Tax planning within the rules

What tax planning means here

Tax planning, as we practise it, means using the allowances and reliefs the law already provides, in the way Parliament intended. That usually comes down to timing, making the right claims and choosing between options the legislation offers.

HMRC describes tax avoidance as bending the rules to gain an advantage Parliament never intended, typically through contrived arrangements. HMRC does not approve avoidance schemes, whatever a promoter may claim, and its introduction to tax avoidance explains what to watch for.

The figures below are for the 2026-27 tax year (6 April 2026 to 5 April 2027). Income Tax bands differ for Scottish taxpayers.

Allowances that matter to individuals

The personal allowance and the £100,000 taper

Most people can receive £12,570 of income free of Income Tax in 2026-27. Once adjusted net income passes £100,000, that allowance is withdrawn at £1 for every £2 of extra income, and it is gone at £125,140. Income in that band therefore costs more than the headline 40% rate suggests.

Adjusted net income is reduced by the grossed-up amount of Gift Aid donations and of pension contributions made under relief at source, so for someone near the taper those payments are worth reviewing before 5 April.

Marriage allowance

Where one spouse or civil partner has income below the personal allowance and the other pays tax at no more than the basic rate, £1,260 of allowance can be transferred between them, reducing the receiving partner’s tax by up to £252 a year. Claims can also be backdated for up to four earlier tax years.

Pension contributions

Personal pension contributions receive tax relief on up to 100% of your earnings for the year, within the annual allowance of £60,000 for 2026-27. That allowance counts contributions from everyone, your employer included. It is tapered where threshold income is over £200,000 and adjusted income is over £260,000, and unused allowance can usually be carried forward from the previous three tax years.

Under relief at source, the pension provider adds basic rate relief. Higher and additional rate taxpayers claim the rest through their Self Assessment return.

Gift Aid

When you give to charity under Gift Aid, the charity claims an extra 25p for every £1. If you pay tax above the basic rate, you can claim the difference between your rate and the basic rate through Self Assessment. Your donations need to be covered by the Income Tax or Capital Gains Tax you pay in the year.

ISAs

Up to £20,000 can be put into ISAs in 2026-27. Interest on cash, and income or gains from investments, held inside an ISA are not taxed.

The trading and property allowances

If your gross income from a small trade, or from property, is £1,000 or less in a tax year, the allowance for that type of income usually means it does not need to be reported. Above £1,000 you can deduct the allowance instead of your actual expenses. Neither allowance can be used for income from your own company, your employer or a partnership you are in, and the property allowance cannot be combined with Rent a Room relief.

Landlords

For individual landlords of residential property, mortgage interest and other finance costs are not deducted from rental income. Instead they give a tax reduction of 20% of the lowest of the finance costs, the property profits and the income above the personal allowance. Planning for a landlord therefore centres on claiming every allowable expense, separating repairs from improvements, and understanding the Capital Gains Tax on a sale, which for UK residential property must be reported and paid within 60 days of completion.

Owner-managed companies

Salary, dividends and Corporation Tax

A director of their own company can usually take money out as salary, dividends or a mix of the two. For 2026-27 the main figures are:

Salary, like other revenue expenses with a business purpose, generally reduces the company’s taxable profit. Dividends do not: they cannot be deducted for Corporation Tax, and a company can only pay them out of profits available for distribution. The right mix depends on the company’s profit, your other income, pension plans and whether the Employment Allowance is available, so we work it out from your own figures.

Capital allowances

• The Annual Investment Allowance gives relief for up to £1 million a year of spending on most plant and machinery, though not cars.
• Companies can claim full expensing (100%) on new main-rate plant and machinery, or a 50% first-year allowance on new special-rate assets.
• A 40% first-year allowance is available for new main-rate assets, other than cars, bought on or after 1 January 2026.
• The main-rate writing down allowance fell from 18% to 14% from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. The special rate pool allowance is 6%.

Selling a business or shares

The Capital Gains Tax annual exempt amount is £3,000 for 2026-27, and gains above it are taxed at 18% within the basic rate band and 24% above it. Business Asset Disposal Relief taxes qualifying gains at 18% for disposals from 6 April 2026, up to a lifetime limit of £1 million. For shares in a trading company, the conditions include holding at least 5% of the shares and voting rights and being an officer or employee throughout the two years before the sale, so they are worth checking well before a sale is agreed.

How we approach a review

• We start with the facts: your income, family position, company and what you expect to change.
• We set out the options that apply, with figures, conditions and drawbacks.
• We record the reasoning, so it is available if HMRC asks about a claim later.
• We make the claims and returns that follow from your decisions, usually through your Self Assessment or Corporation Tax work with us.

To start, we need recent tax returns and accounts, payslips or dividend records, pension statements and a note of anything you are planning, such as a sale, a property purchase or retirement.