Tony Wickenden, Technical Connection

Tax year start planning is arguably more important than tax year end planning.

As with most things, “planned ahead” is better than “last minute”.

The most obvious year ahead planning is, of course, to invest as much as is possible into the ‘no-brainers’ of ISA and pensions. The shield from both income tax and capital gains tax which both wrappers give is unparalleled. As well as the 30% front end, stand-alone relief on qualifying investments (VCT front end relief falling from 30% to 20% from 6 April 2026), the VCT and the EIS also offer some worthwhile CGT reliefs and for VCT, complete tax freedom on dividends.

But what do you do when there is no more capacity (for whatever reason) to invest in those wrappers and your client has used their other allowances and exemptions in relation to investment income and gains? Especially in the light of the frozen income tax thresholds and allowances, dramatically reduced dividend allowance, upcoming increases in the taxation of dividends (2026/27), savings and property income (2027/28) and continuing low level of CGT exemption and higher CGT rates.

Well, that’s where advice founded on a knowledge of the choices that are available and the outcomes they can deliver is so important.

Especially where the underlying portfolio produces income (particularly dividends) then an onshore or offshore investment bond (or a combination) can deliver potentially powerful tax deferment and easier tax management. Avoiding personal tax during the investment or accumulation period and accessing funds when personal tax rates are lower (possibly using the power of top-slicing relief) can really deliver tax efficiency. Dividends received inside a UK or offshore bond remain completely free at life fund level. After 6 April 2027, non-dividend income and capital gains generated inside an onshore bond will be taxed at 22% (it’s currently 20%). Chargeable gains generated from onshore and offshore bonds remain taxed as savings income so, from 6 April 2027, those gains made by investors will be taxed at rates of 22%, 42% or 47% for basic, higher and additional rate taxpayers respectively, but for onshore bond gains the investor will be entitled to a 22% tax credit. All of this, along with knowledge of how income and gains are taxed outside of a tax wrapper, will need to be factored into decision making in relation to optimum tax wrappers beyond the ‘no-brainers’ of pensions and ISAs.

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This article is intended for regulated financial advisers and investment professionals only.

The statements and opinions expressed in this article are those of the author and don’t necessarily reflect those of Wealthtime or any of its employees. The company does not take any responsibility for the views of the author.

The above is based on understanding of current law and HMRC practice, and Government proposals regarding future law and HMRC practice, as at 23 February 2026, and are presented for general consideration only and no action must be taken or refrained from based on the content of this article alone. Each case depends on its own facts and advice is essential. Accordingly, neither Wealthtime nor Technical Connection, nor any of their officers or employees can accept any responsibility for any loss occasioned as a result of any such action or inaction.

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