Eight tax-year end action points to give finances a tax-efficient boost

Families are urged to review their finances, how assets are held, and check exemptions and reliefs are being used effectively – as well as having an eye on the tax changes arriving in 2026/27 and beyond.

Emma Sterland, Chief financial Planning Officer at wealth management firm Evelyn Partners, says: ‘Good financial planning is about understanding what clients want for their own and their family’s future, then putting in place a strategy to achieve that by building and conserving wealth. Taxation is rarely the starting point for these conversations, but with significant changes to the tax landscape under both this and previous Governments, tax-efficiency is inevitably an important feature.

‘As the 2025/26 tax year draws to a close, it’s important to reflect on whether current allowances and reliefs are being well utilised. But it is also necessary to assess whether your financial and wealth strategy is fit for purpose in the context of changes to taxation that are coming in both this and next April. That may prompt discussions about areas such as wills and trusts, for instance.

‘While many of the tax changes that were announced at the November Budget in 2025 will only come into force in future tax years, an important reform of inheritance tax reliefs announced at the October 2024 Budget kicks in on 6 April this year. Lifetime gifting and business succession planning have been key themes in discussions with clients given these imminent changes to business reliefs.

‘Meanwhile, the inclusion from April 2027 of unused pension pots in inheritance tax calculations – also announced at the October 2024 Budget - has sparked conversations about withdrawing from pension funds either to spend or to gift, and this can require decisions and actions in this tax year, the next and beyond.

‘In addition to changes in taxation, the overall increase in the tax burden due to frozen allowances and reliefs demands that all families make sure they are making the most of their earnings, savings and investments.’

Here Emma sets out eight key areas where families and business owners might want to take steps before the end of the tax year – and to think about the future.[1]

1. Is it time to start gifting to mitigate IHT?

Emma says: ‘This has been a hot topic with clients since the reforms to IHT reliefs and rule changes that were announced at the October 2024 Budget. The changes are now very much on the horizon, so families must be prepared for them.’

The £2.5million cap on business and agricultural property relief goes live from 6 April and unspent pension assets will be included in estates for the calculation of IHT from April 2027.

Emma continues: ‘Besides this, over recent years many more estates and assets have become subject to IHT as nil-rate bands and gifting allowances have remained static in monetary terms and have fallen quite substantially in real terms. One of the most straightforward ways to make sure your loved ones benefit from your wealth is to gift assets during lifetime.

‘Gifts you make to other individuals are generally not subject to IHT unless you die within seven years, and many families have decided to start that clock ticking, whether that be through gifting outright to their beneficiaries, or retaining control through using trusts.

‘As tax-year end approaches, however, families should check they are using annual gifting allowances that mean the funs leave the estate immediately and will definitely not be subject to IHT. The main one is £3,000 per tax year – so £6,000 for a couple - and this will not be subject to IHT even if you do die within seven years, as it will be treated having left the estate immediately. This £3,000 annual allowance can be brought forward for one tax year if not used, which means a possible £12,000 per couple could be available to gift before the end of the tax year on 5 April. That can be given to one individual or split across several.[2]

‘For many individuals, the inclusion of pensions as part of the estate from April 2027 means that their estate will then expand dramatically, so they are looking at gifting to compensate for that. Some of our clients are drawing down on their pension funds to gift, whether that is by taking tax-free cash or by upping taxable withdrawals. This is especially the case when they consider that, if they die at or after age 75 and haven’t used their tax-free cash, this benefit will be lost and their beneficiaries will have to pay income tax at their marginal rate on withdrawals from the pension.

‘We are also seeing increased interest in the “normal expenditure out of income” exemption to IHT, which allows people to make regular gifts over extended periods as long as they come out of income and do not impact their usual standard of living. These amounts – if the rules are followed correctly and good records are kept – leave the estate immediately and are not subject to the seven-year rule, so can be a very effective way of reducing IHT liabilities.

‘While not particularly a tax-year-end issue this is something that some families might want to speak to their financial planner about, because it really is an area where professional help is necessary.’

2. Pension withdrawals up to the tax band limit

Pension withdrawals outside of the 25 per cent tax-free cash are taxable income and with the state pension taking up most of the personal income tax allowance, even a modest private pension income is likely to mean a retiree will pay basic rate tax on some of it.

Emma says: ‘We would always advise clients to consider the income tax they will pay when planning pension withdrawals, but this question is becoming more important now that more savers are looking to take greater amounts out, looking ahead to IHT changes. Those now looking to spend or gift more of their pension funds need to keep an eye on the tax they will pay as they withdraw funds, because that is a definite liability that they will have to pay, whereas in some instances the IHT might only be a notional future problem.

