KEY GUIDE | Month 20XX | Folio Title Folio Title Folio Title Folio Title 7 SPECIAL REPORT | January 2026 | Y ar End Tax Planning Useful link: www.gov.uk/plan-retirement-income – information about pensions and pensioner benefits. SAVINGS AND INVESTMENTS How can I make the most of my individual savings accounts (ISAs) for 2025/26? Individual saving accounts (ISAs) have income tax and CGT advantages. ISAs are free of UK tax on investment income and capital gains. Anybody aged 18 or over can invest in any number of cash ISAs, stocks and shares ISAs or innovative finance ISAs. If you are aged 18 to 39, you can also invest up to £4,000 in a lifetime ISA. However, the maximum investment limit of £20,000 (for 2025/26) applies across all four types of ISA. Lifetime ISAs The government adds a 25% bonus to investments of up to £4,000 a year in a lifetime ISA. You can use these savings to help buy a first home or keep the funds for retirement. A lifetime ISA will be a more attractive approach to retirement saving than a traditional pension for some, or you can, of course, opt for both forms of pension saving. The decisions can be complex so taking advice is essential. You will incur a 25% withdrawal charge if you transfer the funds to a different type of ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA. Junior ISAs Parents and others can contribute to a Junior ISA for children up to 18 who do not have a child trust fund. The contribution limit is £9,000 in 2025/26. Which type of investment will reduce my income tax liability for 2025/26? Certain investments qualify for tax relief on the understanding that they carry higher risk. Generally the least risky option is to invest in a venture capital trust (VCT). These still carry risk, and are also for the longer term, but the risk can be somewhat mitigated by investing in a larger VCT with a wide portfolio of underlying investments. VCTs can only invest in relatively young, unquoted, companies. For 2025/26, you can obtain income tax relief of 30% by subscribing up to £200,000 for newly issued shares in VCTs. ● Tax relief on pension contributions is normally at least 20%, and higher- or additional-rate taxpayers receive relief at 40% or 45%. In Scotland, intermediate-, higher-, advanced- and top-rate taxpayers receive relief at 21%, 42%, 45% or 48% respectively. Limiting your contributions to amounts that qualify for at least 40% tax relief will give you the most benefit. ● Effective relief can be as high as 60%, or 63% in Scotland, where the personal allowance is being withdrawn, and can be even higher if Universal Credit payments are being withdrawn. ● You could set up a pension for your partner or children since they don’t need earnings to build up to £3,600 in a personal pension. Even if they do not pay any tax, they can still benefit from 20% tax relief. EXAMPLE Amit earns £200,000 a year. His annual contributions and carry forward position over the last three years is as follows: Before 5 April 2026, Amit can contribute £60,000 (the 2025/26 annual allowance) plus £53,000 brought forward, making a total contribution of £113,000, all within his £200,000 earnings. Tax Year Annual Allownce £ Contributions Paid £ Amount Carried Forward £ 2022/23 40,000 30,000 10,000 2023/24 60,000 52,000 8,000 2024/25 60,000 25,000 35,000 TOTAL 53,000 Planning point The combination of tax relief on contributions, taxfree growth within the fund and the ability to take a tax-free lump sum on retirement of up to £1,073,100 makes a pension plan an attractive savings vehicle, although the inclusion of unused pension savings as part of a person’s estate for IHT purposes from 6 April 2027 will temper the benefit.
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