The start of the tax year brings new tax allowances and is a chance to look at maximising your tax planning.

These are some of the main tax planning allowances to consider for the tax year 2025/26.

Income tax allowances. The personal allowance (the amount you earn before you pay income tax) remains frozen at £12,570 and the higher rate threshold is unchanged at £50,270, both frozen until 2028. As average pay is still on the increase, this has brought more people into higher rate tax.

Recent state pension increases also mean more pensioners are paying tax on other income, as the full state pension uses up virtually all of the personal allowance.

For savers, the personal savings allowance, which allows you to earn interest tax-free remains at £1,000 (and at £500 for higher rate taxpayers). The dividend allowance, (the tax-free amount you can earn from investments before paying tax), has halved again to £500.

Action point. As interest rates have risen, you may be in danger of exceeding your allowances.

• Consider rebalancing investments so that each individual in the couple has enough income covered by their personal allowance.
• Look at the underlying investments to produce income or capital only, and use tax wrappers.

Fill Up Your ISA.

The ISA allowance for 2025/26 tax year stays at £20,000 and at £9,000 for Junior ISAs.

ISAs remain one of the simplest tax planning vehicles – there are no complicated structures, just an open wrapper in which different investments can be placed.

Don’t just think of Cash ISAs! Stocks & Shares ISAs offer an alternative, and you don’t have to go into risky market-based investments if that doesn’t suit you.

Once savings are within ISAs, they are free from Capital Gains Tax (CGT) and Income Tax. The long-term benefits of ISAs can really add up; especially for generating a tax free income in retirement.-

Did you know?

You don’t have to receive taxable income to benefit from tax allowances. Any adult or child resident in the UK can qualify for a full or Junior ISA. This also applies to pensions. If you are not receiving taxable income because you are under 18, unemployed and under state retirement age, the maximum tax allowance is £3,600 gross (£2,800 net)

Capital Gains Tax (CGT).

The Capital Gains Tax annual exemption (how much profit you can make before you pay CGT) has decreased over recent years and is £3,000 in 2025/26.

Action point. Any assets outside a tax wrapper (ISA or pension) could be liable for CGT.

• Consider rebalancing investments so that each individual in the couple has enough income covered by their CGT allowance.

Don’t Forget Your Pension.

Despite recent uncertainty and changes in pension rules, pensions remain an excellent way to reduce current tax bills and produce a pot for retirement, especially with the tax relief on pension contributions boosting investments. For a basic rate taxpayer, investing £1,000 into an ISA requires £1,200 salary before income tax (plus national insurance). To put £1,000 into a pension costs just £800 as £200 tax relief is added. For a higher rate taxpayer, the net contribution is effectively £600 as £200 is given as relief through your tax return.

Pension annual allowance. You can save up to £60,000 into a pension each year (depending on your earnings, or if the contribution is being made by the employer) – and “carry forward” may be available to use allowances from previous years.

The “rule of thumb” for contributing to a pension, it is suggested the amount to contribute is “half your age” as a percentage of your salary (including both personal and employer contributions).

Action point. What do you currently contribute to your pension? When was that figure last reviewed?

Not much change with Inheritance Tax (IHT).

There has been no change in the threshold before an estate would pay Inheritance Tax (IHT). The “Nil Rate Band” still stands at £325,000. There is also a special threshold, known as the “Residence nil rate band” which applies when residential property passes to direct descendants, adding and additional threshold of £175,000 – so £500,000 for each individual.

Announced at the Budget in October 2024 was that, from April 2027, pensions would no longer be outside an estate for IHT purposes, which has impacted the plans of many.

There remain some simple things which can be done to reduce IHT, and some more complicated and comprehensive actions too. The first step is to understand where you are starting from.

Action point. Do you know what your potential IHT liability may be? It may be worth reviewing the balance between pension and non-pension assets.

Any Questions? – If you want help or advice on the best options for you, speak to the team here at Raymond James, Hitchin. Remember, tax treatment depends on individual circumstances and may be subject to change in the future.

*With investing your capital is at risk. Past performance may not be indicative of future results.