Part 1: Adapting to lower tax allowances | Wealthtime

Kylie Clark, Customer Experience Director, Wealthtime, brings you the first in a 3-part mini series on the new tax year. This first instalment looks at the lower tax allowances, the impact on client finances, and how advisers can help support their clients’ planning.

With the new tax year just beginning, now is a good time to reset tax planning conversations with clients. Clients are increasingly anxious about the impact of lower allowances on their finances. More than half (53%) of advice-engaged investors with £50k+ investable assets say they are more worried about tax than they were a year ago, according to Wealthtime’s latest consumer research with Ad Lucem.

With the dividend allowance now £500 and the capital gains tax annual exemption £3,000, these allowances still play a role but rarely work as stand-alone solutions at their current levels. For advisers, making use of last-minute allowances has given way to a need for earlier planning and careful decisions on wrappers and the timing of income.

Allowances shape behaviour

For married couples and civil partners, the basics remain important. Ensuring income and assets are split so both partners can use their personal savings allowance, £1,000 for basic-rate and £500 for higher-rate taxpayers, alongside the £500 dividend allowance remains worthwhile. Lower thresholds mean this planning increasingly needs to happen earlier in the year, rather being left to a year-end tidy-up.

While clients often have good intentions, they may need a prompt to ensure they act in plenty of time. Our research found that 34% plan to top up their ISA, 26% expect to adjust their regular savings and investments, 21% intend to review their pension contributions and 23% want to undertake a tax-efficiency audit early this tax year. However, more than half (52%) completed most of this activity in the final few weeks of the last tax year, including 24% who left it to the last week.

Earlier planning is particularly relevant for clients who have control over how they take income, such as shareholding directors of private companies. Although the dividend allowance is now just £500, it is still a useful trigger to review wrapper choices, especially where dividends form a significant part of returns.

Outside tax-protected wrappers, once the allowance is used, dividend income is taxed at 8.75%, 33.75% or 39.35% depending on the taxpayer’s marginal rate. This reinforces the value of holding dividend-producing assets within tax-efficient wrappers where appropriate.

As a result, pensions, ISAs and in some cases investment bonds have taken on renewed importance in adviser tax planning conversations. Regular funding strategies are also becoming more effective than ad hoc contributions where clients want to build tax-efficient portfolios over time.

The role of higher-risk solutions

For clients with higher risk tolerance and sufficient capacity for loss, advisers may discuss tax‑advantaged investments such as EISs and VCTs as part of a wider advice conversation. EISs offer 30% income tax relief and deferral of capital gains tax, while VCTs provide tax-free dividends and gains within annual subscription limits. However, these benefits come with higher investment risk and reduced liquidity, so for most clients they are better viewed as tactical allocations rather than core holdings.

Investment bonds have also seen renewed interest as advisers look for ways to manage tax liabilities more flexibly. Research from the lang cat and Canada Life suggests two-thirds (66%) of firms using international bonds recommend them more now than five years ago, while 71% expect use to increase over the next five years.

Their ability to defer tax and control the timing of chargeable event gains can be valuable where a client expects taxable income to fall later. Options such as the 5% cumulative withdrawal facility and top-slicing relief can help manage outcomes, although the technical differences between partial withdrawals and full surrenders mean these decisions are highly technical and should only be made following regulated financial advice.

In some cases, advisers may consider the timing of chargeable event gains as part of a broader advice strategy, particularly where a client’s tax position is expected to change. Alternatively, assigning bond segments to a lower-taxed adult family member before encashment can improve the overall tax position, provided the client is comfortable with the loss of control.

Lower allowances don’t remove planning opportunities, but they do change how advisers add value. Tax planning increasingly centres on wrapper selection, sequencing and timing. For advisers, the emphasis is shifting from being inventive to getting the basics right and applying familiar tools throughout the tax year and with greater precision.

All three parts are now available on the website, so be sure to check out Part 2 and Part 3!

About Kylie Clark

Kylie joined Wealthtime in April 2025 as Senior Operations Consultant, moving into the role of Customer Experience Director in October 2025. A strategic and operational leader with over 20 years of experience in wealth platforms, she brings with her a deep understanding of both adviser and customer needs, transformation readiness, and regulatory compliance.