As we enter a new tax year, it’s important to review your position and consider whether your affairs are optimised from a tax position. In this article, we set out some of the key tax planning areas, and recent tax changes, that you should be aware of.
Maximising your allowances
- Use your ISA Allowance - You can contribute up to £20,000 into an ISA each tax year (£9,000 for a Junior ISA)
- Pension Contributions - The annual pension contribution allowance for the 2025/26 tax year is £60,000. You may be able to make additional contributions in excess of the annual allowance if you have not fully used your annual allowance in the previous three tax years. For higher earners, a reduced annual allowance may apply, although this bottoms out at £10,000. The tapered annual allowance starts to apply for individuals earning over £260,000.
- Capital Gains Tax - Individuals each have an annual exemption of £3,000, gains which fall within the annual exemption do not give rise to a CGT charge. Any unused annual exemption cannot be carried forward.
- Inheritance Tax - See below for further details regarding some of the options available.
Reviewing of your capital gains tax position
With the start of a new tax year, this provides the perfect opportunity to review your assets and investments and consider your potential CGT position. Some common CGT planning strategies include:
- Crystallising capital losses to offset against future gains.
- Making a negligible value claim where an asset no longer has any material value to crystallise a loss for CGT, or potentially income tax, purposes.
- Reviewing what assets qualify for CGT reliefs such as holdover relief, rollover relief, business assets disposal relief or Investors Relief and consider whether it would be appropriate to trigger a disposal.
Reviewing your inheritance tax position
Given the proposed changes to the IHT rules which are due to take place, this could provide a good opportunity to review your IHT position and revisiting any estate planning which you currently have in place.
Post 6 April 2027, IHT reliefs (APR and BPR) will be restricted, with 100% relief given on up to a maximum value of £1 million, thereafter only 50% relief will be given on the value in excess of £1million. These changes will apply on death as well as to lifetime chargeable transfers.
From 6 April 2027, unused pension funds and death benefits payable from a pension will now form part of an individual’s estate for IHT purposes and therefore fall within the scope of IHT. Therefore, individuals who planned to pass on their pension pots free of tax may wish to review their pension position. Consideration may wish to be given to drawing down on their pensions and/or accessing their tax-free lump sum payments now that the funds will be liable to IHT.
It also worth bearing in mind that:
- Everyone has an annual gift allowance of £3,000, which can be given away tax-free each year, and if you have not used the previous year's allowance you can look back one year and gift £6,000.
- You can also give small gifts of up to £250 per person to as many people as you like each year, provided they have not received any part of your £3,000 allowance.
- There are also exemptions for gifts provided to a couple for a wedding or civil partnership, and gifts to charities which are not subject to IHT.
- Regular gifts out of surplus income also are allowable and immediate exempt from IHT. In order for this to apply, it must be demonstrated that:
- There is a pattern of regular gifting, and
- You have sufficient income to maintain your current standard of living after the gifts are made.
Reviewing time limits for making claims and elections
With the start of the tax year, there are various time limits which may be missed if you take you do not take relevant action prior to the end of 5 April 2026, examples include:
- Holdover and Rollover relief - where an individual has made a disposal of a qualifying asset, the claim must be made within four years from the end of the tax year in which that disposal was made.
- Overpayment relief - For those you have overpaid tax, a claim must be made within four years from the end of the tax year in question.
- SEIS and EIS tax relief for EIS investments - Relief must be claimed within 5 years. You have 5 years after the 31 January following the tax year in which the investment was made. However, to qualify for EIS deferral relief, the EIS investment must be made during the period from 12 months before or 36 months after the disposal on which relief will be claimed.
Tax efficient investments
Various tax reliefs are available for individuals you invest in investments such as qualifying EIS and SEIS companies and qualifying Venture Capital Trusts (VCT).
Income tax relief in EIS/VCT investments equates to 30% of the investment made, whereas SEIS investments provide 50% income tax relief on a qualifying SEIS subscription. In addition, EIS and SEIS investments can provide CGT tax savings, as well as IHT relief in the form of BPR, albeit 100% relief will be capped to the first £1m of total BPR owned.
Planning and managing tax “tipping” points
Within the tax rules, there are various “tipping points", where if you breach certain thresholds, this could result in you for example:
- Losing your child benefit and paying a higher income tax charge - for individuals earning over £60,000;
- Losing your tax-free income tax personal allowance of £12,570 if your income is in excess of £100,000;
- Higher rate Scottish rate taxpayers who are subject to the Scottish rate of income tax of 42% and national insurance of 8% on their earnings between £43,663 and £50,270 - giving them a total tax rate of 50% on their earnings which fall within this income band.
Where applicable, taxpayers who will be caught by this may wish to mitigate their tax exposure through the use of salary sacrifice, pension contributions and/or charitable gift aid donations.
If you have any questions, or need any support, please get in touch with your usual CT contact or our personal tax team at personaltax@ct.me.