As many taxpayers turn their attention to Making Tax Digital for Income Tax (MTD IT), now is also an ideal moment to look ahead and prepare for the 2026/27 tax year beginning on 6 April. Planning early gives you the opportunity to take advantage of valuable tax‑efficient strategies and to consider how your tax position aligns with your broader financial goals.

Below, we outline several practical areas to review as part of your year‑end planning.

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1. Get the Basics Right: Household Planning

A strong tax strategy starts with ensuring your household affairs are up to date—something that will become even more important under MTD IT.

Make full use of your Personal Allowance
The personal allowance remains at £12,570, and ensuring it is fully utilised should be a core priority.

Optimise income as a household
Transferring income‑producing assets between spouses or civil partners can help both individuals make full use of available allowances and lower tax bands, especially in the case of high earners.

Avoid the 60% marginal tax trap
Income between £100,000 and £125,140 is taxed at an effective 60% due to the tapering of the personal allowance. Those in this bracket may benefit from:

• Maximising pension contributions
• Making Gift Aid donations
• Adjusting the timing of dividend payments
• Using tax‑efficient schemes such as EIS and SEIS

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2. Make the Most of Your ISA Allowance

ISAs remain a highly flexible and tax‑efficient investment wrapper: all income and gains are exempt from income tax and capital gains tax. The annual £20,000 ISA allowance cannot be carried forward.

ISA limits for 2025/26

Upcoming change from 6 April 2027:

• Individuals under 65 may place a maximum of £12,000 of their allowance into a cash ISA.
• The remaining £8,000 must be allocated to a Stocks & Shares ISA.
• Individuals 65 and over may continue to allocate the full £20,000 to cash if they wish.

Company owners
A key question for business owners is not simply whether to invest in an ISA, but whether withdrawing funds from the company to do so is the most tax‑efficient route. For many—especially higher‑income owners—retaining profits and building a corporate investment portfolio can be significantly more efficient.

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3. Review Employment Earnings and Benefits

Salary sacrifice
A powerful way to reduce income tax and National Insurance by receiving employer‑provided benefits such as pension contributions, nursery care, electric vehicles (EVs) or cycle‑to‑work schemes.

Bonus planning
Redirecting part of a bonus into a workplace pension can reduce taxable income while boosting long‑term savings.

Optimise benefits‑in‑kind (BIKs)
For business owners, electric vehicles remain particularly attractive due to low BIK rates and favourable capital allowances. Other efficient benefits include medical cover, mobile phones and cycle‑to‑work schemes.

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4. Align Savings & Investments with Your Tax Position

Depending on your tax band, you may benefit from:

• Personal Savings Allowance: Up to £1,000 (basic‑rate) or £500 (higher‑rate).
• Starting Rate for Savings: Up to £5,000 of interest tax‑free for those with earned income below £17,570.
• Dividend Allowance: £500.

For Investors, EIS and SEIS incentives offer generous tax breaks:

• SEIS: 50% tax relief on investments up to £200,000
• EIS: 30% tax relief on investments up to £1,000,000
• Holding qualifying shares for at least three years under either scheme exempts any gain on disposal from CGT.

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5. Understand Your Pension Opportunities

Check your State Pension forecast
Your entitlement is based on your National Insurance record, so it’s important to check whether you’re on track for the full amount. Gaps may be filled through voluntary contributions.

From April 2026, individuals living or working abroad will no longer be able to pay voluntary Class 2 NICs; only the higher‑cost Class 3 NICs will be available, and only for those meeting a new 10‑year eligibility requirement.

Private pension contributions
You can contribute up to £60,000 per year (subject to taper rules). Pension investments are exempt from income tax and CGT.

Pension flexibilities
Typically, 25% of your pension (PCLS) can be taken tax‑free. From 6 April 2027, unused pension funds and death benefits will fall within a person’s estate for IHT purposes. This change increases the importance of lifetime gifting strategies—or, for non‑UK residents, exploring offshore pension transfers where appropriate.

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6. Make Charitable Giving More Tax Efficient

Gift Aid donations can reduce your taxable income and help restore your personal allowance where it is tapered.

Donating qualifying investments instead of cash can be even more efficient: CGT is eliminated and the donation reduces taxable income.

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7. Manage Property Income Effectively

Rent‑a‑Room relief
Earn up to £7,500 per year tax‑free by letting out furnished rooms in your main home. There is no limit on the number of rooms.

Mortgage interest

• Residential property: Relief restricted to a 20% credit.
• Commercial property: Interest remains fully deductible.

Ownership structure
Allocating rental income to the lower‑earning spouse can reduce tax—but ownership shares must reflect genuine beneficial ownership.

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8. Plan for Inheritance Tax (IHT) & Capital Gains Tax (CGT)

IHT

• Use annual exemptions and make regular gifts out of surplus income.
• Review your Will every 3–5 years or after major life events.

CGT

• Use your £3,000 annual CGT exemption—it cannot be carried forward.
• Couples can effectively double this allowance.
• Consider crystallising losses to offset gains.

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9. Review Your Business Structures

Very broadly:

• If profits will remain within the business, incorporation may offer tax efficiencies.
• If profits will be withdrawn personally, incorporation may be less beneficial.

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If you would like to speak with our team about tax planning for the year ahead, please contact us. You can also subscribe to our newsletter for future updates.