How to Maximise the New Tax Year (2025-26)
A new tax year is upon us (2025-26). From 6 April, taxpayers have the opportunity to take full advantage of their new allowances – helping to put more hard-earned income and investment returns back in your pocket.
Here at Castlegate, our financial advisers explain some of the key reliefs and allowances to be aware of in 2025-26, with ideas on how to use them effectively towards your goals. We hope these insights are helpful. Please contact our team to discuss your own financial plan.
Maximising Savings
In 2025-26, basic rate taxpayers each have a Personal Savings Allowance (PSA) of £1,000. This allows them to earn up to this amount from interest (outside an ISA) without paying tax.
A higher rate taxpayer gets a lower PSA threshold (£500). Those earning under £17,570 (or nothing at all) could earn up to £5,000 in tax-free interest.
This has important implications for tax-efficient savings in the new tax year. Firstly, if you plan on saving into a Cash ISA, consider whether your total interest for 2025-26 will likely be “captured” by your PSA if held in regular savings.
Remember, you get a £20,000 total ISA allowance for the tax year. Ask yourself whether it could save more tax to focus this allowance on other assets rather than cash (e.g. equities).
Optimising Investments
This ties nicely to our next idea for maximising the 2025-26 tax year. Are there ways to possibly save on capital gains tax (CGT) and dividend tax?
Remember, any capital gains and dividends earned inside an ISA will be tax-free. The start of a new tax year is the perfect time to plan your investments for the year ahead. Spreading out your ISA contributions (e.g. monthly) helps avoid a last-minute scramble to use your Stocks & Shares ISA next February/March – at which point, you may have less available to contribute.
Consider how you can use other tax allowances to maximise your ISA investments. In particular, each taxpayer can earn up to £3,000 from capital gains without CGT in 2025-26. There is also a tax-free dividend allowance of £500.
For instance, suppose someone is looking to build an equity portfolio in 2025-26 and also sell a buy to let (BTL) property. Here, it might be sensible to build the former within a Stocks & Shares ISA so the individual can use their tax-free CGT allowance towards the property sale (additional properties like BTLs cannot be held inside the ISA structure).
Tailoring Pensions
The 2025-26 tax year marks a 4.1% rise in the State Pension, bringing the weekly payment up to £230.25 a week for the full new State Pension.
For some individuals, this higher income could affect their income tax liability in 2025-26. You can earn up to £12,570 without paying income tax (the “personal allowance”), which includes income from the full new State Pension (projected to total £11,973 this tax year).
The income tax bands have been frozen until April 2028. As such, a rise in pension income – whilst welcome for most – could lead certain individuals to inadvertently pay more tax as they are pushed into higher bands.
The Office for Budget Responsibility (OBR) estimates this could happen to 4.1m people by 2027-28. Speak with a financial adviser to explore your options if you are concerned about your own goals and income, as there may be ways to mitigate the potential impact.
Updating Estate Planning
The new Labour administration (elected in July 2024) is bringing in some key tax changes that may affect certain individuals’ estate plans.
In particular, unused pensions are expected to be brought into the value of a deceased person’s estate in April 2027. This means that inheritance tax (IHT) may be due on your leftover pension savings when you die.
This change could require a change in estate planning to ensure as much wealth is kept “in the family” as possible from April 2027. For some, one option might be to increase gifting. You can give away up to £3,000 per year without this getting counted as part of your estate for IHT.
Another idea is to explore making “regular gifts out of income”. Here, the general rule is that a regular financial contribution (e.g. to an adult child) will be free from IHT if you can demonstrate to HMRC that it is “normal” expenditure and it does not undermine your living standards. This is a complex and delicate area of tax planning, so check your plans with a financial adviser.
For those who are married or in a civil partnership, remember that your unused IHT allowances (e.g. nil rate band and residence nil rate band) pass to your surviving spouse/partner upon death – combining with their own upon second death. In 2025-26, this could conceivably allow a £1m estate to pass down to the couple’s direct descendants – with the right planning.
Those are some ideas to make the most of the 2025-26 tax year. If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
Please note:
Your capital is at risk. Investments can go down as well as up. Past performance is not indicative of future results. Tax treatment depends on individual circumstances and may change. This content is for information only and not investment advice. Any decision to invest is the reader’s own. Diversification is key to managing risk. Market volatility affects investment values. Inflation erodes savings. Liquidity risks may prevent quick access to funds.
