As the UK tax year runs until 5 April 2026, now is a sensible time to review your finances and ensure you are making full use of the tax allowances available. Many allowances are use-it-or-lose-it, meaning that if they aren’t used by the end of the tax year, they cannot be carried forward.
This blog is updated annually to reflect the latest guidance on tax allowances, helping you to stay informed and build an effective tax planning strategy.
Taking time to plan ahead can help reduce your overall tax bill, improve the tax efficiency of your savings and investments, and ensure more of your money is working towards your long-term goals.
Here, I've outlined the key allowances available for the 2025–26 tax year, grouped by income, savings and investments.
A tax allowance is an amount you can earn, save or invest without paying tax. In most cases, allowances are set on a tax-year basis, meaning any unused allowance is lost once the tax year ends.
For many people, income tax is deducted automatically through PAYE if they are employed or receiving pension income, although there are some exceptions. However, if you are self-employed, run a business, or receive income from savings or investments, you may be required to complete a self assessment tax return.
(I’ll explain investments later.)
The personal allowance remains at £12,570 for the 2025–26 tax year, unchanged from the previous year. This is the amount of income you can receive before paying income tax.
This income may come from a variety of sources, including a salary, pension income, dividends from a business, or income generated from investments.
For individuals earning more than £100,000, the personal allowance is gradually withdrawn. For every £2 of income above this level, £1 of allowance is lost, meaning the allowance is fully removed once income reaches £125,140.
Married couples and civil partners may be able to benefit from the marriage allowance.
If one partner earns less than the personal allowance (£12,570), up to £1,260 of their unused allowance can be transferred to their spouse or civil partner. This provision is only available where the receiving partner is a basic-rate taxpayer — individuals cannot make use of this allowance if their spouse or partner pays more than the basic rate of income tax.
The starting rate for savings allows up to £5,000 of savings interest to be taxed at 0%, but eligibility depends on your level of other income.
The more you earn from other sources — such as wages or pension income — the lower your starting rate for savings will be:
The personal savings allowance applies once income reaches higher levels and differs from the starting rate for savings.
Unlike the starting rate for savings, the personal savings allowance can still be used if your income exceeds £17,570, making it particularly relevant for those with higher earnings.
If you receive income from dividends, you can benefit from the £500 dividend allowance for the 2025–26 tax year. This allowance has remained unchanged from the previous tax year.
Dividends within this allowance are not taxed, although income above this level may be subject to dividend tax at the applicable rate.
ISAs continue to be a cornerstone of tax-efficient saving and investing.
For the 2025–26 tax year, you can invest up to £20,000 across all ISA types combined. Any interest, dividends or capital growth generated within an ISA is free from UK income tax and capital gains tax. This allowance resets each tax year and cannot be carried forward if unused.
Within the overall £20,000 ISA allowance noted above, you can contribute up to £4,000 per tax year into a Lifetime ISA (LISA).
A key benefit of a LISA is the 25% government bonus added to your contributions. For example, a £4,000 contribution receives a £1,000 bonus, increasing the total investment to £5,000.
Lifetime ISAs are designed for specific long-term objectives. Funds can be used towards the purchase of a first home or accessed for retirement from age 60. Withdrawals for other purposes will normally result in a penalty, which may reduce the overall value of the investment.
When selling assets such as shares, investment funds or second properties, Capital Gains Tax may apply.
For the 2025–26 tax year, the CGT annual exemption remains at £3,000, meaning gains up to this amount can be realised without paying Capital Gains Tax. Gains above this level may be taxable, depending on your income and the type of asset sold.
This allowance has halved since tax year 2023-24, when it was £6,000.
Pensions remain one of the most valuable long-term tax planning tools available.
The annual pension allowance is £60,000 for most individuals, subject to earnings and the availability of unused allowances from previous tax years (carry forward). You can typically contribute up to 100% of your relevant UK earnings, capped at this allowance.
Pension contributions benefit from tax relief at your marginal rate, and investments held within a pension can grow free from income tax and capital gains tax.
Example:
If you contribute £10,000 into your pension and you are a basic-rate taxpayer, tax relief is added, increasing the total contribution to £12,500 in your pension pot.
Pension rules can become more complex for higher earners, particularly those with incomes above £200,000, or where contributions approach or exceed the annual allowance. In these cases, professional advice can help ensure contributions remain tax-efficient and avoid unexpected tax charges.
Tax allowances form a key part of effective financial planning, but they are often underused. Reviewing your position well before the end of the tax year allows time to make informed decisions so you don't risk valuable allowances.
If you would like guidance for the 2025–26 tax year, please speak to us here at Stephen Eve, a member of the team will be happy to help. We can ensure you are making the most of your allowances and avoid any adverse tax charges.
If you’re self-employed, or if you complete an annual tax return, it would also be advisable to speak to your Accountant. We work alongside many Accountants so are always happy to collaborate with or recommend them.
This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth.
.The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Even a long-term investment approach cannot guarantee a profit.
Tax treatment varies according to individual circumstances and is subject to change. Please note that the FCA does not regulate will writing, tax planning and trusts.
