From a tax and savings perspective, there’s a clear direction from the government: frozen thresholds and reduced allowances. While it’s always been important to use as much as you can of the various options to shelter savings and investments from tax, it’s more important than ever given they could be cut further in the years ahead. You have just under a month to use what you can on each front, and it’s worth remembering there are some big changes ahead that may affect your plans.

Pensions – still the best way to build wealth

The fact that pensions are being brought into people’s estates from April next year is figuring in a lot of people’s minds, which is understandable. But the reality is that saving into a pension is still the best way to build wealth in the long term because of the government and employer contributions, and the compounding effect of investing over decades.

You can contribute up to £60,000 to your pension in a given tax year – however, this allowance is tapered down to a minimum of £10,000 for those earning more than £260,000. Workplace schemes require a minimum contribution of 8%, typically 5% from you and 3% from your employer. But some workplaces may offer to match you up to a certain percentage of your salary – so make the most of that, if you can afford to.

Another benefit of using as much of your pension allowance as you can is the potential to reduce your income tax liability. With income tax thresholds frozen until 2031, more people are going to find themselves dragged into a higher rate if wage rises continue as they have been. But, contributing more to your pension could push you back into a lower rate by reducing your taxable earnings.

A rule that many people forget is the pension carry forward rule, which allows you to use unused allowances from the previous three tax years to make contributions exceeding the £60,000 limit while still receiving tax relief. However, to do that you must have been in a registered pension scheme during those previous years and have used up the current year’s allowance first.

ISAs – don’t waste your allowance on cash

Each year you have a £20,000 ISA allowance, allowing you to shelter cash or investments from tax. You can’t carry any of that forward, so try to use as much as you can – and remember that you can withdraw as much as you want from your ISAs without losing the tax benefits, assuming you are not using fixed-term accounts.

Anyone who holds investments outside of an ISA and still has some of their allowance for this year available could consider a ‘Bed and ISA’. This involves selling shares or funds held in general investment accounts, moving the proceeds into your ISA, and then repurchasing them within the wrapper so that any future gains aren’t liable for income or capital gains tax.

It’s also worth remembering that from April 2027, the Cash ISA limit will be reduced to £12,000 for those under the age of 65. But the overall allowance will remain at £20,000 meaning if you want to maximise it, you will have to invest at least £8,000 of what you contribute.

This is part of the government’s push for more people to invest their savings, rather than holding them in cash – and there could be more decisions that encourage people in that direction in the years ahead. That can only be a good thing: the returns delivered by a well-diversified basket of investments have tended to outperform cash by some distance over most timeframes. So, don’t waste your allowance on cash when it could be used to invest - notwithstanding the fact that markets are very volatile at the moment.

Capital gains – use what you can of ‘miserly’ allowance

Capital gains tax is charged on any profits made from selling assets that have increased in value – whether that is shares or investment properties. As recently as the 2022/23 tax year you could claim up to £12,300 tax free, but that has been reduced to a miserly £3,000 today. Any gains beyond that are taxed at different rates depending on what you are selling and what type of taxpayer you are – but generally this tends to be either 18% or 24%.

Like other allowances, you can’t carry this forward – so it’s important to use what you can each year. If you are selling investments in a general investment account to move them into an ISA, any gains made will eat into your allowance. But it’s worth remembering that any losses can be used to offset gains elsewhere, which may give you more than £3,000 to play with.

VCTs – don’t let the tax tail wag the investment dog

Venture Capital Trusts (VCTs) are designed to provide investors with access to early stage businesses – that makes them high risk and they are only suitable for sophisticated investors, who can afford to lose the money they invest. But one of the main attractions of these investment vehicles has been that they offer 30% upfront income tax relief.

From April 6, that allowance is being reduced to 20%. That has caused a surge in demand following the announcement of the change, with people opting to maximise the current relief while they still can. That may be tempting, but never let the tax tail wag the investment dog – don’t allow a potential short-term tax saving influence your long-term financial plan, or leave you short on cash in the here and now. The Enterprise Investment Scheme (EIS) is also option for gaining exposure to similar types of companies for those who want that.

Dividends - take what you can before the rise

Another change from April 6 is the increase to the tax on dividends. The rate will increase by 2% for basic and higher rate taxpayers, from 8.75% to 10.75% for basic rate taxpayers, and from 33.75% to 35.75% respectively. That could make a reasonable difference to the amount of tax you pay - particularly for those who are self-employed and pay themselves predominantly through dividends. 

For anyone in that position, taking a bit more this side of the tax year makes sense. But do not unnecessarily constrain your income for 2026/27 by taking too much in dividends over the course of the next month. If you are going to make major changes, it is a good idea to take financial advice before making any significant decisions about how you structure your income.

Adrian Murphy is CEO of Glasgow-based Murphy Wealth