'If possible, keeping one’s taxable income the right side of the next tax band can make sense, so for many people this might mean measuring their pension withdrawals so they do not push total annual income above £50,270 into higher rate tax at 40 per cent. For wealthier savers, the additional rate boundary of £125,140 might be the upper limit – but retirees, just like workers, also suffer an effective marginal income tax rate of 60 per cent above £100,000 of income, as that is where the Personal Allowance starts to be reduced.

‘So in terms of tax year end, if someone expects to need extra funds from their pension in the next tax year but still has “room” to withdraw more in this tax year without breaking into a higher tax band, then it could be sensible to make those withdrawals now.’

3. Reducing taxable income and the 60 per cent tax trap

The highest rate of tax – in England and Wales - is 45 per cent, which applies to individuals with total income over £125,140. Personal allowances are tapered for individuals with income between £100,000 and £125,140, which means the effective marginal tax rate in this band is 60-62 per cent - exacerbated for many families also by the loss of tax-free childcare.

Emma says: 'Most people will now know their likely total taxable income for the tax year, including any bonuses, and whether it’s likely they will be pushed across one of the big marginal rate jumps in the UK tax and benefit system. There are some relatively straightforward steps you can take to reduce taxable income, which can be especially useful if you are about to or have just fallen into that 60 per cent marginal tax rate band. These include:

• Making pension contributions, especially by salary sacrifice, or charitable gift aid payments    

• Transferring income-generating assets between spouses/civil partners    

• Using tax-free investments and/or tax-efficient investments such as VCTs or EIS    

• Investing in assets which generate capital growth rather than income   

• Altering the timing of income to maximise use of lower rate bands.’    

4. Pension contributions – using your annual allowance

Emma says: 'Taking advantage of pension tax relief is now perhaps more important than ever. Fiscal drag is increasing the tax burden on income and pushing many earners into higher tax brackets, which in turn also means savings and capital gains will be more exposed to tax, unless protected. In addition, funds held in a pension benefit from tax free growth, and it is still the most tax-efficient way to save for retirement.

‘Higher and additional rate pension tax relief had been the cat with nine lives when it came to Chancellors seeking opportunities for raising extra revenue at recent Budgets. However, the current Chancellor was evidently intent on reducing the cost to the Treasury of this benefit as she announced a quite severe future limit on salary sacrifice schemes at the November Budget. The pressure on the UK’s public finances is not going away, so who knows what could happen to the higher rates of pension tax relief, or to the recently-expanded £60,000 annual allowance (AA), in the next few years?’

The £60,000 pensions AA is the total one can save into a pension in a tax year while still benefitting from tax relief - but if your annual 'net relevant earnings’ are less than £60,000 then that forms the limit for tax-relieved contributions in a tax year.[3] You may also be able to take advantage of any unused AAs from the previous three tax years to make additional pension contributions under the 'carry forward' rules – although the total amount you pay in in one tax year can still not exceed net relevant earnings, potentially complicating matters.[4]

Emma continues: ‘The AA for pension contributions is not quite "use-it-or-lose-it" in the same way as that for ISAs - as previous years’ unused allowances might be available under "carry forward" rules if earning over £60,000. But there’s no guarantee that the higher AA or carry forward will be around forever, so it makes sense to prioritise pension saving in order to keep more earned income and efficiently build wealth.

‘The highest earners are also restricted by the tapered AA: this means individuals with 'threshold income' of over £200,000 and 'adjusted income' of over £260,000 are subject to a reduced annual allowance, that can fall as low as £10,000 for those with adjusted income above £360,000.[5] For these high earners, who typically earn a significant proportion of their compensation on a variable basis such as bonuses, it can be difficult to be sure of what “total adjusted income” will be until the very end of a tax year. That means there can be a lack of clarity on how much they can contribute to a pension without inadvertently exceeding their AA, or relevant earnings if carry-forward is being used.

‘Professional advice from a financial planner or accountant is invaluable in this instance.

‘One final thought on pensions is that many pension savers are worried about the longevity of the 25 per cent tax free lump sum, as this also reportedly came into the spotlight at the last Budget. While those putting money into pensions should be aware that there is no guarantee the access and tax rules will be unchanged when they come to use their pension, they can only really make decisions based on the rules as they stand.’

More detail on this here: 

>>Could you turbo-charge your pension before the tax-year end? | Evelyn Partners

5. Couples can optimise savings and dividend income

Emma says: ‘There are a number of allowances that mean savers and investors can earn a certain amount of income each tax year from savings interest or dividends without paying any tax. Some low- or non-earning individuals have a starting rate band of £5,000 for savings income, subject to the level of their total income.

‘Separately, a personal savings allowance is available to basic and higher rate taxpayers of £1,000 per year and £500 per year respectively. Additional rate taxpayers have no PSA, so holding a large amount of cash savings is potentially unrewarding, unless protected from tax in a cash ISA. Spouses and civil partners should make sure they are using both PSAs. And if they still have some savings that are generating taxable income then they can ensure they are held by the partner who will pay least tax on it.

