Income tax planning: Reliefs and allowances to consider

With income tax thresholds remaining frozen and selected rates increasing from April 2026, many individuals will find themselves paying more tax in real terms over the coming years. In this environment, making full use of available income tax reliefs and allowances is more important than ever.

While tax planning should always reflect personal circumstances, there are several key areas that individuals, business owners and landlords may wish to review now the new tax year is underway.

Personal allowance and the impact of fiscal drag

The personal allowance remains £12,570 for the 2026/27 tax year, with income tax thresholds also frozen until at least 2030/31. For those earning over £100,000, the personal allowance continues to be withdrawn at a rate of £1 for every £2 of income, disappearing entirely once income exceeds £125,140.

This prolonged freeze means more people are being pulled into higher tax bands each year through wage growth alone. From April 2027, flexibility over the allocation of the personal allowance will also be removed which could push more income into higher rate bands, further increasing tax bills.

Where possible, strategies that reduce adjusted net income – such as pension contributions or charitable donations – can help preserve the personal allowance and reduce overall tax exposure.

Pension contributions are still one of the most effective reliefs

Pension contributions remain one of the most valuable income tax reliefs available. Individuals can contribute up to £60,000 per year (subject to earnings), with unused allowances from the previous three tax years potentially available through carry forward.

Contributions attract tax relief at the individual’s marginal rate, making pensions particularly attractive for higher and additional rate taxpayers. Gross personal pension contributions can also reduce adjusted net income, which may assist with preserving the personal allowance or avoiding the high income child benefit charge. For business owners, employer pension contributions can also be an efficient way to extract profits, as they are generally deductible for corporation tax purposes.

Although unused pension funds and death benefits are scheduled to become subject to inheritance tax from April 2027, they remain highly tax‑efficient during lifetime, particularly for income tax planning.

Dividend allowances and rate changes from April 2026

From 6 April 2026, income tax rates on dividends have increased, while thresholds, including the £500 tax-free dividend allowance, remain unchanged. The basic rate on dividends is now 10.75%, with the higher rate increasing to 35.75%. The additional rate remains at 39.35%.

For company owners who rely on dividend income, this change increases the importance of reviewing profit extraction strategies. Making use of the dividend allowance, pension contributions, or alternative remuneration planning may help soften the impact of higher dividend tax rates.

Personal savings allowance and the savings starting rate

The tax-free personal savings allowance (PSA) remains at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers do not receive a personal savings allowance.

To the extent that the first £5,000 of income above the personal allowance arises from savings, a 0% savings starting rate may apply (in addition to the PSA). Where taxable income consists solely of savings and/or dividend income, this can result in up to £6,000 of savings income being tax-free on top of the £12,570 personal allowance.

Making the most of ISA allowances

Individual savings accounts (ISAs) continue to offer a valuable tax‑free wrapper for savings and investments. The annual ISA allowance remains £20,000 per person, allowing income and capital growth to be sheltered from income tax and capital gains tax.

For couples, this effectively doubles the available allowance. Junior ISAs of up to £9,000 may also be used to maximise tax-efficient savings. While ISAs do not provide upfront tax relief, they can play a key role in longer‑term planning, particularly as other tax rates increase and allowances remain static.

From April 2027 the cash ISA allowance will be reduced to £12,000 for individuals under 65, so it will be important to maximise investment in 2026/27.

Marriage allowance and transferable reliefs

Where one spouse or civil partner earns below the personal allowance and the other is a basic ‘rate taxpayer, the marriage allowance allows up to £1,260 of unused personal allowance to be transferred.

Although relatively modest, this relief can still provide a useful reduction in a household’s overall tax bill and is often overlooked.

Property income and future rate changes

While income tax rates on most earned income remain unchanged from April 2026, the government has confirmed that separate and higher income tax rates for property income will apply from April 2027.

Landlords may therefore wish to review their ownership structures, financing arrangements and available reliefs ahead of time, particularly where property income pushes them into higher tax bands.

Charitable giving and Gift Aid

Charitable donations made under Gift Aid continue to provide income tax relief at the donor’s marginal rate. Higher and additional rate taxpayers can reclaim further relief through their tax return, while charities benefit from an uplift on the donation itself.

As for pension contributions, Gift Aid donations can also help reduce adjusted net income for personal allowance tapering or high income child benefit charge purposes. .

Reviewing reliefs regularly

With tax rates rising in some areas and allowances remaining frozen, proactive planning is increasingly important. Reliefs and allowances should be reviewed regularly, particularly where income levels change or significant life events occur.

We’re here to help

If you would like advice on making the most of available income tax reliefs and allowances, or understanding how the April 2026 changes could affect your position, speak to your usual Azets adviser or a member of our specialist Tax team.

Our financial planning experts at Azets Wealth Management are also on hand to support with maximising your position and safeguarding your finances.