Skip to content 
A Fresh Tax Year, A Fresh Opportunity
The new tax year began on 6 April 2025, and with it comes a renewed chance to reduce your tax liabilities by making full use of the available tax-free allowances. These allowances can significantly cut your tax bill—if you know how to use them properly. Whether you’re employed, self-employed, a landlord, or an investor, there’s likely an allowance you could be making better use of. Here’s a practical guide to help individuals and families keep more of what they earn in 2025/26.
1. Personal Allowance: The Foundation of Tax-Free Income
Each individual is entitled to a personal allowance of £12,570 for the 2025/26 tax year. This is the amount of income you can earn before paying any income tax.
However, once your income exceeds £100,000, this allowance begins to taper off. For every £2 earned above £100,000, £1 of personal allowance is lost. This means that by the time your income hits £125,140, you’ll no longer receive any personal allowance at all. This creates an effective 60% marginal tax rate in the taper zone.
How to make the most of it:
- Make pension contributions to bring your adjusted net income below £100,000.
- Delay bonuses or dividends to a later tax year to avoid triggering allowance loss.
- Transfer income-producing assets to a spouse or civil partner in a lower tax band.
2. Marriage Allowance: Share and Save
If you’re married or in a civil partnership, and one of you earns less than the personal allowance while the other is a basic rate taxpayer, you can transfer £1,260 of the unused personal allowance to your partner. This could reduce your tax by up to £252.
It’s a simple way for couples to maximise their combined allowances when one partner earns below the threshold.
3. Trading Allowance: Perfect for Side Hustles
If you are self-employed, you can earn up to £1,000 tax-free from casual or freelance work. This allowance applies to all kinds of self-employment income, whether you’re tutoring, selling crafts, or doing weekend gigs.
If you earn more than £1,000, you can still deduct the full £1,000 as an allowance instead of claiming actual expenses—ideal for those with low business costs.
4. Property Income Allowance: Simplifying Landlord Tax
If you let out a property and earn less than £1,000 in rental income, you don’t need to report it to HMRC. For rental income over £1,000, you can deduct the allowance rather than claim actual expenses, provided it works out more favourably.
This is especially helpful for occasional landlords or those renting property in a very informal way.
5. Rent-a-Room Scheme: Tax-Free Income from Your Home
If you rent out a furnished room in your own home, the rent-a-room scheme lets you earn up to £7,500 tax-free per year. It’s a generous allowance and can be a reliable way to generate extra income without extra tax headaches.
Unlike the property allowance, the rent-a-room scheme cannot be combined with other property income reliefs—so choose the one that benefits you the most.
6. Dividend Allowance: For Shareholders and Directors
Dividend income has its own allowance, separate from your personal allowance. For 2025/26, the dividend allowance is £500.
Dividends within this threshold are tax-free, though they still count towards your overall tax band. Any dividend income over the allowance is taxed depending on your income tax bracket—8.75% for basic rate taxpayers, 33.75% for a higher rate, and 39.35% for an additional rate.
Even though the allowance is relatively small, when combined with income splitting and timing strategies, it can still affect broader tax planning.
7. Savings Income: Layered Allowances
Savings income benefits from multiple tax-free opportunities:
Starting Rate for Savings: £5,000. If your non-savings income is less than the personal allowance plus £5,000 (i.e., £17,570), up to £5,000 of savings interest is taxed at 0%.
However, this starting rate band reduces as non-savings income increases and disappears completely once non-savings income exceeds £17,570.
Personal Savings Allowance:
- £1,000 for basic rate taxpayers
- £500 for higher-rate taxpayers
- None for additional rate taxpayers
You can boost your tax-free earnings on interest by managing savings between you and your spouse or organising your income to stay within certain tax bands. Using tax-free savings options like ISAs allows you to save or invest up to £20,000 each year, which helps keep your savings income safe from tax.
8. Capital Gains Tax (CGT): Annual Exempt Amount
In the 2025/26 tax year, each person can earn up to £3,000 in capital gains without paying Capital Gains Tax (CGT). Although this exemption has decreased in recent years, it is still valuable.
- Basic rate taxpayers pay 10% on gains above the exemption
- Higher and additional rate taxpayers pay 20%
(For residential property gains, the rates are 18% and 24% respectively.)
Tips to maximise your CGT allowance:
- Use it or lose it: The exemption cannot be carried forward.
- Split assets with your spouse before the sale to use two allowances.
- Spread disposals over multiple tax years to take advantage of multiple annual exemptions.
9. Make the Most of Multiple Income Streams
The fact that these allowances apply to different income types—earned income, self-employed income, property income, dividends, savings, and gains—means that diversifying your income sources can help you use each allowance to its fullest.
A family with some salary income, some side hustle money, a rental property, dividends from a personal company, and well-structured savings could legally and efficiently shelter thousands from tax.
Act Early, Plan Smart
Maximising your tax-free income isn’t just about avoiding tax—it’s about using the tax system to your advantage. With thresholds frozen and allowances under pressure, each pound of tax-free income becomes more valuable.
Start planning now. Review your income sources, assess timing strategies, and consider reallocating assets between spouses. If it feels overwhelming, speak to a professional who can help tailor a plan based on your specific circumstances.
Get Personalised Tax Advice
At Tax Accountant, we specialise in helping clients take full advantage of tax-saving opportunities. Whether you’re a freelancer, investor, landlord, or high earner, we’ll help you structure your finances to minimise tax and maximise profit. Contact us today to book a consultation for the 2025/26 tax year. Let’s make your money work smarter.