A guide to tax planning

Managing tax efficiently doesn’t have to be a headache. With some planning you can make the most out of allowances and reliefs already available to you, helping your money go further and support your financial goals. One thing to keep in mind – tax rules can change and and any benefits depend on your personal circumstances.

Tax planning is when you take steps to make your money work harder for you, while staying within HMRC’s rules. It means arranging your finances in a way that’s efficient, fully compliant, and aligned with what the law intends. This might be maximising allowances, reliefs or tax-efficient products to support your long-term financial wellbeing.

There is a clear difference between legitimate tax planning and tax avoidance. Tax planning is simply using the approved tax reliefs in the way that they were designed, like contributing to a pension or saving into an ISA (Individual Savings Account). Tax avoidance, on the other hand, involves schemes that go beyond the intent of legislation.

Tax planning can show up in many different forms depending on your goals and stage of life. While everyone’s circumstances are different, two of the most important areas for long-term planning are inheritance tax planning and estate planning.

Inheritance tax planning

Inheritance tax (IHT) is paid on the value of an estate that exceeds certain thresholds.

The current nil‑rate band is £325,000. Additionally the residence nil‑rate band (up to £175,000) may be available when a qualifying home passes to direct descendants. Anything above these allowances is currently taxed at 40%. This is subject to any other exemptions and reliefs you might be eligible for, like spouse exemptions or charitable gifts. ^{Footnote [1]}  

Business Relief and Agricultural Property Relief can help reduce the value of business assets or agricultural property for inheritance tax purposes, helping families pass on important assets more efficiently. ^{Footnote [2]}  

Understanding how these thresholds and exemptions work is a key part of your planning, helping you pass on as much as you can to your loved ones.

Estate planning

Estate planning focuses on what happens to your wealth before and after you die. Things like your money, property and possessions come under this.

Estate planning has three key benefits:

1. It protects your assets and loved ones.
2. It helps maximise what your beneficiaries receive.
3. It helps reduce the risk of tension.

Thoughtful estate planning gives you more control, protects the people you care about and ensures your wealth is passed on efficiently and in line with current UK rules.

You can find out more about estate planning in our article: Helping you with estate planning.

Every penny counts, so working out how you can make the most of tax-efficient investments can help you build your wealth in a smarter, more sustainable way.

There are a few different tax-efficient products out there, but their level of efficiency varies.

And for higher‑rate and additional‑rate taxpayers in particular, combining ISA allowances with pension contributions, which receive tax relief at your marginal rate, can form a powerful tax‑planning strategy that keeps more of your money working for your future.

ISAs

There are a number of products under the ISA umbrella. You can contribute a total of £20,000 across your ISAs each tax year (2026/2027), known as the annual ISA allowance. These include:

• Cash ISA – A cash ISA holds your money as exactly that, cash. It earns interest over time, and you can benefit from compounding. Any interest earned in a Cash ISA is free from income tax, making it a tax-efficient way to save. While the overall ISA allowance is £20,000, individuals under 65 will be able to contribute a maximum of £12,000 to a Cash ISA from 6 April 2027. 
• Stocks and shares ISA – These let you invest in different stocks and shares, and you'll have a variety to choose from depending on your provider. These could be individual companies, or some create portfolios for you to choose from. They are tax-efficient because any investment growth and dividends are sheltered from Capital Gains Tax and Income Tax within the ISA wrapper. You can contribute up to £20,000 each tax year (2026/2027), subject to your available ISA allowance. It's worth remembering that from 6 April 2027, investors can still hold cash in a non-Cash ISA, but any interest earned on that cash will be subject to a 22% charge.
• Junior ISA – These are open to those under 18, and they're especially tax-efficient as there is no tax to pay on interest and you don't pay tax on any investment growth or dividends, but the cap on contributions for this one is £9,000 per tax year. Junior ISAs can be helpful to parents who are planning for their child's financial future. 
• Lifetime ISA (LISA) – These help you save for your first home, or your retirement. Although it has restrictions, as long as you qualify you can enjoy a 25% government bonus on your savings up to a maximum of £1,000 a year, and tax-free returns. The LISA annual subscription limit is £4,000 and this counts towards the overall ISA allowance of £20,000. Remember, withdrawals before age 60 that aren't used to buy your first home usually incur a 25% government withdrawal charge.
• Innovative finance ISA (IFISA) – Instead of investing in stocks and shares ISAs, with an IFISA you invest in peer-to-peer loans. These can be high risk as they're not protected by the Financial Services Compensation Scheme, so if the provider collapses you won't be protected. But they are very flexible, with lots of investment options. Any contributions you make will count towards your annual ISA allowance of £20,000 (2026/2027).

Pensions

Pensions are also considered a tax wrapper, as you don’t have to pay capital gains tax or income tax on any dividends or interest received on the investments held by the pension. 

In addition to this, HMRC adds basic rate tax relief onto pension contributions, boosting the amount that goes into your pot. If you're a higher-rate or additional-rate taxpayer, you can usually claim any additional pension tax relief through your Self Assessment tax return.

Together, these features make pensions one of the most tax‑efficient ways to save for retirement.

Your allowances could be:

• Personal allowance – Most people can earn up to £12,570 a year before paying income tax.  
• Dividend allowance – You can receive £500 in dividend income tax-free each year, this is also in addition to your personal allowance. 
• Capital gains tax allowance - You won’t pay CGT until your gains exceed HMRC’s annual tax‑free allowance, of £3,000 for the 2026/2027 tax year, and only the excess is taxed.
• Personal savings allowance – This is the amount of interest you can earn on your savings before paying tax, which is currently set at £1,000 for basic rate tax payers and £500 for higher rate tax payers.

You also have reliefs, for example:

• Gift Aid – If you decide to donate to a charity through Gift Aid, charities are able to claim an extra 25% from HMRC, and higher or additional-rate taxpayers can claim back the difference between their tax rate and the basic rate through their tax return.^{Footnote [3]}

• Minimise your tax liability – By making use of your allowances like personal allowance, dividend allowance and the tax-free treatment of certain savings and investments, you can reduce the amount of tax you pay each year.
• Maximising savings and investments – Holding savings or investments in tax-wrappers, like ISAs or pensions, means your income and any gains can grow free from income tax and capital gains tax, helping them to grow more effectively over time.

• Leave planning until the end of the tax year – Some people might not start thinking about tax until the 5th of April is fast approaching. Leaving things to the last minute runs the risk of missing out on valuable tax allowances or not having time to act on opportunities, like making pension or ISA contributions, or planning on how to manage capital gains. 
• Ignoring available allowances and reliefs – By utilising your ISA allowance and pension tax relief and taking advantage of capital gains tax and dividend allowances, you can potentially keep more of what you earn. But these allowances often change, and not keeping up to date could mean you pay more tax than you need to. Reviewing your situation regularly can help you make full use of what’s available.
• Not seeking professional financial advice – Understanding which tax allowances are available to you, and how best to use them can be complex. A financial adviser can offer expertise and help provide insight into tax-efficient strategies.

Tax planning can become more important as your income increases, particularly if you move into higher or additional-rate bands. At this level, some allowances can begin to taper, like your Personal Allowance or pension Annual Allowance, making your tax position more complex. 

For those with multiple income sources or investment and pension savings of significant value, the tax landscape can feel particularly challenging to navigate alone. Tailored financial advice can help you understand the options available and make the most of any tax‑efficient strategies that apply to your situation. If you’ve got £300,000 or more in your pension or investment savings, Aviva Financial Advice may be able to support you with personalised guidance for more complex tax planning needs. In some instances, consulting an accountant may be useful.