SPECIAL REPORT | January 2026 | Year End Tax Planning 6 Most people aged 55 (rising to 57 from 6 April 2028) and over can draw their pension savings flexibly. Withdrawals above the tax-free amount are liable to income tax at your marginal rate. You should take advice before accessing pension savings as there are several options and they will generally have a longterm effect on your financial position. The annual allowance and tax-free amount were left unchanged in the Budget on 26 November 2025, but a future reduction in tax relief for pension contributions cannot be ruled out. You might want to maximise your pension contributions for 2025/26 by making further contributions before 5 April 2026. Employees should be aware that the Budget included an announcement that pension contributions exempt from NICs will be capped at £2,000 a year where contributions are made via a salary sacrifice arrangement, though not until 6 April 2029. What do I need to consider if making pension contributions for 2025/26? There is an annual limit of £60,000 on pension contributions that qualify for tax relief, although it is tapered down to a minimum of £10,000 if your income exceeds £260,000. You can, however, carry forward unused annual allowances for up to three years to offset against a contribution of more than the annual limit. For individuals already drawing a flexible income from a pension, the annual allowance is also £10,000. ● You can pay up to the whole of your earnings into a pension scheme, but the tax relief is capped by the annual allowance plus any unused allowances brought forward. Credit: AlisaRut\shutterstock.com If you are selling all or part of a business, or shares in your trading company, you might qualify for business asset disposal relief (BADR), subject to several conditions. Gains that qualify for BADR are taxed at 14% in 2025/26. The rate goes up to 18% in 2026/27, so it’s worth considering the timing if a sale is imminent. The same rates apply to investor’s relief. A shareholding or another chargeable asset might have lost virtually all value. If so, you can claim the loss against your capital gains without actually disposing of the asset, by making a negligible value claim. You can backdate the loss relief to either of the two tax years before the one in which you make the claim, provided that you owned the asset in the earlier year and it was already of negligible value. The deadline for backdating a claim to 2023/24 is 5 April 2026. PENSION TAX PLANNING The tax privileges of investing in pension plans generally make them a key focus in tax planning. Pension funds are broadly free of UK tax on their capital gains and investment income. When you take the benefits, up to a quarter of the fund is normally tax free, but the pension income will be taxable. EXAMPLE Jamie and Sally are a married couple. Jamie is considering selling an investment shareholding that has made a gain of £10,000. Sally has £4,000 in capital losses. If Jamie transfers 70% of the holding to Sally, Sally will have a gain of £7,000 on disposal. Sally can use her £4,000 capital losses to reduce the gain to £3,000. She can then use her £3,000 annual exempt amount to make the entire £7,000 gain tax-free. Jamie keeps the remaining £3,000 of the gain. Since his £3,000 annual exempt amount covers this portion of the gain, no CGT will be due on Jamie’s share either. Planning point Timing your disposals is particularly important if disposals in this tax year have resulted in a net loss. Depending on your income level making a disposal either side of the tax year end could save or cost you tax.
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