As the end of the 2025/26 tax year approaches, it is highly recommended to undertake a financial review. Assessing your current financial position now can reveal crucial actions you can take to effectively cut your tax bill before the deadline.
Here are five key strategies to consider:
Your personal allowance is a "use it or lose it" benefit. If you do not use your 2025/26 personal allowance, it will be lost, as you cannot carry it forward to the 2026/27 tax year.
Advance your income: Consider whether you can bring forward income so that you receive it in the 2025/26 tax year rather than waiting until 2026/27.
Tailor capital allowances: If you claim capital allowances, try tailoring them to ensure your personal allowance isn't wasted.
Pay a company dividend: If you own a family company, consider paying out a dividend to mop up both your dividend allowance and any remaining unused personal allowance.
Claim Marriage Allowance: If you cannot use your personal allowance, you are married or in a civil partnership, and your partner pays tax at the basic rate, consider making a marriage allowance claim. You can transfer £1,260 of your allowance to them, which can cut your joint tax bill by £252.
High earners need to watch their adjusted net income carefully. Once it reaches £100,000, your personal allowance is reduced by £1 for every £2 your income exceeds this threshold. Once your adjusted net income hits £125,140, your personal allowance is completely lost.
How to claw it back:
Consider making pension contributions to reduce your adjusted net income.
Make Gift Aid donations to charity, which can also reduce your income and help you claw back some or all of your personal allowance.
Interest and dividends earned within an Individual Savings Account (ISA) are entirely tax-free. If you haven't yet invested the full £20,000 limit for 2025/26, consider using the full allowance before the 6 April 2026 deadline.
From 6 April 2027, tax rates on savings income will rise by two percentage points.
From the same date (6 April 2027), individuals under 65 will be restricted to investing only £12,000 of their £20,000 allowance into a cash ISA.
If you receive dividend income, tax rates are going up. From 6 April 2026, both the dividend ordinary rate (for the basic rate band) and the dividend upper rate (for the higher rate band) will increase by two percentage points.
The new rates (effective 6 April 2026):
Ordinary rate: Rises from 8.75% to 10.75%.
Upper rate: Rises from 33.75% to 35.75%.
Additional rate: Remains unchanged at 39.35%.
What you can do: If you have a personal or family company with retained profits, consider paying a dividend before 6 April 2026 to avoid these tax hikes.
Tax-relieved contributions can be made to a registered pension scheme up to 100% of your earnings (or £3,600 if that figure is lower), provided you have sufficient available annual allowance.
Important limits and rules:
Annual Allowance: Set at £60,000 for 2025/26.
High Earners Tapering: If your threshold income exceeds £200,000 and adjusted net income exceeds £260,000, the allowance is reduced by £1 for every £2 your income is over £260,000 (until the allowance hits a minimum of £10,000).
Flexible Access: Once a pension has been flexibly accessed, your annual allowance drops permanently to £10,000.
Carry Forward Rules: Unused allowances can be carried forward for up to three years. However, any unused allowance from 2022/23 will be permanently lost if not used by 5 April 2026. Note: You must use up all of your current 2025/26 allowance before you can dip into allowances from earlier years.
No, if you have not used your 2025/26 personal allowance, it will be lost, as you cannot carry it forward to 2026/27. Residents in Sutton Coldfield and the wider West Midlands looking to prevent wasting this allowance should consider advancing income so that it is received in the 2025/26 tax year. Alternatively, if you own a family company, you could consider paying a dividend to mop up any unused personal allowance.
You can invest up to the full £20,000 allowance in an ISA in 2025/26. All interest and dividends held within an ISA are tax-free. Please note that from 6 April 2027, under 65s will only be able to invest £12,000 of their £20,000 ISA allowance into a cash ISA.
The dividend ordinary rate and the dividend upper rate will increase by two percentage points from 6 April 2026. Specifically, the ordinary rate will rise from 8.75% to 10.75%, and the upper rate will rise from 33.75% to 35.75%. West Midlands business owners with retained profits in a personal or family company should consider paying a dividend before 6 April 2026 to beat these tax rises.
The pension annual allowance is set at £60,000 for 2025/26. Tax-relieved contributions can be made to a registered pension scheme up to 100% of your earnings, or £3,600 if that is lower, subject to having sufficient available annual allowance. It is important to remember that once a pension has been flexibly accessed, this annual allowance drops to £10,000.
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