Financial planning solutions ahead of the 2026/27 tax year

The 2026/27 tax year presents a unique planning window. With allowances largely frozen, investment and pension rules becoming more complex, and significant structural changes arriving, most notably the overhaul of Agricultural Property Relief (APR) and Business Property Relief (BPR) BPR and APR, this is a valuable opportunity to reassess your financial arrangements. Small, well‑timed adjustments can deliver long‑term tax efficiency, reduce future liabilities, and strengthen intergenerational planning.

Individual Savings Accounts (ISA)

ISAs remain a core foundation of tax‑efficient planning, offering tax‑free income, growth, and withdrawals. The allowance for 2026/27 is unchanged at £20,000.

Lifetime ISA (LISA):

• For 18-39 year olds to save for their first home or retirement.
• Contribution limit remains £4,000 (within the overall £20,000 ISA cap).
• 25% government bonus continues.

Junior ISA (JISA):

• For under 18s.
• Allowance remains £9,000.

Additional technical notes

• Diverse ISA types: Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, Lifetime ISA (LISA). You may contribute to each type within the same tax year, subject to overall limits.
• Subscription timing: ISA allowances are renewed at midnight on 5 April each year. Any unused allowance cannot be transferred to the next year, meaning that making contributions late in the year can still be a useful strategy.
• Transfers: You can move your current ISA holdings to a different provider without it impacting your yearly contribution limit, making it helpful if you want to find better rates or switch from cash to equity investments.
• Innovative Finance ISA: Allows peer‑to‑peer and qualifying debt‑based securities, though these carry elevated risk and are unsuitable for many retail investors.

Pensions

Pensions remain the most generous tax‑advantaged wrapper due to upfront tax relief, tax‑free investment growth, and a portion of tax-free cash in retirement. 

Annual Allowance

• The Annual Allowance remains £60,000 for 2026/27.

Tapered Annual Allowance still applies where:

• adjusted income exceeds £260,000
• threshold income exceeds £200,000.

The tapered minimum remains £10,000.

Money Purchase Annual Allowance (MPAA)

•  Continues at £10,000 for 2026/27.

The ‘100% of Relevant Earnings’ Rule

This separate test limits the tax relief on personal pension contributions to:

• the lower of the £60,000 Annual Allowance or 100% of relevant earnings.

It does not apply to employer contributions. If earnings are below £3,600, the maximum personal gross contribution remains £3,600.

Carry forward

You may still use unused Annual Allowances from the previous three tax years providing a pension plan was in place for these years.

Tax relief mechanics

• Relief at source: 20% added automatically.
• Net pay: Full relief at marginal rate through payroll.
• Higher and additional rate taxpayers must reclaim further relief via Self Assessment.

Additional technical notes

• Salary sacrifice: Still one of the most efficient ways to fund pensions, offering both Income Tax and NIC savings.
• Taper mechanics: Tapered Annual Allowance applies based on adjusted and threshold income; careful forecasting is crucial to avoid accidental overfunding.
• Lifetime Allowance removal: While the LTA has been abolished, a new framework of lump‑sum allowances (LSA and LSDBA) governs tax‑free elements, worth revisiting if large pension pots are involved.
• Employer contributions: Often the most efficient funding route, particularly where employers offer matching or enhanced contributions.

Capital Gains Tax (CGT)

The annual CGT exemption is fixed at £3,000 for 2026/27. This is unchanged but low by historical standards.

For realised gains in excess of the exemption, CGT will be taxed at 18% or 24%, depending on whether those gains fall into the basic-rate or higher/additional-rate bands.

Additional technical notes

• Use of spouses/civil partners: Transfers between spouses are no‑gain/no‑loss, allowing strategic rebalancing to maximise use of two CGT exemptions and potentially lower marginal tax rates.
• Gifting assets: Gifting certain assets to trusts or individuals can trigger gains unless holdover relief applies, important in estate‑planning contexts.
• Reporting: Most gains must be reported via Self Assessment, except for gains on residential property disposals, which require reporting and payment within 60 days. Losses may be carried forward indefinitely if reported to HMRC within four tax years.
• EIS/SEIS deferral: Some schemes allow CGT deferral on reinvested gains, though they involve elevated investment risk.
• Bed & ISA: Crystallising gains before reinvestment within an ISA remains a key sheltering technique.

Personal Allowance

The Personal Allowance of £12,570 remains frozen for 2026/27, pulling more individuals into higher effective tax rates, particularly where income approaches or exceeds £100,000.

Tapering continues: The Personal Allowance is reduced by £1 for every £2 of income over £100,000. Effectively, this creates a marginal tax rate of 60% on income between £100,000 and £125,140.

Additional technical notes

• Child Benefit implications: Income exceeding £50,000 may trigger the High Income Child Benefit Charge (HICBC). Pension contributions can help reduce adjusted net income to mitigate the charge.
• Gift Aid interactions: Gift Aid increases a donor’s basic‑rate band, which can help preserve Personal Allowance for individuals near the taper threshold.
• Non‑savings vs savings income: The order of taxation matters; non‑savings income is taxed first, influencing which allowances apply.

Gifting Allowances

With frozen Inheritance Tax (IHT) thresholds and increasing estate values, gifting remains a simple, high‑impact planning tool. The gift allowances remain the same for 2026/27:

• £3,000 annual gift allowance, with one year of carry forward.
• Small gift exemption: £250 per recipient.
• Wedding gifts: £5,000 (children), £2,500 (grandchildren), £1,000 (others).

Additional technical notes

• Regular gifting from surplus income: Potentially the most powerful IHT mitigation available, unlimited in value if the pattern is demonstrable and does not impact normal lifestyle.
• Seven‑year rule: PETs fall out of the estate after seven years; taper relief applies after three years for death‑within‑seven‑years situations, but only reduces the tax, not the gift’s value.
• Trust gifting: Useful for family wealth structuring but must be weighed against immediate IHT charges (at 20%), and ongoing reporting requirements.
• Gifts for maintenance: Payments for children’s education or elderly relatives’ care may be exempt if made directly.

Major changes to BPR and APR (effective 6 April 2026)

These reforms change decades of planning assumptions, making early review essential for business owners, farmers, and AIM‑portfolio investors.

• New £2.5million allowance for 100% relief; excess receives 50% relief.
• Spousal transferability of unused allowance.
• AIM listed and other ‘not listed’ shares drop from 100% relief to 50%.
• Refresh periods: Seven years (lifetime gifts), 10 years (trust charges).
• Indexation: Allowances uprated by CPI from 2031.

Additional technical notes

• Valuation challenges: Increased scrutiny expected where business assets are near the £2.5million threshold, accurate, up‑to‑date valuations will be crucial.
• Trust impacts: The new rules apply not only on death but also to relevant property trust charges. Trustees should take action before their next 10‑year anniversary.
• AIM portfolios: Reduced relief (from 100% to 50%) significantly alters the risk/reward case for IHT planning via AIM. Many clients may need suitability reviews.
• Interaction with succession plans: Family businesses may need updated shareholder agreements, cross‑option arrangements, and insurance structures.

Conclusion

With major reforms arriving in April 2026 and continuing freeze‑driven fiscal drag, now is the time to review your financial arrangements. Strengthening tax efficiency across ISAs, pensions, gifting, and business succession can materially improve long‑term outcomes.

We recommend consulting a professional, as solutions that work for others may not be suitable for your situation. What is certain is that we have limited time to positively impact your financial plan, so please contact us today.