The three key pillars of tax year planning

The start of a new UK tax year is a great opportunity for a planning reset.

Allowances refresh, thresholds reset, and you can more flexibly shape what happens next. While leaving tax year planning to the end of the year can still provide options, these tend to be narrower and more likely to create last minute surprises.

In this article, we’ve explored the importance of establishing your goals as an important first step, before breaking down planning into three key pillars: Income, Capital and Legacy.

Firstly, it’s essential to establish your goals for the year.

The most important first step to take is to ask yourself: What do I want my money to help me achieve this year?

While taking actions such as using your ISA allowances or topping up your pension are valuable, gaining clarity first is more likely to lead to optimal results in the long run.

At the beginning of the new tax year, take some time to answer the following questions:

• What do I want this year to feel like, financially?
• What big costs might be coming in the next 12 months?
• What do I want to protect: lifestyle now, choices later, or family legacy?
• What would “peace of mind” look like by this time next year?

Once you have that clarity, it becomes much easier to make sensible tax year decisions.

The three-pillar reset: income, capital, and legacy

A practical way to review your finances is to split the reset into three pillars:

1. Income – what you earn or draw, and how it is structured for tax.
2. Capital – what you own and where it sits, so growth is not creating avoidable future tax.
3. Legacy – what happens to what is left, and how to reduce complexity and unwanted tax for your family.

Together, these pillars provide a handy checklist that you can come back to year-on-year.

Pillar 1: Income – plan now, avoid fixes later

Income planning matters whether you are employed, self-employed, a company owner, or retired. The principle is the same: early mapping gives you greater control.

If you are employed

At the start of the tax year, look ahead and ask yourself:

• How are my bonuses structured and timed?
• Are there salary sacrifice opportunities that could improve tax efficiency?
• Are my pension contributions set at the right level for the year, including my employer’s contributions?

Small adjustments early can be easier to implement and can prevent the end of year scramble of trying to “undo” an income problem after it has already happened.

If you run your own business

If you control how income is taken, the tax year reset is a chance to revisit:

• Salary and dividend mix.
• Whether a particularly strong year might push you into higher tax bands.
• Whether decisions this year might distort taxes across multiple years.

Again, the earlier you review as a business owner, the more flexibility you are likely to have.

If you are retired or approaching retirement

Income planning is often crucial in retirement because you may have several “sources” you can draw from – and each may be taxed differently. The objective here is to create an order of withdrawals that:

• Minimises unnecessary tax.
• Makes your retirement income more sustainable.
• Reduces the amount you need to take from investments, which can protect longer term outcomes.

This might include considering the balance between taxable pension income, tax free pension lump sums, ISA withdrawals and any other investment accounts.

Watch out for hidden tax traps

There are two common UK planning issues you should stay conscious of:

• Personal allowance tapering above £100,000: as income rises above £100,000, the personal allowance reduces, which can create the well-known “60% tax trap” for some income levels.
• Pension annual allowance tapering at higher incomes: depending on income, pension allowances can taper, and in some cases, contributions can lead to a tax charge rather than the relief expected.

You do not need to memorise the rules. The point of the reset is to spot where you might be in the “needs checking” zone early, not at the end of the year.

Pillar 2: Capital – reduce future tax drag and structure ownership

Capital planning is about more than simply using an ISA or pension allowance. It is also about strategic structure: where assets are held, and in whose name.

This is important because capital is meant to compound. If it grows in the wrong place, it can create avoidable tax and complications later.

1. Use tax wrappers deliberately

ISAs and pensions can shelter growth from tax. Two commonly used strategies discussed in planning conversations are:

• Bed and ISA: moving funds from a taxable investment account into an ISA, using your ISA allowance, so future growth and withdrawals are tax free.
• Bed and pension: moving funds into a pension where appropriate, with the potential benefit of tax relief, subject to rules and individual circumstances.

The value of doing this early in the year is simple: you give your money more time inside the wrapper.

2. Make use of the capital gains annual exemption

The capital gains annual exemption has reduced significantly in recent years and is currently £3,000 per person.

That makes it even more important to plan. If you allow gains to build without any management, you may face a larger tax bill with fewer easy options later. Using the exemption gradually, where appropriate, can help keep gains under control.

3. Review ownership as a couple

For married couples and civil partners, it can be worth reviewing who owns which assets, especially if there is a difference in tax bands. If one person is a basic rate taxpayer and the other is an additional rate taxpayer, where income and gains arise can materially affect the overall household tax position.

4. Understand “tax drag” in plain English

Tax drag is the quiet effect of tax reducing the amount left invested and compounding over time. Less tax leakage can mean more growth for you, and potentially more for your family later.

