Tax year end planning 2026

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Tax Advantages of Pension Contributions

Pension contributions don’t just boost retirement savings— they also reduce a clients adjusted net income which has additional tax advantages, there are four major benefits:

1. Avoid the Tapered Annual Allowance
   
   Personal contributions (not employer contributions) lower threshold income, if this drops threshold income below £200,000 you prevent the annual allowance from being tapered. This can prevent or at least reduce an annual allowance charge.
   
   Tom received employer contributions of £40,000, he has adjusted income of £360,000 and threshold income £220,000 - his annual allowance is tapered to £10,000 – exposing Tom to an annual allowance charge. Paying £20,000 into his pension reduces his threshold income to £200,000, so the taper does not apply, restoring the full £60,000 allowance- total contributions are £60,000 – avoiding an annual allowance charge.
   
    
2. Reclaim the Personal Allowance (Escape the 60% Tax Trap)
   
   Income between £100,000 and £125,140 suffers an effective 60% tax rate (67.5% in Scotland) due to the gradual removal of the personal allowance and more income subject to higher rate tax. Pension contributions reduce your adjusted net income, this can restore the personal allowance, and deliver significant tax relief.
   
   Rebecca has income of £120,000, tapering her personal allowance to £2,570. A £20,000 pension contribution lowers her adjusted net income to £100,000, restoring her personal allowance to £12,570. The £20,000 gross contribution generates tax relief at 40% (£8,000) which offsets the income tax on those earnings, and £10,000 is no longer taxed at 40% (£4,000).
   
   The contribution effectively giving 60% relief, a total of £12,000 tax savings.

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3. Reduce tax from chargeable gains and CGT

Personal pension contributions extend the basic rate band. This can reduce the tax payable on chargeable event gains arising on investment bonds, as well as capital gains tax on collective investments. A well‑timed pension contribution could reduce tax on bond gains from 40% to 20%, depending on your client’s income position and the availability of the basic rate band. Similarly, capital gains that  would otherwise be taxed at 24% may instead fall within the basic rate band and be taxed at 18%.
 

4. Reduce or Eliminate the High-Income Child Benefit Charge

Where a client (or their partner) is claiming child benefit, a charge applies when income for either exceeds £60,000, tapering away child benefit completely at £80,000. Pension contributions can lower adjusted income, cutting or removing the charge while growing retirement funds.

 

Inheritance tax (IHT)

The IHT landscape is changing. Agricultural Property Relief and Business Property Relief is changing from 6 April 2026 and the Government have confirmed its position to proceed with bringing pension death benefits into scope from April 2027.

1. Agricultural Property Relief (APR) and Business Property Relief (BPR)
   
   Currently, qualifying agricultural and business property in the UK may benefit from up to 100% relief APR and BPR, meaning the assets can pass free from IHT.
   
   From April 2026 the availability of 100% APR and BPR will be limited by a new £2.5 million allowance per individual applying to the combined value of qualifying agricultural and business assets. Any value above this allowance will continue to qualify for relief, but only at 50%, resulting in an effective IHT charge of 20% on the excess. Any unused allowance will be transferable between spouses or civil partners, allowing up to £5 million of qualifying assets to benefit from full relief on second death.
   
   These changes could materially alter the IHT position for farming families, entrepreneurs and private company owners which asset values exceed the available relief allowance. Early planning to ensure the existing ownership and succession arrangements remain appropriate; and that there is sufficient liquidity to pay any IHT liability could help eliminate any risk of a forced sale in case the worst should happen.
    
2. IHT exemptions
   
   Clients can still take advantage of a range of established IHT allowances and exemptions for those wishing to make lifetime gifts.

    

   • Annual exemption – gifts up to £3,000 per tax year are exempt from IHT. Any unused allowance from the previous tax year can be carried forward for one tax year, after which it will be lost.
      
   • Exempt gifts - gifts to spouses, civil partners, charities, political parties, and national organisations are fully exempt from IHT.
      
   • Normal expenditure out of income - regular gifts made from surplus income, where the donor retains their usual standard of living, can reduce the value of their estate over time. Withdrawals from an investment bond are treated as payments of capital rather than income and do not qualify under this exemption.

Larger lifetime gifts that exceed available exemptions are known as potentially exempt transfers (PETs) or chargeable lifetime transfers (CLTs). These can be effective in removing substantial assets from a client’s estate, provided the individual survives for seven years from the date of the gift.

With pension death benefits forming part of the IHT estate from April 2027, earlier use of PETs will play a more significant role in reducing future IHT exposure. Making such gifts sooner rather than later increases the likelihood that they fall outside the estate for IHT.

 

Capital gains tax (CGT)

Capital gains are currently taxed at 18% where gains fall within the basic rate band and 24% where they fall above it. The CGT annual exempt amount is currently £3,000 for individuals (£1,500 for most trusts). No changes have been announced to the tax rates or annual exempt amount.    

Business Asset Disposal Relief (BADR) and Investors' Relief rates will increase from 14% to 18% from 6 April 2026.

Planning considerations:

• The annual exempt amount for individuals and trusts can’t be carried forward to future tax years.
   
• Crystallising gains eligible for BADR/Investors' Relief before April 2026 may allow clients to benefit from the current 14% rate ahead of the increase to 18% from 06 April 2026.
   
• Gains in this tax year can be offset against any losses. Losses can be claimed up to four years after the end of the tax year you dispose of an asset. Retaining losses for use against future gains may be advantageous where those gains are expected to be taxed at higher rates.
   
• Reassessing investment strategies may be appropriate. It may be more tax efficient to hold growth focussed assets within tax advantaged wrappers such as ISAs and pensions, where gains are sheltered from CGT.
   
• Transfers between spouses and civil partners are exempt from CGT. Where one partner has unused annual exempt amount, assets can be transferred to allow gains to be crystallised using both allowances, up to £6,000 in total.
   

Dividend tax changes

From 6 April 2026 dividend tax rates increase from 8.75% → 10.75% for basic rate, 33.75% → 35.75% higher rate. The additional rate of 39.35% remains unchanged along with the £500 dividend allowance.

Planning considerations:

• Advancing dividends before 6 April 2026 for basic and higher-rate clients to take advantage of lower dividend rates.
   
• Taking care that advancing dividends this tax year doesn’t taper the personal allowance or push clients into higher tax brackets, for example moving dividends from 8.75% to 33.75%, which may outweigh the benefit of avoiding the 2% rate increase from 6 April.
   
• For couples, shareholder rebalancing to split dividends and use two sets of allowances/bands may provide planning opportunities and allow shares to be advanced.