Plan your Financial Future by making the most of your Tax Allowances during the 2025/26 Tax Year

With the 2024/25 tax year coming to an end, now is a perfect time to start reviewing your tax planning strategies for the next financial year.

Early preparation can help you make the most of tax allowances, reduce unnecessary liabilities, and structure your assets efficiently before the 2025/26 tax year-end on 5th April 2026.

This guide will cover key areas where tax-efficient planning can make a significant difference, including:

Income Tax– Make the most of your Personal Allowance to avoid higher tax bands.
Pension Contributions– Maximising tax relief through your Annual Allowance and Employer Contributions.
ISA Allowance– Ensure you fully utilise your tax-free savings opportunities.
Capital Gains Tax (CGT)– Using exemptions and offsets to reduce liability.
Inheritance Tax (IHT)– Gifting strategies to lower future tax bills.
Charitable Donations– Claiming relief through Gift Aid and Payroll Giving.
Other Considerations– Taking advantage of allowances such as Marriage Allowance and Child Benefit Thresholds.

Strategic tax planning can help you pay less tax and optimise your wealth for the long term. It can also be a tricky thing to understand, especially with no prior knowledge. Here at Cullen Wealth, we understand this complexity and support all of those who seek financial help.

Our team of expert financial advisers provide unbiased, tailored financial advice to help you achieve financial peace of mind and long-term stability. Whether you need a comprehensive financial plan or expert guidance on optimising your tax strategy, our advisers are here to support you every step of the way.

Tax laws can be complex and subject to change, so it is always recommended to seek professional financial advice before making decisions.

Income Tax Personal Allowance: How to Maximise Your Personal Allowance & Avoid Higher Tax Bands

Every UK taxpayer has a Personal Allowance of £12,570, meaning you don’t pay Income Tax on earnings below this threshold.

However, once earnings exceed £100,000, this allowance is gradually reduced by £1 for every £2 earned, disappearing completely at £125,140. This results in an effective 60% tax rate for income within this bracket.

How to Reduce Your Income Tax

Pension Contributions: Contributing to a pension can reduce taxable income and help reclaim your Personal Allowance.
Salary Sacrifice: Reducing taxable income through employer pension schemes or benefits like an Electric Car or Cycle to Work Salary Exchange Scheme.
Gift Aid Donations: Donations to registered charities can extend your basic-rate tax band, potentially reducing higher tax liabilities.

The earlier you plan for these allowances in 2025/26, the more control you’ll have over your tax position. Effective action before the UK financial year-end can make a significant difference in how much tax you pay.

Always take current legislation in mind when seeking action as rules and allowances can change.

Pension Contributions: Maximise Your Personal Allowance & Employer Contributions

Pensions remain one of the most tax-efficient ways to save for the future while reducing your current tax burden.

The Annual Allowance is the maximum amount you can contribute to your pension while benefiting from tax relief.

For 2025/26, the standard allowance is £60,000, reducing to £10,000 for very high earners or for those who have flexibly accessed taxable income from their pension funds.

Any unused allowances from the last three years can also be carried forward. This is known as the ‘Carry Forward Rule’.

A middle-aged hand placing coins into a piggy bank for their future retirement - they are contributing to their pension for future benefit.

Employer Contributions: A Valuable Tax-Efficient Benefit

Employers can make contributions to your pension without it counting towards your taxable income. Unfortunately, it still counts towards your Annual Allowance.

Salary Sacrifice can also be another tax efficient strategy for some. This allows you to direct any pre-tax earnings directly into your pension, potentially reducing Income Tax and National Insurance Contributions (NICs).

Any investments made within a pension also grow free of Income Tax and CGT. This makes them a perfect choice for Tax-Free Growth and a valuable long-term strategy.

Pensions are usually exempt from Inheritance Tax (IHT), making them a valuable estate planning tool for Inheritance Tax Benefits. However, under pending legislation changes, pension values will form part of these estates from April 2027 onward. This makes it even more important than ever to review your inheritance planning strategies sooner rather than later.

Pension investments should be considered carefully, as investment performance is not guaranteed and tax rules may change.

ISA Allowance: Maximise Tax-Free Savings

Individual Savings Account’s (ISA’s) provide a tax-efficient way to save and invest. They offer customers Income Tax and Capital Gains Tax exemption.

Here are a list of useful ISA’s and their current limits:

2024/25 ISA Limits:

Main ISA Allowance: £20,000 per person.
Junior ISA: £9,000 per child.
Lifetime ISA: £4,000 (for those aged 18-40).

Ensuring that you maximise your ISA contributions early can help your savings grow tax-free for the future.

Capital Gains Tax (CGT): Using Allowances & Offsetting Losses

Capital Gains Tax (CGT) is charged on profits from the sale of assets, such as property or shares. The annual exemption for 2025/26 is £3,000.

Here are a few strategies to consider when trying to reduce CGT impact:

Strategies to Reduce CGT Liability:

Use Your CGT Exemption: Sell assets before the tax year-end (5^th April) to utilise each year’s allowance.
Offset Gains Against Losses: Deduct investment losses from gains to reduce tax liability.
Bed & ISA Strategy: Transfer assets into an ISA to shelter future growth from tax.

Inheritance Tax (IHT): Smart Gifting Strategies

Inheritance Tax (IHT), can potentially be charged at 40% on estates above £325,000. Planning ahead can help reduce your estate’s exposure.

Here are some areas where IHT impact can be reduced:

How to Reduce IHT:

Use Annual Gift Allowance: Gift up to £3,000 per year tax-free.
Consider Small Gifts Exemption: Gifts of £250 or less to multiple individuals are exempt.
Make Larger Gifts: Gifts made more than seven years before death are IHT-free.

A mother and her young daughter counting coins on the floor as they talk about future inheritance and money management.

Charitable Donations: Tax Benefits of Giving

Donating to charity offers Income Tax relief and extends your basic-rate tax band.

Ways to Reduce Tax Through Giving:

Gift Aid Relief: Donations receive a 25% uplift, and higher-rate taxpayers claim extra relief.
Payroll Giving: Regular donations are deducted from pre-tax income, reducing tax liability.

Other Considerations Before the Tax Year Ends

There are many other effective tax-efficient strategies to consider when thinking about financial optimisation. Here are a few additional strategies to consider:

Marriage Allowance: Transfer up to £1,260 of any unused personal allowance to a higher-earning spouse who has taxable income in excess of the standard allowance of £12,570 per annum.
Child Benefit Threshold: Adjust taxable income to avoid the High-Income Child Benefit Charge.
Savings Allowance: Earn up to £1,000 tax-free interest on savings if a basic-rate taxpayer.

Not all options highlighted above will be applicable to everyone. It is important to seek professional advice before making any decision.

The Complexity of Finance: How can we help?

Planning ahead for the 2025/26 tax year will ensure that you’re making the most of current tax allowances while avoiding any last-minute stress. Reviewing your pension contributions, ISAs, CGT exemptions, and estate planning strategies early can help optimise your finances and potentially reduce the amount of tax you pay within the current financial year.

A senior couple sat in front of a Financial Adviser - the man sticks a firm hand out to greet the visitor and exchange a smile and joy.

Here at Cullen Wealth, we understand the complexity of finance and are here to help. We provide expert, tailored financial planning to help you make the most of your money.

Whether you need advice on reducing taxable income, optimising your investments, or building a financial structure for your assets for long-term growth, we’re here to help.

Speak to a financial planner near you and secure a consultation by filling out the contact form below. With one step, you are that much closer to securing your financial future.

How To Pay Less Tax in the UK: Key ‘Tax Year-End’ Strategies for 2025/26