Pillar 3: Legacy – reduce surprises and make life easier for family

Legacy planning matters if it matters to you. Some people want to spend what they have and leave little behind. Others want to support children, grandchildren or vulnerable dependants. There is no right answer – the reset is simply a chance to ensure the plan matches your intent.

1. Know the current inheritance tax landscape

Key thresholds referenced in the discussion include:

• Nil rate band: typically £325,000.
• Residence nil rate band: potentially an additional £175,000, subject to rules.
• A married couple may, depending on circumstances, have up to £1 million in combined allowances, but these can be affected as estate values rise.

It is also noted that where an estate is over £2 million, the residence nil rate band can reduce. This is one reason why people can be surprised by inheritance tax, even if they believe they are “not that wealthy”, particularly when property values are a large part of the estate.

2. Use gifting intentionally, and keep records

A straightforward annual action is to review gifting intentions. The annual gifting exemption is currently £3,000 per tax year, and recordkeeping is crucial.

If you give more than the exempt amount, it may fall under the seven-year rules. The earlier you plan, the more flexibility you have.

There is also a potentially powerful planning approach known as gifts out of regular income, which can allow larger gifting without the same seven-year considerations, provided strict rules are met and it is genuinely affordable. This is exactly the kind of area where good documentation matters.

3. Consider intergenerational planning

For some families, smaller, consistent steps can be meaningful – for example, contributions to Junior ISAs for grandchildren, creating a pot for future costs such as driving lessons, education support or a house deposit.

And where larger sums are involved, or when the recipient is not ready to manage the money, trust planning can sometimes be considered as a middle ground, with important nuances and professional advice required.

4. Keep an eye on potential rule changes

A significant change to be aware of is that most unused pension funds and death benefits will fall into the scope of IHT from April 2027. This is set to affect:

• Inheritance tax exposure.
• The available allowances if estate value crosses key thresholds.
• Retirement drawdown strategy, including worries about “double taxation” where inheritance tax and income tax might both apply in some scenarios.

It’s therefore important that you ensure pension and beneficiary planning is included in your annual reset.

The new tax year is a great time to get ahead

A small amount of planning now may help you review potential tax considerations, priorities and options for the year ahead, and give you clearer choices for the year to come – and a free, no obligation consultation with the Attivo team is a great place to start. At a day and time to suit you, we’ll explore your unique situation, your goals, and how financial planning could help you get there.

Fees may apply if you choose to proceed with advice and implementation. These will be explained clearly before you make any decision.   

Sources:

GOV.UK (2026) Income Tax rates and Personal Allowances, 6 April. Available at: https://www.gov.uk/income-tax-rates (Accessed: 30 April 2026). 

GOV.UK (2026) Capital Gains Tax rates and allowances, 13 April. Available at: https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances (Accessed: 30 April 2026). 

GOV.UK (2025) Inheritance Tax — thresholds, 26 November. Available at: https://www.gov.uk/government/publications/inheritance-tax-thresholds/inheritance-tax-thresholds (Accessed: 30 April 2026). 

GOV.UK (2026) IHTM46023 – Calculating the RNRB: terms used: the ‘taper threshold’ (HMRC Inheritance Tax Manual), 7 April. Available at: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46023 (Accessed: 30 April 2026). 

GOV.UK (n.d.) How Inheritance Tax works: thresholds, rules and allowances – Rules on giving gifts. Available at: https://www.gov.uk/inheritance-tax/gifts (Accessed: 30 April 2026). 

GOV.UK (2026) Work out Inheritance Tax due on gifts, 11 February. Available at: https://www.gov.uk/guidance/work-out-inheritance-tax-due-on-gifts (Accessed: 30 April 2026). 

GOV.UK (2026) IHTM14231 – Lifetime transfers: normal expenditure out of income: introduction (HMRC Inheritance Tax Manual), 7 April. Available at: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 (Accessed: 30 April 2026). 

GOV.UK (2025) Inheritance Tax: unused pension funds and death benefits, 26 November. Available at: https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits (Accessed: 30 April 2026). 

Important information

This is a Financial Promotion. This article is provided for information purposes only and does not constitute financial advice or a personal recommendation. Tax planning and inheritance tax planning are not activities regulated by the Financial Conduct Authority. The value of investments and any income from them can fall as well as rise, and you may get back less than you invest. A pension is a long-term investment, and its value can go down as well as up. Your eventual income may depend on the size of your fund at retirement, future interest rates and tax legislation. Tax treatment depends on individual circumstances and may be subject to change in the future. Attivo Financial Ltd (FRN 497130) is authorised and regulated by the Financial Conduct Authority.