Individual savings account (ISA) allowances: maximise tax-free growth
How ISAs work
If you are an adult resident in the UK, you can invest up to £20,000 each tax year across Cash, Stocks and Shares, Innovative Finance and Lifetime ISAs. The Lifetime ISA allowance is restricted to £4,000 and forms part of your total £20,000 allowance. Income and gains inside an ISA are free of income tax and capital gains tax. This makes ISAs one of the most flexible and tax‑efficient savings tools available.
ISAs and JISAs
The ISA and Junior ISA (JISA) limits remain £20,000 and £9,000 for 2025/26.
If you have children, a JISA offers the same tax benefits with a lower limit. It converts to a regular adult ISA at 18. Children with a Child Trust Fund must transfer it to a JISA before contributing to the JISA.
The cash ISA limit will be cut to £12,000 for under-65s from April 2027.
Capital gains tax (CGT): make use of your allowance
CGT is charged on the increase in value when you sell or give away an asset that has risen in value, although your main home is usually exempt under Private Residence Relief.
Your annual CGT‑free allowance is £3,000 for individuals and personal representatives in 2025/26 (£1,500 for most trustees). If you are married or in a civil partnership, you can transfer assets between you to use both allowances.
Losses can offset gains, but unused tax‑free allowances cannot be carried forward.
Tax‑efficient strategies
Hold investments inside an ISA to avoid future CGT on gains and tax on dividend income.
Consider timing the gifting or selling of assets across tax years to maximise allowances.
Pension contributions: A powerful tax-saving tool
A pension is one of the most tax‑efficient ways to save for retirement. If you are under 75, you can usually contribute up to the lower of your earnings or the annual allowance and receive tax relief. You can also ‘carry forward’ unused allowance from the previous three tax years if eligible.
The standard annual allowance is £60,000 for 2025/26. Higher earners may have a reduced (tapered) allowance, reducing their maximum pension contribution limit. If you have accessed your pension benefits, there may also be a reduced annual limit on pension contributions. However, just taking up to 25% of your pension as a tax-free lump sum does not trigger this.
If you earn over £100,000, making pension contributions can be highly advantageous. Your personal allowance for tax free income is reduced by £1 for every £2 of income above £100,000; this means your allowance is zero if your income is £125,140 or above. However, pension contributions can offset the reduction in the amount of income you can earn tax free (your personal allowance).
You receive basic‑rate tax relief at source for personal pension contributions. Higher‑ and additional‑rate taxpayers can claim extra relief through Self Assessment.
The earliest normal age for accessing pensions is 55, rising to 57 on 6 April 2028.
Tax planning between spouses or civil partners
Each spouse or civil partner has their own personal allowance of £12,570 per tax year, unless they earn £100,000 or more.
Combining or sharing allowances between spouses or civil partners can help improve tax efficiency. One such way is by using the marriage allowance. If one partner’s income is below the personal allowance of £12,570, and the other is a basic rate taxpayer, the lower earner can transfer 10% of their allowance to the higher earner. This can save you up to £252 per year. Claims can be backdated for up to four previous tax years.
There are plenty of other strategies to consider. You can maximise the amount of tax-free dividend income you receive by transferring investments to a lower-earning spouse or civil partner helping to ensure greater tax efficiency.
Higher-earning spouses could make pension contributions on behalf of their partner, supporting the potential growth of the lower‑earning partner’s pension. It’s important to note, however, that tax relief is assessed based on the person who is a member of the pension scheme (the recipient) and will be subject to the annual allowance.
If you’re an additional rate taxpayer, you can claim back extra tax relief on pension contributions through your tax return. This strategy is particularly beneficial if you’re in the highest tax band and is great for long-term financial planning.
Another powerful tax-planning tool is capital gains tax planning. Each partner has their own individual £3,000 allowance. If you’re set to make a gain that exceeds your £3,000 allowance, you can transfer part or all of the asset before the sale. This allows both exemptions to be used, leading to significant savings in tax, especially if one partner is in a lower tax band. Lower rate taxpayers pay 18% on their gains above £3,000, while higher rate taxpayers are taxed at 24%.
Using these allowances where suitable helps both of you make the most of dividend tax allowances, CGT allowances, and pension limits in the most optimal way. A financial planner will be able to help you navigate tax planning with your spouse or civil partner, to make sure you’re taking full advantage of all of the allowances available to you.
Investing through VCT or EIS
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) offer generous tax reliefs but involve higher risk and are not suitable for everyone.
VCTs can provide up to 30% income‑tax relief on new shares (up to £200,000 per tax year) if held for at least five years. This will be cut to 20% from April 2026. Dividends are tax‑free and disposals are free of CGT.
EIS investments can provide up to 30% income‑tax relief (with the maximum investment generally up to £1m, and £2m where amounts above £1m are in knowledge intensive companies). Gains can be deferred; losses may be set against gains or income; and shares are usually outside the estate for IHT after two years.
There are rules around eligibility for tax relief when using these schemes. For example, you must have paid enough UK income tax in order to claim relief. As this can get quite complex, it’s helpful to work with a financial planner to make sure you’re making the most of your tax reliefs.
Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief)
Under BADR, gains on qualifying business disposals up to £1m per person may be taxed at 14% in the 2025/26 tax year. This will rise to 18% from April 2026. You must meet specific conditions, such as minimum shareholding and qualifying period.
How we can help
Smart tax planning today can help grow, protect and pass on more of your wealth tomorrow. Our financial planners can explain the rules in plain English, coordinate the paperwork and keep you on track.
Speak to your Rathbones contact or fill out our form below to review your allowances and create a clear plan.
This information is based on our current understanding of HMRC tax rules in the UK. Tax treatment depends on your personal circumstances, which could change.
Rathbones does not offer tax advice. We recommend you speak to a tax adviser if you are unsure.
Capital is at risk and you could lose all of your investment. VCT and EIS are illiquid investments; you may not be able to sell when you want. It’s best to seek regulated advice before investing in them.
