Five ways to boost the tax efficiency of your savings early in the financial year - and give your investments a valuable head start

Jason Hollands, Managing Director at Bestinvest by Evelyn Partners, the online investment platform, comments:               

“The end of the 2025-26 tax year may be more than a month behind us but rather than parking investment decisions until the next deadline or Autumn Budget looms, as is often the case, now might be an opportune time to get ahead. With almost 11 months still to run until the end of the 2026-27 financial year, making sure your savings and investments are as tax efficient as possible can deliver peace of mind, improve your overall tax position and potentially elevate your returns. 

“Savers and investors are under increasing pressure. The UK tax burden is on course to reach the highest level since the Second World War and with most personal tax allowances on pause until at least 2031, an increasing proportion of an individual’s income gets swallowed up by tax as their earnings increase. That pressure has been compounded by savage cuts to the Dividend Allowance and the Capital Gains Tax exemption in recent years, along with an increase in the Capital Gains Tax rate in Autumn 2024, a hike to the dividend tax rate in April this year and the planned 2 percentage-point increases in savings and property income tax in April 2027. Anyone holding investments or savings outside of a tax-wrapper is now more exposed than ever to tax on their assets.   

“Add ISA tinkering into the mix – including capping Cash ISA subscriptions at £12,000 for the under 65s and the potential imposition of charges on cash held in Stocks & Shares ISAs from next April - alongside the decision to bring unused Defined Contribution pension assets into the scope of inheritance tax (IHT) liabilities, and it’s clear that savers and investors face a far more complex and unforgiving landscape. 

“Rather than leaving key investment decisions to the end of the tax year, investing towards the start of the year removes the pressure to make rushed decisions and allows your hard-earned money to start benefiting from tax efficiency earlier. As the old saying goes, ‘the early bird catches the worm,’ and with ISAs or pensions, being early can mean a full year of additional potential growth and less tax paid overall.” 

Here, Jason Hollands outlines why investing early in the financial year could deliver stronger long-term outcomes, boost tax efficiency and leave financial affairs in far better shape well before the next tax-year-end approaches: 

Using as much of the current ISA allowance as early as possible in the tax year is a no brainer. Any money held in an ISA can grow free of tax on income and gains, allowing investors to hold onto more of their savings. This makes ISAs one of the most effective tools available to shelter returns from capital gains tax and dividend income tax. 

Your ISA allowance remains at £20,000 this tax year despite changes just around the corner. Even when they come in, in April 2027, the headline annual subscription limit for Stocks & Shares ISAs remains unchanged for investors, who can still commit their entire allowance to investments. The changes primarily apply to cash, with the amount that can be subscribed to an ISA capped at £12,000 for the under 65s, but of course, the remaining £8,000 can still be added to a Stocks & Shares ISA. While there is also some quibbling over how HMRC will impose charges on cash held in investment ISAs, to prevent anyone attempting to circumvent the new rules, it’s important to remember that nothing has changed this tax year. 

Remember, the ISA allowance is a strict ‘use it or lose it’ perk, and while investors have until midnight on April 5, 2027, to utilise it, getting ahead can pay off handsomely, as it can not only help to prevent a saver from paying tax on investments held outside a tax wrapper but also on cash held in a regular bank or building society that could place people at risk of breaching their personal savings allowance.  Plus, it gives your investments more time to compound and grow.    

Someone who consistently invests their full ISA allowance at the very start of the tax year will see their portfolio grow more substantially over 30 years than those that delay making contributions until later in the tax year as assets have longer to take advantage of the compounding effect of making returns on the growth they experience, not just the original amount invested. Let’s say Investor A invests £20,000 at the start of the tax year on April 6 and sticks to that strategy for 30 years. Were they to achieve an annual return of 5% after fees, they would accumulate a pot of £1,395,216 by 2056 – that's more than £66,000 more than Investor B who secures £1,328,777 after contributing money to their ISA at the end of the financial year.   

Some Bestinvest early birds were keen to take advantage of such a move. The first person to max out their ISA allowance in the current tax year, did so just eight-and-a-half hours into April 6. Of course, not everyone has a spare £20,000 to add to a Stocks & Shares ISA, but even those who find they have a small amount to invest can take advantage early. One eager Bestinvest client topped up their ISA at 12.48am on April 6. 

While the war in the Middle East has been unsettling for investors – despite which global markets have soared higher - investors could consider loading up their Stocks & Shares ISA with cash (still permissible without a charge this tax year) and then drip feeding it into the market over the next few months. Alternatively, they could choose to make regular, monthly contributions via a Direct Debit.  

