Tax planning in an era of rising taxes
The Chancellor’s Budget on 26 November 2025 confirmed and announced a range of tax increases that will affect individuals, investors, business owners and landlords over the coming years. While some of these measures take effect almost immediately, others have been deliberately deferred, sometimes by several years. This staggered approach can make it difficult to keep track of what is changing and when. However, understanding the direction of travel is crucial when reviewing your financial position and planning ahead.
Tax planning is no longer just about reacting to current rates and allowances. Increasingly, it requires an appreciation of how the tax system is expected to evolve and how today’s decisions may interact with future tax rises. In many cases, opportunities exist to take action now that may not be available later, or that may become significantly more valuable as tax rates increase.
This document highlights some of the key areas to consider as we enter the final months of the current tax year and looks ahead to the changes that are already on the horizon.
Looking ahead: tax rises announced but not yet in force
One of the challenges for taxpayers is that many headline announcements do not take effect straight away. A clear example is the reduction in the annual cash ISA allowance, which was confirmed at the November 2025 Budget. From April 2027, the allowance will fall from £20,000 to £12,000, with an exception for those aged 65 and over, who will retain the higher limit.
Although April 2027 may seem distant, this change has important implications for longer-term savings and investment strategies. ISAs shelter income and gains from tax indefinitely, and once an allowance for a particular tax year is lost, it cannot be reclaimed. In an environment where dividend tax rates and savings income tax rates are rising, the value of the ISA wrapper is likely to increase over time.
For those who have the available funds, it is usually sensible to consider maximising ISA contributions each year while the higher allowance remains available. This applies whether funds are held in cash ISAs or invested through stocks and shares ISAs, depending on attitude to risk and financial objectives.
Increasing taxes on savings and investments
The tax advantages of ISAs are becoming more pronounced due to planned increases in other areas of personal taxation. From 6 April 2026, dividend tax rates will rise, increasing the tax cost of holding dividend-paying investments outside a tax-free wrapper. A year later, tax rates on savings income are also due to increase. Further eroding post-tax returns on bank interest and other savings held outside ISAs.
These changes mean that individuals who rely on investment income, or who hold substantial savings, may face a higher tax burden even if interest rates or dividend yields do not increase. Reviewing where investments are held, and whether they could be moved into tax-advantaged wrappers such as ISAs or pensions, is therefore becoming increasingly important.
Why January is an ideal time to review your tax affairs
January is often a natural pause point following the end of the calendar year, and it is also a particularly good time to review your tax position. With just over three months until the tax year ends on 5 April, there is still time to take action, but not so much time that opportunities should be left until the last minute.
Pension contributions
One of the most powerful tax planning tools remains pension saving. Contributions to registered pension schemes can attract income tax relief at your marginal rate, and in many cases, employer contributions can be particularly efficient. Pension saving can also help manage exposure to higher tax bands and mitigate the impact of frozen income tax thresholds.
Given the direction of travel on other taxes, pensions continue to play a central role in long-term planning, even though changes to the taxation of pensions on death are expected from April 2027.
Capital gains tax planning
The annual exempt amount for capital gains tax remains at £3,000, a historically low level. Making disposals that utilise this exemption can help reduce future tax liabilities, particularly where assets are likely to be sold at some point in any event.
Careful planning is required to ensure disposals are commercially sensible and aligned with investment objectives, but ignoring the exemption altogether may result in unnecessary tax being paid in future years.
Inheritance Tax gifting
For those concerned about Inheritance Tax (IHT), making use of available exemptions remains important. This includes the annual £3,000 gifting exemption, small gift allowances, and gifts out of surplus income. While no one should give away assets they may later need, early and regular planning can make a significant difference over time.
Considerations for business owners and company directors
Individuals who run their own companies face an additional layer of complexity, as personal tax decisions often interact with corporate tax rules.
Timing of dividends
With dividend tax rates increasing from April 2026, the timing of dividend payments deserves careful thought. In some cases, it may be advantageous to accelerate dividend payments before higher rates apply, subject to cash flow, company law and wider tax considerations.
Capital expenditure and reliefs
Business owners should also consider whether planned capital expenditure can be brought forward to maximise available reliefs. While full expensing and other allowances continue to provide valuable tax deductions, these regimes are subject to political and fiscal pressure and may not remain unchanged indefinitely.
Company cars and benefits
The benefit-in-kind charges for company cars, particularly those with higher emissions, are set to increase over the coming years. Directors and employees with company vehicles should review whether existing arrangements remain tax-efficient and whether alternative structures may be more appropriate.
Self-employed individuals and landlords: Making Tax Digital
For the self-employed and landlords, one of the most significant changes in recent years is the phased introduction of Making Tax Digital for Income Tax (MTD IT) from 6 April 2026.
MTD IT will require affected individuals to maintain digital records and submit quarterly updates to HMRC, followed by an end-of-year finalisation. While the tax payable will not necessarily change, the compliance burden will increase, and the transition should not be underestimated.
Those likely to be affected should begin preparing well in advance, reviewing record-keeping systems and considering whether additional support will be required.
Reviewing investment ownership and records
Tax planning is not only about rates and allowances; it is also about how assets are owned.
Transfers between spouses
In many cases, transferring investments to a spouse or civil partner can improve tax efficiency by allowing better use of personal allowances and lower tax bands. This can be particularly effective where one spouse pays tax at a lower rate or has unused allowances.
Such transfers are generally free of capital gains tax between spouses, but the wider implications should always be reviewed before action is taken.
Record-keeping for capital gains
It is also essential to maintain adequate documentation to support future capital gains calculations, particularly for land and property. Missing records can lead to difficulties, delays and potentially higher tax bills when assets are eventually sold.
Even if there are no immediate plans to dispose of assets. Now is a good time to ensure records are complete and accessible.
Wills, estates and Inheritance Tax planning
A regular review of your will is an often-overlooked but vital part of financial planning. Family circumstances, asset values and tax rules can change significantly over time, and a will that was appropriate when drafted may no longer achieve the desired outcome.
This is particularly important for farmers and business owners, as changes to IHT business and agricultural reliefstaking effect from April 2026 may significantly alter the tax position of estates.
In addition, the planned changes to the IHT treatment of pensions from April 2027 are likely to affect a wide range of individuals, not just those with substantial business assets. These changes may mean that many existing wills require updating to ensure they remain effective and tax-efficient.
Deadlines, penalties and rising interest rates
Finally, it is essential to remain aware of self-assessment filing and payment deadlines. HMRC penalties and interest for late submission or payment can be severe, and the interest rate on overdue tax has increased significantly over the past year.
With interest now charged at levels that are no longer trivial, late payment can quickly become expensive. Ensuring that tax liabilities are identified early and planned for can help avoid unnecessary costs.
Final thoughts
Tax planning has become more complex in an era of rising taxes, frozen thresholds and ongoing reform. While not every planning opportunity will be appropriate for every individual, taking the time to review your position regularly can help ensure that you are not caught out by changes that were announced years earlier but only take effect now.
The ideas outlined in this document are intended to highlight areas that may be worth exploring. Rather than to provide one-size-fits-all solutions. Each individual’s circumstances are different, and professional advice should always be tailored accordingly.
We would be happy to discuss any of these points with you in more detail and help you consider which planning opportunities may be suitable for your particular situation. Book your 30 minute meeting now
