Personal tax planning tips for year end

As the end of the tax year approaches, it is a good time to review your finances and make sure you are using all available tax allowances and reliefs.

Careful planning before 5 April can help reduce the amount of tax you pay and improve your overall financial position. Many people miss opportunities to save tax simply because they do not review their income, investments, or pension contributions before the deadline.

Year-end tax planning is not only about saving money; it also helps you organise your finances for the future.

Here are tips highlighting simple ways to make your tax planning more effective.

Personal allowance transfer

If your spouse or civil partner does not use all of their personal allowance, they may be able to transfer some of it to you. This can reduce the tax you pay if you are a basic-rate taxpayer.

Save tax by spending

If your income is above certain tax thresholds, you may be able to reduce your tax bill by spending in tax-efficient ways. For example, you can:

• Make pension contributions
• Donate to charity
• Invest in tax-efficient investments

Income (excluding dividends) Rates

• £0 to 37,700 (Basic rate) 20%
• £37,701 to £125,140 (Higher rate) 40%
• Over £125,141 (Additional rate) 45%

Think about your income timing

To make full use of your personal allowance and basic rate tax band, consider when you take income. For example:

• Dividends from your company
• Income from a trust
• Pension or other income drawdowns

Planning the timing can help reduce the tax you pay.

Maximise dividends

The first £500 of dividend income is tax-free due to the dividend allowance, and this is in addition to your personal allowance (£12,570). Dividends above £500 are taxed at lower rates than normal income.

Choosing the right balance between salary and dividends is important for company shareholders because it can reduce overall tax liability.

For the 2025/26 tax year, dividend tax rates are:

• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%

These rates apply after the £500 dividend allowance and depend on your total taxable income band. Because dividend tax rates are lower than standard income tax rates, many company directors use a mix of salary and dividends to take income from their company in a tax-efficient way.

Pension contributions and charity donations

If you are a higher or additional rate taxpayer (or intermediate/higher/top rate in Scotland), you can reduce your tax bill by making pension contributions before the end of the tax year.

• You can contribute up to £40,000 per year into a pension scheme.
• This includes both employer and personal contributions.

Gift Aid donations are also tax-efficient. When you donate to a registered charity using Gift Aid:

• The charity can claim basic rate tax.
• Higher-rate taxpayers can claim additional relief through their Self Assessment tax return.

High income child benefit

If you have children, you could rearrange income between spouses or civil partners so that the higher earner’s income stays below the £60,000 threshold for the High Income Child Benefit Charge.

For the 2025/26 tax year:

• The charge starts when one partner’s adjusted net income exceeds £60,000.
• You repay 1% of Child Benefit for every £200 of income above £60,000.
• If income reaches £80,000 or more, the full Child Benefit amount must be repaid.

Planning income, such as through pension contributions, dividends, or salary adjustments, may help reduce the charge or keep income below the threshold.

Capital gains tax (CGT)

For the 2025/26 tax year, the Capital Gains Tax annual exemption is £3,000 for individuals. This means you can make up to £3,000 in capital gains in a tax year without paying CGT.

If your gains exceed £3,000, the remaining amount is taxed depending on your income band:

• 18% for gains within the basic rate band
• 24% for gains above the basic rate band

Timing your asset sales can help reduce CGT. For example, selling an asset when you are a basic rate taxpayer instead of a higher rate taxpayer could lower the tax you pay.

Individual savings account (ISA)

If you have already used your pension allowance, ISAs are another tax-efficient option.

• ISA allowance for 2025/26 is £20,000.
• Any unused allowance cannot be carried forward.

Money in an ISA grows free of income tax and capital gains tax, making it very useful for higher-rate taxpayers.

Other tax-efficient investments

There are several investment options that offer income tax relief.

Venture Capital Trusts (VCTs)

• Invest up to £200,000 per year
• 30% income tax relief
• Dividends are tax-free
• No Capital Gains Tax on profits when sold

Enterprise Investment Scheme (EIS)

• Invest up to £1 million per year
• 30% income tax relief
• Limit increases to £2 million for knowledge-intensive companies
• No CGT on gains if held for more than 3 years

Seed Enterprise Investment Scheme (SEIS)

• Invest up to £100,000 per year in qualifying start-ups
• 50% income tax relief
• No CGT on gains if held for more than 3 years
• Can reduce capital gains in the same year by up to 50% of the SEIS investment

Summary

Year-end tax planning can help you reduce your tax bill and make better financial decisions. Reviewing your tax strategy regularly with a tax professional ensures you make the most of all available allowances and reliefs.

To make the most of your 2025/26 personal tax planning, speak to one of our personal tax experts on 03330886686 or email [email protected].

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.