Six strategic steps to consider before the tax year end
Six strategic steps to consider before the tax year end
With two months to go until the start of the new tax year, accounting and advisory firm BDO has shared six strategic tax planning ideas to consider before this tax year ends on 5 April.
Elsa Littlewood, Tax Partner at BDO said: “Planning ahead to take account of the changing tax rules in a way that is strategic and futureproof is more important than ever.
“With self-assessment now concluded, now is the time to look ahead and consider all income and expenditure to assess where savings or efficiencies can be made. Of course, for more complicated arrangements, it’s always a good idea to seek professional advice.”
1. Take advantage of tax-free pension contributions
There is no limit on the amount that an individual can contribute to a registered pension scheme, but tax relief on personal contributions is limited to the higher of £3,600 gross or 100% of relevant UK earnings for the tax year. In addition, this is further subject to the pension annual allowance of £60,000, plus any unused annual allowance from the previous three tax years brought forward. However, individuals with annual income exceeding £200,000 may have their annual allowance reduced to as little as £10,000, so should take expert advice on maximising their pension contributions.
Qualifying taxpayers who don’t receive full tax relief at source when contributing to their pension scheme should disclose their contributions in their annual tax return to receive a rebate at their marginal rate. Taxpayers can submit a 2025/26 tax return straight after 6 April 2026, if they have all the information to obtain the tax refund.
2. Avoid the Child Benefit clawback
Child benefit is clawed back where annual taxable income (or the taxable income of a partner) exceeds £60,000 (being completely repaid when income exceeds £80,000).
If both partners can keep their annual taxable income below £60,000, Child Benefit will not be clawed back. However, where one partner has income over the threshold, Child Benefit will be clawed back through the High-Income Child Benefit Charge, at a rate of 1% of the benefit for every £200 of income over £60,000. When the salary of either partner reaches £80,000, the amount of tax charged will equal the amount of the child benefit payment.
Making personal pension contributions or exchanging salary in return for employer pension contributions can reduce taxable income to keep it below the £60,000 threshold.
3. Boost State Pension by filling gaps in National Insurance record
Taxpayers can usually pay voluntary National Insurance contributions for the past six years to fill gaps in their National Insurance record, to boost the number of qualifying years that are used to calculate the State Pension entitlement. The deadline is 5 April each year.
It is important to check National Insurance records and the State Pension forecast before making voluntary contributions though, as paying them does not always increase the State Pension entitlement.
4. Company owner? Consider paying yourself a dividend
For company owners, it can sometimes be more tax-efficient overall to withdraw profits from the company as dividends rather than salary payments, but this will depend on a number of factors (basic rate taxpayers are most likely to benefit).
However, company owners should be aware that dividends are only possible if the company has sufficient ‘distributable reserves’. It should be noted that receiving dividend income does not allow the recipient to pay tax-deductible pension contributions. Of course, it should always be remembered that arranging for the company to pay pension contributions on your behalf is the most tax-efficient way to withdraw funds from the business.
The tax cost of receiving a dividend after April 2026 will go up as the basic and higher dividend rates are increasing by 2% to 10.75% and 35.75%.
5. Entrepreneur/Investor? Consider SEIS/EIS/VCT investments
The Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) all offer tax benefits, but are really only suitable for experienced business owners and investors.
Under the SEIS, an individual can invest up to £200,000 in start-up enterprises in a tax year and claim income tax relief at 50% irrespective of his or her marginal rate of tax, up to a maximum of £100,000.
Investments in qualifying EIS companies (for example, certain companies listed on AIM or that are unlisted) attract income tax relief at 30% on a maximum annual investment of up to £1 million for qualifying individuals. This doubles to £2 million for investments into ‘Knowledge Intensive Companies’.
Investments in VCTs provide income tax relief at 30% (reducing to 20% from 2026/27) on qualifying investments of up to £200,000 and dividends received from the units are tax-free. In addition, the VCT can buy and sell investments without suffering CGT within the trust and there is no CGT payable on any gain made when you sell the VCT units.
However, positive changes coming in from April 2026 may make it more attractive to invest in EIS and VCT companies, as the company investment limits are being increased i.e. the maximum permitted amounts of qualifying investment which a company can raise through the respective schemes. This means that more companies will be able to make use of these schemes from April 2026.
6. Plan for the longer term
Significant changes to inheritance tax for pensions and business assets are prompting many business owners to rethink how their wealth will pass to the next generation. It is a good time to review Wills/letters of wishes to make sure they remain tax-efficient and consider if lifetime giving (both lump sums and/or regularly out of surplus) is right for the family’s finances.
Remember, it’s always best to take expert advice on financial and tax planning matters.
ENDS
Note to editors
BDO UK operates in 17 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.
It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to the entrepreneurial, ambitious and growing mid-sized businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.
BDO LLP is the UK member firm of the BDO international network.
BDO’s global network
The BDO global network provides business advisory services in 169 countries and territories, with 95,000 people working out of 870 offices worldwide. It has revenues of US$11bn.
Contacts
Frank Shepherd
frank.x.shepherd@bdo.co.uk
07812 463601