Year-End Personal Tax Planning 2025/26

This article is correct at time of publishing.

As we approach 5 April 2026, it’s an ideal time to pause and review your personal tax position.

For many founders, income now comes from a mix of salary, dividends and investments. Over recent years, allowances have reduced and thresholds have remained frozen. Individually, none of these changes are dramatic. Taken together, however, they mean timing decisions now matter far more than they once did.

We have highlighted a few of the areas where a review before the tax year end can be highly beneficial.

What to review before 5 April 2026

Salary planning – balancing personal and company considerations

For directors of owner-managed businesses, salary decisions are not purely personal. The level at which you set your salary can have wider implications beyond income tax.

While taking a lower salary and drawing dividends can appear tax-efficient at first glance, there are a number of factors worth considering.

State Pension record

To build qualifying years for your State Pension, your salary must exceed the Lower Earnings Limit (for 2025/26 this is £6,500 per year). Taking a very low salary may mean a year does not count towards your State Pension record.

Childcare eligibility

Eligibility for tax-free childcare is linked to minimum earnings requirements, based broadly on working 16 hours per week at National Minimum Wage or National Living Wage. Eligibility is lost where adjusted net income exceeds £100,000.

It is also worth noting that the High Income Child Benefit Charge applies where adjusted net income exceeds £60,000. The charge increases gradually and results in the full amount of Child Benefit being repaid once income reaches £80,000, so income levels should be considered carefully. Where a couple are living together, the partner with the higher adjusted net income is responsible for reporting and paying the charge, regardless of which partner receives the Child Benefit.

If you are close to these thresholds, income planning should be considered to ensure you can benefit from the Childcare scheme.

R&D considerations

If your company carries out qualifying R&D activity, director salary, employer NIC and pension contributions can form part of qualifying R&D expenditure.

Under the current R&D regimes, relief rates differ from previous years, but the principle remains: a commercially appropriate salary can increase qualifying costs and strengthen the overall claim, with relief available of between 15-27%

This does not mean salary should automatically be increased, but it is worth ensuring that remuneration decisions reflect both personal and company-level considerations.

Dividend timing

In addition to your personal allowance of £12,570, the first £500 of dividend income is taxed at 0%. After that, dividend tax rates for 2025/26 are:

• 8.75% (basic rate)
• 33.75% (higher rate)
• 39.35% (additional rate)

From 6 April 2026, the basic and higher dividend rates increase to 10.75% and 35.75% respectively.

With the dividend allowance now significantly reduced, planning the timing of dividends across tax years has become increasingly important. Unused allowances and tax bands cannot be carried forward. Once the tax year ends, they are lost.

Where appropriate, it may be worth considering:

• Whether dividends should be declared before 5 April
• Whether your available basic rate band has been fully utilised
• Whether income is approaching key thresholds, including £100,000

For married couples and civil partners, transferring shares between spouses can allow allowances and tax bands to be used more effectively. Such transfers are generally free from capital gains tax, provided they are made correctly.

Salary and dividend decisions should also be considered together. Taking too low a salary may affect State Pension record or childcare eligibility, while income over £100,000 can reduce personal allowances and access to certain reliefs.

Managing income around key thresholds

The personal allowance is £12,570. However, once income exceeds £100,000, this allowance is reduced by £1 for every £2 of additional income. It is fully lost at £125,140.

This creates an effective 60% marginal tax rate on income between £100,000 and £125,140.

In addition:

• The High Income Child Benefit Charge applies once income exceeds £60,000 and is fully repaid at £80,000.
• Eligibility for tax-free childcare is lost where adjusted net income exceeds £100,000.

If your income is close to any of these levels, planning becomes particularly valuable.

Pension contributions and Gift Aid donations can reduce adjusted net income and can be extremely valuable when reviewing your overall tax position. In some cases, this can:

• Restore part or all of your personal allowance
• Reduce exposure to the 60% band
• Preserve childcare eligibility
• Reduce the High Income Child Benefit Charge

The annual pension allowance is £60,000 (subject to tapering), and unused allowances from the previous three years may be available.

As with all reliefs, contributions to pensions or any charitable donation must be received before 5 April to apply in the current tax year.

Looking ahead

A number of changes are coming in 2026/27:

• Dividend tax rates increase from April 2026.
• Making Tax Digital for Income Tax begins in April 2026 for sole traders and landlords with income over £50,000 (and from April 2027 for those over £30,000).
• From April 2027, tax rates on residential property income are due to increase by 2%.

We will share a more detailed update later in March covering these changes in full and how they may affect you. For now, the key message is that early planning is increasingly important.

Key Takeaways

Use what you can before 5 April 2026

Allowances don’t roll forward, so timing actions like dividends, pension contributions and Gift Aid can materially reduce tax.

Plan around the big threshold changes

The £100,000 and £125,140 bands, plus Child Benefit thresholds, can create very high effective tax costs, and careful income planning can protect allowances and childcare support.

Look ahead

Dividend rates rise from 6 April 2026 and MTD for Income Tax starts from April 2026 for many sole traders/landlords, so decisions now should also anticipate next year’s rules and admin burden.

A short year-end review

A proactive review before the end of the tax year helps ensure that available allowances are used, income is structured appropriately and avoidable tax is not incurred.

Relief is only secured once action has been taken, whether that is a dividend being declared, a pension contribution being received, or an investment being completed.

For founders with mixed income streams, small adjustments to timing can have a meaningful impact.

If you would like to review your position before 5 April, please feel free to get in touch. A short discussion now can often prevent unnecessary tax and avoid surprises later in the year!

👉 Speak to our tax team today to arrange a year-end review.