The UK tax system contains a remarkably generous set of annual allowances — amounts you can shelter from income tax, capital gains tax, and inheritance tax each year without charge. The difficulty is not complexity: each allowance is straightforward. The difficulty is discipline. Most of them expire on 5 April each year, and an unused allowance is gone forever.
Used consistently over a decade or more, annual allowances compound into meaningful tax savings. Ignored or only partially used, they represent a quiet and avoidable cost. This guide covers every significant annual allowance, how it works, and how to integrate them into a coherent year-end planning routine.
The UK Tax Year and the Planning Window
The UK tax year runs from 6 April to 5 April. Most allowances reset on 6 April and must be used by 5 April of the following year. The practical planning window is the final six weeks of the tax year — late February through early April — when you have enough visibility of your year's income and gains to make informed decisions. Acting in March rather than waiting until the last week of the tax year avoids execution risk (markets, fund processing times, banking delays).
ISA Allowance: £20,000 Per Year
The Individual Savings Account allowance allows you to invest up to £20,000 per tax year in any combination of cash ISAs, stocks and shares ISAs, and innovative finance ISAs. Investments grow and income is received entirely free of UK income tax and capital gains tax — permanently. There is no annual declaration on a tax return; HMRC has no claim on ISA income or gains at any point.
The power of the ISA is its simplicity and permanence. A stocks and shares ISA invested in a diversified global portfolio and left untouched for 20 to 30 years is one of the most tax-efficient investment structures available to UK individuals.
Key rules to know:
- The allowance cannot be carried forward. An unused ISA allowance for 2025/26 is lost on 5 April 2026.
- Since 6 April 2024 you can pay into more than one ISA of the same type in a single tax year (for example, two different stocks and shares ISAs) and split the £20,000 across types and providers as you wish. The exception is the Lifetime ISA, where you can still only contribute to one per tax year. Note that not all providers permit multiple same-type subscriptions.
- A Lifetime ISA (LISA) allows contributions of up to £4,000 per year (within the £20,000 total) for first-home purchase or retirement, with a 25% government bonus — but the withdrawal rules are restrictive.
- Junior ISAs allow contributions of up to £9,000 per year for under-18s, growing tax-free.
Year-end action: If you have not used your ISA allowance, fund it before 5 April. Even a cash ISA contribution made on 4 April that is then invested in the following week preserves the allowance. Transfers between ISA types do not use additional allowance.
Pension Annual Allowance: £60,000 (Plus Carry-Forward)
The annual allowance for pension contributions is £60,000 (as of 2026/27) or 100% of UK earnings in the year, whichever is lower. Contributions receive income tax relief at your marginal rate: a higher-rate taxpayer contributing £10,000 effectively costs £6,000 after tax relief. Additional-rate taxpayers (45%) receive £4,500 back.
Carry-forward is available for the three preceding tax years, provided you were a member of a registered pension scheme in those years. If you had unused allowance in the three prior years, you can carry it forward and contribute more than £60,000 in a single year — potentially up to £240,000 if you have three years of entirely unused allowance. This is especially useful in years of exceptional income: a business sale, a large bonus, or the exercise of share options.
Tapered annual allowance: High earners face a tapered reduction. For 2026/27, if your "adjusted income" exceeds £260,000, the annual allowance tapers down by £1 for every £2 of income above that threshold, to a minimum of £10,000. The tapering calculation requires care; taking it on assumptions can lead to unintended annual allowance charges (which are levied at your marginal income tax rate on the excess).
Money purchase annual allowance (MPAA): If you have flexibly accessed a money purchase (defined contribution) pension — taken income in drawdown or taken an UFPLS — the annual allowance for money purchase contributions falls to £10,000. Carry-forward is not available against the MPAA. This catches many people by surprise.
Year-end action: Calculate your remaining annual allowance (current year plus any carry-forward) and consider whether a large employer or personal contribution before 5 April makes sense. For business owners, employer contributions made through the company are deductible against corporation tax as well as sheltered from NI.
Capital Gains Tax Annual Exemption: £3,000
The CGT annual exempt amount is now £3,000 (reduced from £12,300 in 2022/23 in a series of cuts). Gains up to this amount in any tax year are free of CGT. Above this, gains are taxed at 18% (basic rate) or 24% (higher rate) for residential property, and 18% or 24% for other assets following the October 2024 Budget rate increases.
At £3,000, the annual exemption has limited value for large portfolios but is not zero. In a year where you are selling assets and expect modest gains, timing a disposal before 5 April rather than after can save up to £720 (£3,000 × 24%).
Bed-and-ISA (selling an asset outside an ISA wrapper and re-purchasing it inside an ISA in the same tax year) crystallises a gain within the annual exemption and shelters future growth from CGT permanently. This is a standard year-end technique for investors who have under-used their ISA allowance.
Couples: Spouses and civil partners can each use their £3,000 annual exemption. Transferring assets between spouses before sale (at no-gain, no-loss) to equalise gains across two annual exemptions is legitimate and widely used.
