SPECIAL REPORT | January 2026 | Year End Tax Planning 8 Useful link: www.gov.uk/inheritance-tax – HMRC guide to IHT. CHARITABLE GIVING What are the tax implications if I contribute more to charities that are important to me? You can get tax relief for any charitable gifts if you make a gift aid declaration. ● You make the gift out of your taxed income and the charity can claim back basic-rate tax on the value of the gift. ● Higher- and additional-rate taxpayers can claim an extra 20% or 25% in relief. Intermediate-, higher-, advanced- and top-rate taxpayers in Scotland can claim an extra 1%, 22%, 25% or 28% in relief. ● You can obtain both income tax and CGT relief on gifts to charities of shares listed on the stock market and certain other investments. ● Gifts to charity are free of IHT, so remembering a charity in your will can reduce the total amount of IHT that will be paid on your estate. If at least 10% of your net estate is left to charity, then the rate of IHT payable on the remainder of your estate will be reduced from 40% to 36%. Useful link: www.gov.uk/donating-to-charity – Information about tax relief when donating to a charity. However, this rate of relief is to be cut to 20% from 6 April 2026. For example, an investment of £50,000 by 5 April 2026 will cut your income tax bill for 2025/26 by £15,000. Given the reduced relief from 6 April 2026, popular VCTs are likely to fill up even faster than usual, so don’t wait if you are an experienced investor and want to benefit from a tax reduction this year. Useful link: https://uk.reuters.com – financial and market analysis. INHERITANCE TAX PLANNING Are there any key issues around estate and inheritance tax planning I should consider before the 2025/26 year end? It’s always a good idea to review your will and ensure your stated wishes are up to date. This is especially the case if you are a business owner or own agricultural property, because the related reliefs are changing from 6 April 2026. There are certain IHT exemptions that are related to the tax year. ● Gifts totalling up to £3,000 in a tax year are exempt from IHT. If you didn’t use this exemption in 2024/25, you can make IHT-free gifts of up to £6,000 before 6 April 2026. If you have already used your exemption for 2025/26, you could delay your next gift until after 5 April 2026 to take advantage of the 2026/27 exemption. ● Gifts of up to £250 to any person in any one tax year are exempt. You can use this exemption for any number of different recipients. ● Regular gifts out of excess income can also be exempt, with the amount of excess income determined each tax year. You need careful documentation to prove that you make the gifts from income rather than capital. CHECKLIST ●Could you transfer income to your partner to minimise higher and top rate taxation next year, to maximise the tax-free savings and dividend income limits, or to avoid losing child benefit? ●Have you considered the timing of dividends and bonuses to minimise tax rates? ●Have you used your annual CGT exempt amount by making any available disposals before 6 April 2026? ●Have you used this year’s ISA allowance before 6 April 2026? ●Are you investing enough in your pension (or possibly a lifetime ISA) if you wish to, or have to, retire earlier than state pension age, which is likely to keep going up? ●If you are aged over 55, have you taken advice about the options for drawing your pension savings? ●Have you made gifts to use your annual IHT allowances? ●Are you considering any charitable gifts now or in your will? Planning point The cash ISAs limit will be reduced to £12,000 for people aged under 65 from 6 April 2027, so savers may wish to maximise their cash ISA savings of £20,000 a year for 2025/26 and 2026/27. EXAMPLE Joan made a gift of £2,000 to her granddaughter, Hannah, in July 2024. She can now make a gift of up to £4,000 using her current and unused carried forward exemption. However, if Joan gives Hannah £3,000 in 2025/26, there will be nothing to carry forward to 2026/27.
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