance in any previous tax years, it can only be carried forward for one year.
Savings Allowance: For the tax year 2025-26, the savings allowance is £1,000 for basic rate taxpayers, £500 for higher taxpayers and additional rate taxpayers receive no allowance. Any interest earned above these limits is taxed at your marginal income tax rate.
Charitable donations: If you’ve donated to UK-registered charities, you can claim tax relief and reduce your personal tax liability. To maximise the benefit, the donation is best made by the person in the couple with the highest income tax rate.
Savings
Individual Savings Accounts (ISAs) are popular tax-efficient savings and investment vehicles. They allow individuals to save or invest money without paying income tax or capital gains tax on returns. There are several types of ISAs to suit different financial goals:
- Cash ISA: This type of ISA operates like a regular savings account but with tax-free interest. Individuals aged 18 and over can save up to £20,000 for the 2025–26 tax year. However, following the announcement in the Autumn Budget in November 2025, the annual Cash ISA allowance will decrease to £12,000 from April 2027, except for those aged 65 and over, for whom the limit will remain at £20,000.
- Stocks and Shares ISA: This ISA allows for investment in a range of assets, such as stocks, bonds and funds. For the 2025–26 tax year, you can invest up to £20,000, however this limit is shared with the Cash ISA if both are used in the same year. Like Cash ISAs, the returns are tax free, but it is important to remember that investments carry market risk.
- Lifetime ISA: This ISA is designed to help individuals aged 18 to 39 to buy their first home or to save for retirement. You can contribute up to £4,000 per year, and the government adds a 25% bonus on contributions. Withdrawals are tax-free when used for a first home purchase or after reaching the age of 60. The government is currently holding a consultation on introducing a new, simpler ISA product with the aim of providing further support to first-time homebuyers.
- Junior ISA: This ISA enables parents or guardians to save tax-free for children under 18 with the annual allowance being £9,000 for the tax year 2025-26. This can be split between a Cash JISA and a Stocks and Shares JISA, but the total contributions cannot exceed £9,000, with funds remaining locked until the child turns 18.
There are a variety of planning opportunities through allowances, reliefs, and tax-advantaged savings vehicles like ISAs. Proactive tax planning is a continuous process, and acting now is key to strengthening your financial position and ensuring tax efficiency.
(Shivam Modi is a partner at Xeinadin)