Investing a set amount each month takes advantage of pound-cost averaging, so rather than investing a lump sum at a single price point, investors can buy smaller amounts at regular intervals no matter what the price is at the time. This approach helps cushion the effects of market volatility over the short- to medium-term and is particularly sensible during times of global economic and market uncertainty such as those we have seen in recent months.  

Remember, it’s not only investments that benefit from being tax protected in an ISA. Money held in cash outside a tax wrapper is subject to taxation at an individual’s marginal tax rate once they breach their Personal Savings Allowance. Basic rate taxpayers have a Personal Savings Allowance of £1,000, higher rate taxpayers £500 and additional rate taxpayers have no concession at all so moving money into an ISA would be a wise move.  

That said, holding too much cash for long periods of time can also be costly. While an emergency fund covering six to 12 months of essential spending is sensible, money with no short‑term purpose has the potential to deliver higher long‑term returns if invested - provided it won’t be needed within the next five years. 

Topping up a pension not only boosts retirement income in the future but also slashes your income tax bill today because any contributions attract tax relief at your marginal rate. Basic rate taxpayers have 20% in tax relief added to their pot with each contribution while those on the higher 40% and 45% tax rates can respectively claim a further 20% and 25% off their tax bill for the year (different tax rates apply in Scotland).   

Although tax is payable when pension income is eventually drawn - aside from the 25% tax‑free lump sum - making pension contributions remains one of the most effective ways to improve both long‑term prospects and near‑term tax efficiency.    

Remember, the maximum most people can pay into a pension this tax year is £60,000 gross or 100% of their qualifying earnings, whichever is lower - unless you are a very high earner subject to the tapered allowance – or are able to take advantage of ‘carry forward’ rules. That limit encompasses all contributions across all pension arrangements, including tax relief and employer contributions. Just don’t commit too much as once the money is added to your pension, you cannot touch it until you are 55, or 57 from 2028.  

The decision to bring unused Defined Contribution pensions into the scope of IHT from April 2027 should not deter savers from taking advantage of the benefits that come with building up a healthy retirement pot now.  While the changes may prompt some people to rethink how they access their pension savings in retirement, pensions will remain a central part of long-term financial planning. In the past, individuals with alternative sources of retirement income — such as ISAs or rental properties — often left pension funds untouched for as long as possible in order to pass wealth on to beneficiaries. Going forward, some may instead choose to draw on pension savings earlier in retirement. 

Importantly, pensions should still be viewed primarily as a vehicle for funding retirement, rather than as an inheritance planning tool. Used alongside ISAs, trusts and investments such as offshore bonds, they will continue to play an important role within a broader wealth planning strategy — helping individuals meet retirement income needs while enabling other assets to be passed on during their lifetime. 

Again, making contributions to your pension earlier in the tax year rather than the final month gives you more time to benefit from compounding because you'll gain up to 11 months more in potential growth for your invested funds. For those worried about making a lump sum investment, taking the timing out of the process altogether by investing on a regular basis can offer reassurance. 

Regular investing removes the emotion from investing, after all it is all too easy to have investment decisions clouded by current sentiment or events that won’t have major significance when investing for the long-term. 

Taking advantage of a workplace salary sacrifice scheme can also turbocharge pension savings in the short-term as the rules around this valuable benefit are set to change in the coming years. The Autumn Budget announced plans to cap the amount of salary that employees can sacrifice into a workplace pension at £2,000. This was a blow for pension savers, particularly with an element of variable pay i.e. bonuses, but crucially this change is not planned to come into force until April 2029. That gives employees almost three tax years to make full use of the tax perks salary sacrifice offers before the opportunity narrows, so taking advantage now really makes sense. 

Salary sacrifice is a popular feature of many workplace schemes because it allows employees to exchange part of their salary or bonus for an equivalent pension contribution instead. This not only reduces income tax, but also lowers National Insurance contributions (NICs), for both the employee and employer, making pension saving even more tax efficient. 

Crucially, salary sacrifice can be an effective way to reduce your adjusted net income to avoid some of the nasty cliff edges that can hit taxpayers as their income increases. Employees close to the £50,270 earnings threshold where the higher 40% tax rate kicks in, for example, could dip under it by using salary sacrifice pension contributions.  It is worth asking your employer if they offer such a scheme as more companies may be inclined to do so in a bid to lower employment costs following the hike in the National Insurance rate employers pay on employee salaries that came into force in April 2025. 

