Tax planning

Tax planning means organising your finances so you pay no more tax than the law requires, both now and over your lifetime. It looks at income tax, capital gains tax, dividend tax and inheritance tax together, because saving on one can increase another. In practice, that means using allowances and reliefs each year, choosing which accounts hold which investments, sharing income and assets between spouses, timing sales and pension withdrawals, and planning gifts. For clients with substantial wealth, the biggest savings usually come from decisions made years ahead, not last-minute moves before the tax year ends.

Pensions and ISAs come first. Pensions give upfront tax relief of up to 45%, and ISAs give tax-free growth and withdrawals. Once those are full, the main options are:

• Investment bonds, which defer tax on gains and let you withdraw 5% a year
• Gilts, which are free of capital gains tax
• Venture Capital Trusts (20% income tax relief and tax-free dividends) and Enterprise Investment Schemes (30% relief, capital gains deferral and potential inheritance tax relief after two years), for experienced investors who accept high risk.

For a couple with significant wealth, a tax-year-end review can make a substantial difference. Check:

• ISA allowances (£20,000 each)
• pension contributions and carry forward (the oldest year’s unused allowance expires on 5 April)
• capital gains tax exemptions (£3,000 each), and whether to realise gains or losses
• dividend allowances
• inheritance tax annual exemptions (£3,000 each, plus last year’s if unused)
• any EIS or VCT investments
• whether to cash in investment bond segments while your income is lower.

Transfers between spouses and civil partners are generally free of capital gains tax and inheritance tax. That lets you:

• hold income-producing assets in the name of the partner with the lower tax rate
• use both sets of allowances: two ISAs, two capital gains exemptions and two dividend allowances
• transfer assets before a sale so the gain is split between you.

In retirement, you can plan withdrawals so both partners use their personal allowance and basic-rate band. Transfers must be outright gifts to be effective.

In 2026/27, gains above the £3,000 annual exemption are taxed at 18% or 24%. Ways to reduce the bill include:

• using both partners’ exemptions every year
• offsetting losses, which must be claimed within four years
• moving holdings into ISAs and pensions each year
• timing sales across tax years or into lower-income years
• holding gilts, which are exempt from capital gains tax.

Enterprise Investment Scheme investments can defer larger gains. Pension contributions also extend your basic-rate band, so more of a gain is taxed at 18%.

There’s no capital gains tax on death. Your assets are revalued at market value on the date of death, so any gain built up during your lifetime is wiped out and your heirs inherit at the new value. Those assets may still face 40% inheritance tax. For older clients with large unrealised gains, this raises a real planning question: hold until death, give assets away during your lifetime (which can trigger capital gains tax), or give them to charity. We help you weigh the two taxes together.

In 2026/27, dividends above the £500 allowance are taxed at 10.75%, 35.75% or 39.35%. From April 2027, tax on savings and property income rises by two percentage points, to 22%, 42% and 47%. Higher-rate taxpayers have only a £500 savings allowance, and additional-rate taxpayers have none. For substantial portfolios, where each asset is held matters more than ever. Holding income-producing assets in ISAs, pensions or bonds, and growth assets in general accounts, can reduce the overall bill.

They can be, for experienced investors who can accept high risk and money that’s hard to access:

• EIS offers 30% income tax relief on up to £1 million a year (£2 million for knowledge-intensive companies), capital gains tax deferral, and potential inheritance tax relief after two years.
• Seed EIS offers 50% relief on up to £200,000.
• VCTs offer 20% relief from 2026/27 on up to £200,000, plus tax-free dividends, if held for five years.

The tax relief should be a bonus, not the reason to invest.

These changes are confirmed or proposed:

• From April 2027, tax on savings and property income rises to 22%, 42% and 47%.
• From April 2027, under-65s can hold no more than £12,000 of their £20,000 ISA allowance in cash.
• From 6 April 2027, most unused pensions count towards estates for inheritance tax.
• From April 2028, a High Value Council Tax Surcharge of £2,500–£7,500 a year is proposed for homes in England worth over £2 million.
• From April 2029, National Insurance relief on salary sacrifice will be capped at £2,000 a year.
• Income tax and inheritance tax thresholds are frozen until April 2031.

Retirement income is taxed like any other income. The State Pension and taxable pension withdrawals use up your £12,570 personal allowance and then your tax bands. You no longer pay National Insurance after State Pension age. The key is combining your income sources so you pay as little tax as possible:

• take 25% of each pension withdrawal tax-free, or phase your tax-free cash
• use your lower tax bands every year, rather than drawing large sums in one year
• top up from ISAs, which are tax-free, and from investments using your capital gains and dividend allowances
• make sure both partners use their allowances.