UK tax allowances 2026/27: How to make your money work harder

Tax rules rarely stand still. While allowances and thresholds can create opportunities to reduce tax efficiently, they can also become increasingly complex, especially as frozen thresholds continue to pull more people into higher tax bands. 

For the 2026/27 tax year, understanding the allowances available to you could make a meaningful difference to your financial position. Whether you are building wealth, planning for retirement, investing for the future or considering passing assets to the next generation, making full use of available allowances remains one of the most effective ways to improve long-term financial outcomes. 

At Foster Denovo, we believe financial planning should provide clarity and confidence. 

 What is the personal allowance for 2026/27? 

The personal allowance is the amount of income you can earn before paying income tax. 

For the 2026/27 tax year, the standard personal allowance remains: 

£12,570 

This threshold has been frozen for several years and is currently expected to remain unchanged until at least 2030. While the allowance itself has not reduced, rising salaries and inflation mean more people are gradually moving into higher tax brackets, often referred to as fiscal drag. 

UK income tax bands for 2026/27 (excluding Scotland) 

It is also important to remember that the personal allowance reduces once income exceeds £100,000. For every £2 earned above this level, £1 of personal allowance is lost. 

This creates an effective marginal tax rate of 60% between £100,000 and £125,140, making proactive financial planning particularly valuable for higher earners. 

 How can you reduce taxable income efficiently? 

There is no universal approach to tax planning. The right strategy depends on your wider financial goals, assets, income sources and family circumstances. 

However, some commonly used tax efficient planning opportunities include pension contributions, ISA investing, making use of capital gains tax exemptions, dividend allowances, spousal planning between married couples and civil partners, and inheritance tax planning. 

Effective planning is not about avoiding tax altogether. It is about ensuring your finances are structured efficiently, compliantly and in a way that supports your long-term objectives. 

 Pension annual allowance: a powerful tax-efficient opportunity 

Pensions remain one of the most tax-efficient ways to save for retirement. 

For the 2026/27 tax year, the pension annual allowance remains: 

£60,000 

This is the maximum amount that can usually be contributed across all pensions while still benefiting from tax relief. 

For many individuals, pension contributions can help reduce taxable income, reclaim lost personal allowance, lower exposure to higher rate tax and build long term retirement wealth efficiently. 

Higher and additional-rate taxpayers may also be eligible to claim additional pension tax relief through self-assessment. 

However, allowances can become more complicated for high earners due to the tapered annual allowance. 

 Tapered annual allowance 

For individuals with threshold income above £200,000 and adjusted income above £260,000 

The annual allowance may gradually reduce. 

Understanding how employer pension contributions, bonuses and other taxable benefits interact with these thresholds is important, particularly for senior professionals, business owners and executives. 

ISA allowance: tax-efficient investing without further income tax or CGT 

Individual Savings Accounts (ISAs) continue to play an important role in financial planning. 

The ISA allowance for 2026/27 remains: 

£20,000 

Any growth or income generated within an ISA is free from income tax, dividend tax and capital gains tax. 

For long-term investors, this can create substantial tax advantages over time. 

Couples can potentially shelter up to £40,000 per tax year between them, making ISAs particularly valuable for wealth accumulation and future flexibility.  

Dividend tax rates and dividend allowance 

If you receive income from shares or investments outside tax wrappers, dividend tax planning remains important. 

For 2026/27, the dividend allowance remains: 

£500 

Dividend income above this allowance is taxed at: 

As dividend allowances have reduced significantly in recent years, investors and company directors may benefit from reviewing how investment income is structured. 

Using ISAs, pensions and family allowances strategically can help improve tax efficiency over the longer term.  

Capital gains tax allowance and CGT rates 

The capital gains tax allowance — sometimes referred to as the CGT allowance — remains relatively modest compared with previous years. 

For 2026/27, the annual exempt amount is: 

£3,000 

Capital gains above this threshold may be taxed depending on your income level and the type of asset being sold. 

Current capital gains tax rates are: 

With allowances reduced in recent years, more investors are now exposed to capital gains tax. 

Careful planning around the timing of disposals, the use of ISA wrappers, pension funding and transfers between spouses can help mitigate unnecessary tax exposure.  

Personal savings allowance 

Interest earned on savings may also benefit from tax allowances. 

