Tax year end is upon us and time is of the essence in ensuring clients don’t miss out on disappearing or restricted financial planning opportunities. Kirsten Morgan – Senior Technical Manager at M&G tells us more.
As we approach the end of the 2025/26 tax year, there are planning opportunities that will soon disappear or become more restricted. This year, tax year end falls over the Easter bank holiday weekend, with Good Friday on 3rd April and Easter Monday on the 6th April.
Although the legislative deadline remains the 5th April, providers may have earlier processing cut-offs than usual. Clients who are used to acting on a “just in time” basis may be “just too late” this year. Early engagement will be key.
1. Pension and ISA Allowances
Pensions
Tax year end is always a valuable opportunity to review pension funding against long‑term retirement expectations.
Pension contributions continue to play a central role in tax planning, particularly for clients with income near or above £100,000, where contributions can help preserve the personal allowance and maintain eligibility for tax‑free childcare and the 30 hours of free childcare.
Carry forward remains a powerful tool where there is a shortfall between pension aspirations and reality.
2025/26 is the final year in which unused annual allowance from 2022/23, when the allowance was £40,000, can be carried forward. Clients who have the means to do so may wish to consider maximising this opportunity before it expires.
For company owners, employer pension contributions remain particularly attractive. These can be made even where contributions exceed the individual’s taxable earnings, with corporation tax relief normally available provided the contributions are wholly and exclusively for the purposes of the business.
As ever, it is essential to consider whether the tapered annual allowance or money purchase annual allowance applies.
ISAs
ISA allowances remain unchanged, with individuals able to invest up to £20,000 and Junior ISAs capped at £9,000. While there are no immediate changes for 2026/27, this tax year is notable for what lies ahead.
It is proposed that 2026/27 will be the final year in which clients under 65 can invest more than £12,000 of their annual ISA allowance in cash. These future changes may influence asset allocation decisions now.
2. Business Property Relief (BPR) and Agricultural Property Relief (APR)
From 6 April 2026, the availability of 100% relief under both reliefs will be capped by a new £2.5 million lifetime allowance. Assets in excess of this allowance will not lose relief entirely, but instead will benefit from only a 50% reduction in value for inheritance tax purposes.
Unused allowance can be transferred between spouses, giving a potential £5 million allowance for married couples.
It is important to note that the £1 million allowance applies to potentially exempt transfers (PETs) and chargeable lifetime transfers (CLTs) made on or after 30 October 2024 where death occurs after 6 April 2026. Additionally there are anti‑forestalling measures in place for gifts into trust.
The new £2.5 million allowance applies across all trusts created by the same settlor, rather than per trust. This restricts the scope for fragmenting ownership across multiple trusts in order to preserve full relief.
In practical terms, clients with substantial business or agricultural wealth should be encouraged to review their succession plans and any actions already taken based on the less generous original proposals.
Key questions include whether ownership structures remain appropriate, whether lifetime gifting to individuals is desirable, and how much value may ultimately fall outside the new relief cap.
Even where clients are reluctant to relinquish control, there may be scope to combine relief based planning with other strategies, such as the use of life assurance to mitigate potential inheritance tax exposure.‑based planning with other strategies, such as the use of life assurance to mitigate potential inheritance tax exposure.
3. Dividend income
This tax year also represents the final opportunity to extract dividends at the current rates of 8.75% for basic rate taxpayers and 33.75% for higher rate taxpayers. From 6 April 2026, both rates will increase by 2%.
For clients who have unused basic rate band, taking additional dividends before tax year endwill broadly allow them to save £20 in tax per £1000 of dividend income, when compared to the higher rates next tax year.
Where dividend income consistently falls into the basic or higher rate bands, planners may also wish to consider re‑wrapping strategies, such as using ISAs or tax‑deferred investment bonds, potentially offsetting gains against any unused capital gains tax annual exempt amount.
4. Using full use of the basic rate band
Tax efficiency does not always mean eliminating tax entirely; rather, it is about paying the right rate tax for the circumstances. Fully utilising the basic rate band can be particularly valuable.
For example, extracting pension income at 20% may be preferable to leaving funds exposed to potential inheritance tax at 40% within the pension wrapper after April 2027. Extracted funds can then be gifted using the annual exemption or the normal expenditure out of income rules.
5. Venture Capital Trust (VCT) income tax relief at 30%
Finally, where suitable, Venture Capital Trusts continue to offer income tax relief at 30% on investments of up to £200,000. From 6 April 2026, this relief will fall to 20%, reducing the maximum tax reducer from £60,000 to £40,000.
While other benefits, such as tax‑free dividends and capital gains, remain, clients for whom income tax relief is a key driver may wish to act before tax year end.
