As we approach tax year end, advisers will no doubt be working hard to make sure their clients have made the most of their available tax-free allowances and reliefs.
For example, following the Autumn Budget, the expansion of Venture Capital Trust (VCT) limits creates an even greater opportunity for clients this tax year. The 2025/26 tax year is the final opportunity for clients to benefit from the 30% income tax relief before it reduces to 20% in April 2026.
To make adviser’s job easier at this busy time, we’ve prepared this handy checklist. Not only should it be a useful tax planning guide, but it could also help advisers to spot new business opportunities.
Let’s start with the standard tax year end planning scenarios. Have your clients:
- Used their £20,000 ISA allowance? Made the most of their annual allowance for pension contributions?
Remember, they might be able to carry forward any of their allowance they haven’t used from the three previous tax years.
- Used their annual capital gains tax exemption of £3,000?
Do they wish to crystalise gains to make the most of the allowance? Or, perhaps, they expect to crystalise gains in excess of the allowance?
- Used their annual dividend allowance of £500 but expect investment income to exceed this?
- Made the most of their gifting allowance of £3,000 to help plan for inheritance tax?
Helpful reminder: your clients can carry any unused annual exemption forward to the next tax year (but only for one tax year).
Moving onto ‘outside the box’ tax year end planning:
At this time of year, it pays to think about broader tax scenarios. We speak to financial advisers every day who recommend tax-efficient investments to support their clients’ tax planning. This is where you can really add value by providing additional advice to suitable clients.
So, let’s look at some specific scenarios where your clients could benefit from a specialist tax-efficient investment.
Has your client had a good bonus?
If the answer’s ‘yes’, significant income tax will likely be due, so it’s time to ask if they wish to use some or all their bonus to invest for their future. There are several ways they can invest their bonus tax-efficiently. This includes contributing to their pension.
But has your client maxed out their pension this year?
Though the annual pension allowance is £60,000, this is tapered for high earners. It could, in fact, be as little as £10,000. So, if your client is suitable, why not explore additional options that can help your client invest tax-efficiently for retirement? This might include VCTs which offer a way to invest for the future tax efficiently.
Is your client trying to take money out of their business tax efficiently?
The tax treatment of dividends has become tougher. The dividend allowance is small at £500 and the highest dividend tax rate is 39.35% for amounts over this.
From 6 April 2026, dividend tax rates on the basic and higher rate band go up by 2%. Reaching 10.75% for basic rate taxpayers and 35.75% for higher rate taxpayers. Increasing the overall tax burden on investors. Additional rate tax payers will still pay dividend tax at 39.35%.
If you have clients who own a business and want to take a dividend, there might be an opportunity to make an investment and offset the tax due. For example, with a VCT, 30% upfront income tax relief can be claimed against dividends until the end of the 25/26 tax year, before it decreases to 20% in April 2026.
Does your client want an inheritance tax-efficient ISA?
As you’ll know, it’s common for clients to build up large ISAs. But is inheritance tax an issue for your client? Do they want to use their ISA allowance to plan for inheritance tax, or use part of their existing ISA pot to plan for an inheritance tax liability? If the answer’s ‘yes’, you might want to look at Business Relief (BR). You’ll find more on this below.
Now you should move onto your tax-efficient investments checklist:
Have you considered Venture Capital Trusts?
A VCT is a listed company that buys small stakes in a large number of early-stage companies. VCTs offer attractive benefits to compensate investors for some of the risk involved. This includes income tax relief of up to 30% as well as tax-free dividends (typically targeting a 5% dividend yield each year). VCTs can be an attractive way to start to add unquoted investments to a portfolio, and to grow a tax efficient income through annual investment.
Have you considered Business Relief?
BR is an established relief from inheritance tax available for shares in qualifying unquoted companies and those listed on the Alternative Investment Market (AIM). Compared to gifting, BR offers a faster inheritance tax solution to inheritance tax. It also allows investors to retain access to their capital and keep control of their wealth, provided an investor is happy to accept the risks of investing in BR-qualifying companies.
Looking ahead
At Octopus, for the new year, we’re looking to continue providing tax and estate planning support and expertise to our adviser community, delivering a broader range of solutions to help them and their clients. We will do this while continuing to offer the highest quality service that makes advisers feel good about working with us.
By Toyin Oyeneyin, Tax Specialist at Octopus Investments
This piece featured in the latest issue of Tax-Efficient Investment (TEI) Magazine, which you can read here!
About Toyin Oyeneyin
Toyin Oyeneyin is the Tax Product Specialist for Octopus Investments, being the technical lead across all their tax products. She has been with Octopus for over 6 years having joined Octopus from her previous role as a Senior Manager in M&A tax at PricewaterhouseCoopers.
She is a Chartered Tax Adviser and a Council member of the Association of Tax Technicians and has 20 years’ experience across professional practice, industry, accounting, tax and finance.