Losses: Capital losses in the same tax year are set against gains before the annual exemption applies. If you have losses sitting in a portfolio, these can be crystallised before year-end and set against gains already realised in the current year.
Dividend Allowance: £500
The dividend allowance — the amount of dividend income that is free of tax each year regardless of how dividends are received — was cut to £500 in 2024/25 and remains at that level. Above this, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).
For investors holding equities outside ISA or pension wrappers, the dividend allowance provides minimal shelter. Dividends from shares held inside an ISA or pension remain entirely tax-free. The practical year-end planning implication is primarily to ensure that dividend-paying investments are held inside tax-efficient wrappers wherever possible.
Personal Savings Allowance
Basic rate taxpayers can receive up to £1,000 of interest from savings accounts and bonds without paying income tax. Higher rate taxpayers receive a £500 allowance. Additional rate taxpayers (those earning above £125,140) receive no personal savings allowance.
With savings rates elevated compared to the 2010s, a higher-rate taxpayer earning more than £500 in bank interest will be liable to income tax on the excess at 40%. Ensuring that savings are in cash ISAs (where interest is tax-free regardless of amount) or National Savings & Investments products that qualify for PSA treatment is straightforward year-end housekeeping.
Inheritance Tax Gifting Allowances
IHT gifting allowances reset each tax year and are genuinely powerful when used consistently. Unlike most allowances, the annual exemption for IHT purposes can carry forward — but only for one year.
Annual exemption: Each person can give away £3,000 per tax year free of IHT. If unused, it carries forward to the next year only (maximum £6,000 in a single year). At 40% IHT, consistent use of this exemption saves £1,200 per year per person — or £2,400 for a couple.
Small gifts exemption: £250 may be given to any number of individuals in a tax year free of IHT. This cannot be combined with the annual exemption for the same recipient.
Wedding gifts: £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to anyone else — free of IHT if made on or before the wedding day.
Normal expenditure out of income: The most powerful IHT exemption available to high-income individuals. Gifts that are (a) habitual (part of a regular pattern), (b) made from income rather than capital, and (c) leave the donor with sufficient income to maintain their normal standard of living, are exempt from IHT without limit. Funding children's school fees, regular cash transfers, insurance premiums, or pension contributions for children can qualify. Good record-keeping (HMRC form IHT403 provides the relevant template) is essential to substantiate the exemption on death.
Potentially Exempt Transfers (PETs): Any gift to an individual above the annual exemption is a PET. If the donor survives seven years, it falls out of the estate entirely. Gifts made within seven years of death are subject to tapering IHT relief.
Year-end action: Before 5 April, confirm that £3,000 annual gifts (per person) have been made and documented. Review whether prior-year carry-forward can be used. For high-income individuals, document regular gifts that may qualify for the normal expenditure out of income exemption.
Year-End Planning Timeline
January–February: Review the year's income and gains position. Identify any large disposals planned before or after year-end. Calculate unused pension allowance including carry-forward.
March: Execute bed-and-ISA transactions for assets held outside wrappers with unrealised gains or losses. Confirm pension contribution levels and instruct top-up contributions if applicable. Make IHT annual gifting transfers and document them.
Late March: Fund ISA for the year if not already done. Check dividend income has not breached the allowance outside tax-efficient wrappers. Confirm LISAs are funded if applicable.
5 April (or 4 April if 5 April falls on a weekend): Final deadline. ISA, dividend, savings, and CGT allowances expire at midnight. Pension contributions can technically be received up to midnight but processing times make late-day instructions risky.
6 April: New year begins. Update records for carry-forward calculations. Begin the process again.
Allowances Relevant for Non-UK Residents
Non-UK residents may retain access to some UK allowances (ISA contributions generally require UK residence; pension contributions require UK earnings or a UK registered pension scheme) and may not be subject to UK tax on certain income types. The interaction of UK allowances with overseas tax residency is specific to individual circumstances and should be confirmed with a tax adviser familiar with both UK and the relevant overseas tax system.
Compliance Caveat
Tax allowances and rates change regularly. The figures quoted in this article reflect the position as understood for the 2026/27 tax year and may not reflect subsequent changes. Individual circumstances — particularly for high earners subject to the tapered annual allowance or MPAA — require personalised calculation. Nothing in this article constitutes individual tax advice. Seek professional advice before making decisions based on this information.
How Global Investments Can Help
Year-end tax planning done well is not a single conversation in March. It is an ongoing process built into your annual financial planning calendar. Global Investments works with clients throughout the year to ensure that every available allowance is being used, that pension contributions are calibrated to income levels and carry-forward positions, and that portfolio disposals are timed and structured to minimise CGT.
For internationally mobile clients, we also advise on which UK allowances remain accessible from overseas and how they interact with obligations in other jurisdictions. If you would like a comprehensive review of your tax position ahead of the April year-end, contact our team to arrange an appointment.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.