Salary sacrifice can also be useful for those that might miss out on Child Benefit payments because they earn too much, or those nearing the threshold for the 45% additional rate of tax at £125,140. It’s particularly beneficial for those whose earnings could fall between £100,000 and £125,140. For every £2 of taxable income above £100,000, they lose £1 of the personal allowance of £12,570. Combine the loss of the personal allowance with the 40% income tax rate and those earning between £100,000 and £125,140 under the current rules are paying an eye-watering effective rate of income tax of 60% on that proportion of their income.    

While some employees wait until the end of the tax year, when they might receive a bonus, to take advantage of salary sacrifice, starting earlier in the tax year allows pension savers to capitalise for longer. After all, bonuses can be dependent on individual or company performance and there is never a guarantee that either will hit the top spot. Upping salary sacrifice contributions now could be particularly important for those closer to retirement aged in their 50s and 60s who may be trying to catch up on building a pension fund. Taking advantage while they can is crucial, particularly if the employer passes on their employer NI saving. If that is the case, then every £1 will count so upping contributions now will be key.  

The Government has tightened its grip on investors in recent years, beginning with the sharp reductions to the annual Capital Gains Tax exemption and Dividend Allowance under the previous Conservative administration - now just £3,000 and £500, respectively - followed by the increase in CGT rates announced by Rachel Reeves in the Autumn of 2024 Budget. Couple that with the 2-percentage point rise in Dividend tax rates that took effect at the start of this tax year, and these changes mean many more ordinary investors could find themselves paying tax on their investment returns for the first time.   

Moving investments, such as shares and funds, held outside a tax wrapper into the shelter of an ISA or pension, a process known as Bed & ISA or Bed & Pension – can help investors protect future returns from tax. This involves selling investments held in a taxable account and repurchasing them within an ISA or pension, ideally, making careful use of their current exemptions in the process. Just remember to calculate any capital gain carefully before selling, as exceeding the CGT exemption – currently £3,000 – could trigger a tax liability.     

Many people seek to do Bed & ISA at the end of the tax year, but one of the biggest pitfalls is savers running out of time to complete the process. ISA and SIPP providers will have a cut-off point for Bed & ISA transactions at tax year end to allow enough time for the process to complete. Both a Bed & ISA and Bed & Pension can take up to 10 days or much longer. Someone first needing to migrate paper share certificates into an investment account may need up to four weeks or more, so those with assets ready to transfer could consider starting the process now while their tax affairs are fresh in the mind from the end of the last tax year. This will eradicate any stress by ensuring people don’t miss out on their key allowances before they reset again in early April 2027.  

Remember, while you may pay CGT on any profits above your annual allowance, moving the money into an ISA or SIPP means you won’t have to in the future – a highly beneficial move in this high tax environment. 

Most UK taxpayers don’t need to file a tax return for the 2025-26 tax year because tax is automatically deducted from their wages through Pay-As-You-Earn (PAYE).  
 
However, individuals who receive income on which tax has not been deducted – such as rental income or dividends - or who need to claim additional tax reliefs will still be required to complete a Self-Assessment tax return. This can include higher- or additional-rate taxpayers claiming pension tax relief beyond that provided at source, as well as investors who have subscribed to tax-efficient schemes such as Venture Capital Trusts (VCTs) or Enterprise Investment Schemes (EISs). There are also a range of other circumstances in which filing a return is mandatory.   

The deadline to file a paper return is October 31, 2026, but most people file online and while that gives them more time to get their affairs in order, as the deadline is January 31, 2027, getting that return finished early can be an effective way to keep a personal budget on track. No one wants to be hit with a large tax bill at the end of January, just weeks after the extra expense that comes with the festive period. Worse still, missing your tax return deadline can come with heavy penalties – a good reason to get the self-assessment process done ASAP. A record 740,000 taxpayers did just that, filing their tax return for the 2025-26 tax year in April, according to HMRC.  

There’s another bonus for getting the hard work done now - if you are owed a tax refund, you receive the money sooner. And, even if you have tax to pay, you can spread the payments over the next nine months to make them more manageable. So rather than paying a lump sum in one go, you can drip them in slowly to ensure your cashflow, and any savings plans, don’t get impacted in a single month.   

While HMRC is changing the way landlords and sole traders file their income and expenses, with people expected to submit the information every three months under the Government’s Making Tax Digital for Income Tax scheme, that does not apply to everyone this tax year. 

The changes are being rolled out slowly with landlords and the self-employed with a total annual income from employment or property, or both, of above £50,000 already making quarterly submissions from April this year. Those with qualifying income above £30,000 must adopt this process from April 2027 and it’s a start date of April 2028 for those with income above £20,000.