‘Only £500 of dividends for each person is protected from income tax, and as there will be an additional 2 per cent of income tax added on to dividends from 6 April the issue of protecting this source of income is prominent.

‘Higher and additional rate taxpayers with large cash savings they don’t need immediate access to might also consider investing directly in low coupon gilts, where much of the quite high probable “yield” will come in the form of tax-free capital gains. This is an option best considered with the advice of a financial planner or investment manager.’  

6. Using up capital gains tax (CGT) allowances

Emma says: ‘As CGT is charged when an asset is sold, you have some control over when to pay it. If you have unrealised gains, you may find it beneficial to sell enough assets each year to use your CGT annual exemption, which is now just £3,000 per tax year.

'Now that investors and business owners are facing higher CGT rates of 18 per cent and 24 per cent on all assets, it is all the more important they consider whether to crystallise some gains in the current tax year – or to crystallise unrealised losses to set against some gains. Assets can also be transferred between spouses free of tax, which can help to use up both spouses’ annual exemptions and any capital losses.

'The increased rates of CGT and low annual exempt amount are strong arguments in favour of keeping as many investments as possible in tax-protected wrappers like ISAs or pensions. There is still time for those who hold investments that are exposed to CGT, or to income or dividend tax, to transfer those assets – where possible – into an ISA or pension before the end of the tax year, possibly using up some of their annual CGT exemption in the process.

‘We are also seeing increased interest in offshore bonds which adds more diversification in investment wrappers and adds other tax-efficiency features to those of pensions and ISAs.’

7. Making use of ISA allowances

Emma says: ‘Changes announced at the last Budget mean the cash ISA allowance will drop to £12,000 for the under-65s from April 2027, and the £20,000 overall ISA limit will remain frozen until 2030/31. Annual ISA allowances cannot be carried forward if not used, so couples who have funds that are exposed to tax but where one person is not using their ISA allowance might consider using up that spare allowance, even if that means transferring cash or assets.

‘For stocks and shares ISAs, you can fund an account with cash now to take advantage of the 2025/26 allowance without having to choose investments, which can be done at a later date.

‘You can also consider Junior ISAs for children under 18, for which there is a separate annual allowance of £9,000. Normally, income arising on funds given to children by a parent remains taxable on that parent if over £100 a year. As ISA income is not taxable, this allows you to give cash to your children without having to pay tax on the income generated.’

8. Major change to IHT business reliefs

From 6 April, the current 100 per cent rates of agricultural property and business relief will apply only to the first £2.5million of relevant assets, the threshold having been recently raised from the £1million announced at the October 2024 Budget. The new cap means many business owners and their families face a greater IHT bill at death.

Emma says, ‘In some cases an unexpectedly large IHT bill can jeopardise the future of a firm and the jobs it provides if the liquid assets are not there to meet the expense. For many business owners looking at the long-term prospects for their firm and their family’s financial security, 6 April this year is a clear deadline for planning.

‘Transfers of assets that can be made today with no immediate tax charge will be limited after this date. Although it might now be too late for some of the legal steps that can be necessary for the most complete succession strategies, we would encourage all business owners who might be affected by the changes to have a conversation with a financial planner or tax adviser at the soonest opportunity.

‘They can check at the very least whether Wills are drawn up in the most favourable way and whether any transfer of assets should be put in motion.’

NOTES  

[1] Some of the tax points discussed below are relevant only to taxpayers in England and Wales.   

[2] Additionally, the small gift allowance means you can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person. Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.  

And each tax year, you can give a tax-free gift to someone who is getting married or starting a civil partnership - up to:  

£5,000 to a child  

£2,500 to a grandchild or great-grandchild  

£1,000 to any other person  

If you are giving gifts to the same person, you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.  

For example, you can give your child a wedding gift of £5,000 as well as £3,000 using your annual exemption in the same tax year.  

[3]‘Net relevant earnings’ are the total earnings for an individual (including salary, bonuses and value of many benefits in kind for employees and trading profits of the self-employed) for the tax year. It does not include pension income, property rental income, savings and investment income, or the £30,000 non-taxable part of a redundancy payment. 
[4] Exceeding the annual allowance means incurring an annual allowance charge which is equivalent to tax relief if the member made a personal contribution. But if the AA is exceeded by an employer contribution, the member still suffers an AA charge despite not receiving any tax relief.    

[5] Both include all taxable income, not just earnings. Investment income of all types and benefits in kind, such as medical insurance premiums paid by the employer, are also included. Adjusted income includes all pension contributions (including any employer contributions), while threshold income does not.  

Work out your reduced (tapered) annual allowance - GOV.UK