How to make the most of your tax year end allowances before it’s too late

We’re already more than halfway through the 2025/26 tax year.

Whether you’re saving, investing, or gifting, there is a range of tax-free allowances that you can take advantage of.

These allowances renew at the start of the new financial year. In most cases, you won’t be able to carry unused allowances over into the next year. So, if you want to make the most of them, you’ll need to act soon.

There’s still time to make the most of your tax-efficient allowances for 2025/26 – with the tax year ending on 5th April 2026 – but using them effectively can require some planning.

Read on to discover the key allowances to consider and how they could potentially shave thousands off your tax bills.

Boost your pension funds by utilising your full Annual Allowance

When paying into your pension, you can typically achieve tax-efficient pension funding on contributions (your own, your employer’s, and any others combined) up to the Annual Allowance. As of 2025/26, this is £60,000 a year. In addition to the Annual Allowance limit, your own tax-relievable contributions are capped at 100% of your earnings.

As of 2025/26, the Income Tax brackets are:

• Basic rate (20%): £12,571 – £50,270
• Higher rate (40%): £50,271 – £125,140
• Additional rate (45%): Over £125,140

However, your Annual Allowance may be tapered down if you earn over £200,000 and your earnings plus any employer pension contributions totals over £260,000, so be sure to check your entitlement if you’re hoping to make the most of your allowance.

Additionally, if you flexibly access your pension, you will trigger the Money Purchase Annual Allowance (MPAA), reducing your Annual Allowance for money purchase funding to £10,000 a year as of 2025/26.

If you don’t use your full allowance, you may be able to carry the unused amount over by up to three tax years (although the MPAA can’t be increased using carry forward). If you have used your full allowance, you may consider paying into your partner’s pension if they have some allowance remaining.

Learn how we can support you with retirement planning ahead of stopping work

Earn tax-efficient interest on savings up to the value of your Personal Savings Allowance

If your other earnings exceed the Personal Allowance, which is £12,570 as of 2025/26, your savings interest could be liable for Income Tax at your marginal rate. However, for interest earned below your Personal Savings Allowance (PSA), you may not be taxed.

Your PSA depends on your Income Tax bracket (adjusted net income), with the interest earned counting towards the thresholds outlined above. As of 2025/26, the allowances are:

• Basic-rate taxpayer: £1,000
• Higher-rate taxpayer: £500
• Additional-rate taxpayer: £0

Moreover, if your total annual pension, salary, and rental income is below £17,570, you may be entitled to a 0% starting rate for savings. This tax-efficient allowance applies to a maximum of £5,000 of savings income, reducing by £1 for every £1 your non-savings income exceeds the Personal Allowance.

Grow your savings and investments tax-efficiently within your ISAs

Independent Savings Accounts (ISAs) allow you to save and invest your money without paying tax on interest or returns. The PSA does not apply to ISAs as income is tax-free.

There are four main ISA types:

• Cash ISA
• Stocks and Shares ISA
• Lifetime ISA (LISA)
• Junior ISA (JISA)

As of 2025/26, you can pay up to £20,000 a year into a Cash or Stocks and Shares ISA without needing to pay tax on interest accruals or investment returns. This is a combined allowance, so you could spread your £20,000 allowance across both ISA types.

LISAs also share this £20,000 allowance. However, the maximum you can pay into a LISA tax-efficiently is £4,000 a year. The Government will then top up your savings by 25%, tax-free.

Junior ISAs offer tax-efficient saving for under-18s. You can choose a savings or investment ISA, and the interest and returns are tax-free. As of 2025/26, the annual tax-free allowance is £9,000 per child.

Plus, unlike your pension, you won’t be taxed on any income you draw from your ISAs later.

Earn dividends on your investments tax-efficiently with the Dividend Allowance

If you own shares in a company or invest in dividend-paying funds, you will receive any returns on your investment as dividend payments. Generally, you could be charged Dividend Tax on these returns.

However, once you have exceeded your Personal Allowance, you can usually earn up to £500 a year in dividends without being taxed, as of 2025/26.

If you exceed this Dividend Allowance, the rate at which you pay Dividend Tax is determined by your tax bracket:

• Basic-rate taxpayer:75%
• Higher-rate taxpayer:75%
• Additional-rate taxpayer:35%

To calculate your tax bracket, you will need to add all the dividends received in the tax year together with the rest of your income.

Discover how we can support you with your investment planning for your future

Sell capital assets tax-efficiently up to the Capital Gains Tax allowance

You will typically pay Capital Gains Tax (CGT) on the profits when selling capital assets, such as:

• Equities
• Properties other than your primary residence
• Possessions worth over £6,000, other than a vehicle.

As of 2025/26, you have an Annual Exempt Amount of £3,000 – meaning you usually won’t pay CGT on profits up to this value. For trusts, the Annual Exempt Amount is a maximum of £1,500.

The rate of CGT you pay depends on your tax bracket and the asset being sold. For gains made after 6th April 2025, the rates of CGT are 18% for basic-rate taxpayers and 24% for higher- and additional-rate taxpayers. Remember, your investment returns will count towards your tax bracket.

So, if you’re planning on selling multiple assets early in the 2026/27 tax year, it could be worth bringing some of the sales forward into the previous tax year to make use of your Annual Exempt Amount.

Give financial gifts without worrying about future Inheritance Tax liability

In theory, you can gift as much of your wealth away as you like without needing to pay tax. That said, if you pass away within seven years of giving a gift, the value could be included in your estate for Inheritance Tax (IHT) purposes.

When this is the case, IHT may be charged at between 40% and 8% – depending on how soon you pass away after giving the gift.

This rule typically doesn’t apply to gifts under the Annual Exemption. As of 2025/26, you can give away up to £3,000 a year without the risk of it being included in your estate when you pass away. You can carry any unused Annual Exemption over for one tax year as long as the current tax year’s allowance is used up first.

Additionally, you can give some wedding or civil partnership gifts tax-free. The amount you can give without it potentially being included in your estate depends on your relationship with the recipient:

• Your child: £5,000
• Your grandchild or great-grandchild: £2,500
• Any other person: £1,000

If you’re married or in a civil partnership, you each have your own allowances. So, if you wanted to gift your child a large sum, and you didn’t give any gifts this year or in 2024/25, you could potentially give a combined total of £12,000. Plus, if they’re getting married, you could give them a further £10,000.

Worried about Inheritance Tax? Explore how we can help

Get in touch

Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, or trusts.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.