Making the most of your tax-free allowances

What is a tax-free allowance?

A tax-free allowance is money you can earn or save each year without paying tax. There are different types:

• Personal allowance: The amount most people in the UK can earn from work or a pension before paying income tax
• Savings allowance: The amount of interest you can get from your savings without paying tax, depending on your Income Tax rate
• ISA allowance: How much you can save or invest tax-free in individual savings accounts (ISAs) each year
• Dividend allowance: The amount you can get from shares before you pay tax
• Capital gains allowance: The profit you can make from selling things like shares or property before tax
• Pension allowance: How much you can put into your pension each year without paying extra tax

Think of these allowances as buckets you can fill each year. When a bucket is full or the year ends, you can’t add more until the next year.

When does the UK tax year start and end?

The UK tax year runs from 6 April to 5 April the following year. Most allowances reset on 6 April, so any unused allowance is usually lost. Here’s why that’s important:

• You could lose out on tax-free savings or investment growth
• You might end up paying more tax than you need to
• Allowances may reduce over time

The earlier you check what you’ve used, the more time you have to act. For example, topping up your ISA or adjusting your investments can take a few days to process. Leaving it too late might mean missing the cut-off altogether.

Using your tax-free allowances

There are lots of ways to take advantage of your tax-free allowances, depending on your goals. Here’s a closer look at some of the most common.

Your personal allowance: How much can I earn tax-free?

Your personal allowance is the money you can earn each year before paying income tax. For 2026-27, this is up to £12,570. In the 2025 Budget, this allowance was frozen until April 2031.

Here’s how to make the most of it:

• Add up all your income. If you have income from a job and a pension, combine them to see if you’re near £12,570
• If you’re self-employed or your pay changes, try to plan payments so you don’t go over the limit
• Use ISAs for savings or investments. Money you earn in an ISA is tax-free

If your taxable income stays within your personal allowance, you usually won’t pay income tax that year.

Sharing allowances with your spouse or civil partner

If you’re married or in a civil partnership, you can share certain allowances to reduce your overall tax bill.

If you’re eligible, the marriage allowance lets one partner transfer £1,260 of their personal allowance to the other. This could reduce their tax by up to £252 a year.

What is a personal savings allowance?

Your personal savings allowance lets you earn a certain amount of interest on the money you save without it being taxed. Your own tax-free interest allowance will depend on the rate of income tax you pay.

• Basic rate taxpayers: You can earn up to £1,000 interest on your savings tax-free
• Higher rate taxpayers: Up to £500 of the interest is tax-free
• Additional rate taxpayers: There’s no tax-free savings allowance

From April 2027, the tax rate on savings income will rise by 2 percentage points (to 22% for basic rate, 42% for higher rate, and 47% for additional rate taxpayers).

You can use online calculators or check with HMRC to find out how much of your personal savings allowance you’ve used. This helps you see how much interest you can earn tax-free. If you’re nearly at your limit, you could move some money into an ISA before the year ends, so it stays tax-free.

Your ISA savings allowance

An ISA is one of the easiest ways to grow your money tax-free. It’s a special savings account that helps you grow your money without paying tax on the interest or profits you make.

In the 2026-27 financial years, you can put up to £20,000 into ISAs. This could be all in one ISA or split between the different ISA types: cash, stocks and shares, innovative finance and Lifetime ISAs.

If you don’t use your ISA allowance by 5 April, you lose it. You can’t carry it over to the next year. Even saving a small amount before the deadline helps your money grow tax-free for the future.

From 6 April 2027, the cash ISA limit will fall to £12,000 for people aged under 65. It will remain £20,000 for people aged 65 or over. The overall ISA allowance will remain £20,000.

Your personal dividend allowance

If you own shares or get income from a company you’ve invested in, the dividend allowance lets you earn up to £500 tax-free this year. That might not sound like much, but it still helps. Beyond that amount, dividends are taxed at different rates depending on your income bracket.

You can reduce your bill by:

• Making sure you hold dividend-paying investments in an ISA where they’re tax-free
• Transferring some shares to your spouse or civil partner if they’re in a lower tax band

From April 2026, the tax rate on dividend income rose by 2 percentage points (to 10.75% for basic rate, 35.75% for higher rate). The dividend allowance remains at £500.

Your capital gains tax (CGT) allowance

If you’ve sold shares, property that isn’t your main home or other valuable assets this year, you might owe capital gains tax on any profit you made.

Everyone gets a capital gains tax allowance, the amount you can make in gains before tax kicks in. In the 2026-27 tax year it’s £3,000.

If you’ve already made gains close to the limit, consider delaying further sales until after 6 April when your allowance refreshes. Or, if you haven’t used it yet, you might sell some assets now to lock in tax-free gains.

Tax-free pension contributions

Paying into a pension is another tax-efficient way to save for the future. The standard pension annual allowance is £60,000, but your own limit and the tax relief you can receive depend on your earnings and circumstances.

By boosting your pension contributions before the tax year ends, you can:

• Reduce your taxable income
• Benefit from government top-ups through tax relief
• Build a larger pot for retirement

Even small top-ups can make a long-term difference thanks to compound growth.

The rules can change if you earn a lot or take money out early.

If you’re taking your pension

You can usually take up to 25% of your pension pot tax-free, capped at £268,275 across all pensions. The rest of what you take is taxed as income, so spreading withdrawals over several years can help keep you in a lower tax band.

You can also use small pot rules (up to £10,000 per pot) and your personal allowance (£12,570) to reduce tax. Taking everything at once often triggers higher tax, so phased withdrawals are generally more tax efficient. Check the HMRC guidance on tax when you take a pension.

Tips to stay organised

Organising your finances before the tax year ends can be straightforward with a few practical steps. Here are some easy ways to help you get things in order.

• Keep records in one place: Store all your bank statements, payslips, investment updates and pension details together. A folder or spreadsheet helps you see what you’ve used and what’s left
• Check dates early: Don’t wait until the last week of March. Some transfers or top-ups take time to process, especially if you’re moving money between accounts
• Use online calculators: HMRC and major banks have free tools that show how much of your personal savings allowance you’ve used and how much tax-free interest you can earn
• Talk to a financial adviser: If you have complex finances, an adviser can help you use every allowance wisely and plan for next year and beyond too