The personal savings allowance for 2026/27 remains: 

With higher interest rates over recent years, more savers may find themselves exceeding these thresholds — particularly where large cash balances are held outside ISAs.  

Inheritance tax threshold and estate planning 

Inheritance tax planning remains a growing area of concern for many families. 

The current inheritance tax threshold (nil-rate band) remains: 

£325,000 

An additional residence nil-rate band of: 

£175,000 

may also apply when passing a main residence to direct descendants. 

Anything above these thresholds is generally taxed at 40%. 

As property values and investment portfolios continue to grow, more estates are becoming liable for inheritance tax. 

Long term planning can help families explore options such as gifting strategies, trust planning, pension nomination planning, business relief opportunities and intergenerational wealth planning. 

Early planning is often key.  

Why tax planning matters more in 2026/27 

While many allowances remain unchanged, frozen income tax thresholds continue to affect more individuals each year. 

This means people who may never previously have considered themselves higher rate taxpayers could now face increased income tax liabilities, reduced personal allowance, higher dividend taxation, greater exposure to capital gains tax and additional inheritance tax considerations. 

At the same time, pension and investment planning opportunities remain available for those who take a proactive approach. 

Tax efficiency should not be viewed in isolation. The most effective strategies are typically built around broader financial objectives, including retirement planning, investment strategy, family protection and estate planning.  

Ready to review your tax planning strategy? 

Making the most of available allowances is not simply about reducing tax in the short term. Effective financial planning should support your wider goals, whether that means building wealth, preparing for retirement, supporting your family or protecting your legacy. 

At Foster Denovo, we help individuals, families and business owners create joined up financial plans tailored to their circumstances and ambitions. 

If you would like to review your pensions, investments or wider tax planning strategy for 2026/27, our advisers are here to help. 

Speak to Foster Denovo today to arrange a call with one of our financial advisers.  

Financial planning built around your goals 

Tax legislation evolves regularly, and allowances can change over time. What matters most is having a financial strategy that adapts with you. 

At Foster Denovo, our advisers work closely with individuals, families and business owners to help create long-term financial plans tailored to their ambitions. 

Whether you are reviewing pension contributions, planning investments more efficiently or thinking about preserving wealth for future generations, informed financial advice can help bring clarity and confidence to important decisions.  

Common tax planning mistakes to avoid in 2026/27 

Many people assume tax planning only matters for very high earners. In reality, frozen thresholds and reduced allowances mean more individuals are now affected by higher rates of tax. 

Some of the most common mistakes include not using ISA allowances before the end of the tax year, missing available pension tax relief, holding large cash balances outside tax efficient wrappers, forgetting about capital gains tax when selling investments and failing to review inheritance tax exposure early enough. 

A proactive financial review can help identify opportunities that may otherwise be overlooked.  

Why professional financial advice matters 

Tax planning is rarely straightforward, particularly for individuals with multiple income sources, business interests, investments or family wealth considerations. 

Professional financial advice can help ensure your planning remains aligned with current legislation, your long term goals and your wider financial circumstances. 

At Foster Denovo, we take a holistic approach to financial planning, helping clients make informed decisions with confidence. 

Frequently Asked Questions 

What is the personal allowance for 2026/27? 

The UK personal allowance for the 2026/27 tax year is £12,570. 

What are the UK income tax bands for 2026/27? 

For England, Wales and Northern Ireland, income tax is charged at 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers. 

Different rates and thresholds apply in Scotland. 

What is the dividend allowance for 2026/27? 

The dividend allowance is £500. 

What is the capital gains tax allowance for 2026/27? 

The annual exempt amount for capital gains tax is £3,000. 

What is the pension annual allowance? 

The pension annual allowance for most individuals is £60,000. 

What is the inheritance tax threshold? 

The standard inheritance tax threshold is £325,000, with an additional residence nil-rate band of £175,000 potentially available. 

Please note 

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.   

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.   

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.    

The tax treatment depends on the individual circumstances of the investor and may be subject to change in the future.  

We recommend that the investor seeks professional advice on personal taxation matters.  

Tax reliefs are those that apply currently, the value of such reliefs will depend on the circumstances of the plan holder and may be subject to change in the future. 

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.