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End of Year Tax Planning: Pensions, IHT & ISAsWritten on January 7, 2025 by Kirk Rice LLP

Key Points

• Pension contributions attract tax relief, employer funding, and tax-efficient growth, with up to 25% usually available tax-free.
• From April 2026, Agricultural and Business Property Relief will share a £2.5 million 100% IHT allowance, with excess qualifying at 50%.
• Married couples and civil partners can transfer unused relief, potentially passing up to £5 million of qualifying assets IHT-free.
• ISAs remain tax-free for income and gains, with a £20,000 annual allowance. Lifetime ISAs and Junior ISAs also continue to be available, subject to their own limits.
• Using pensions and ISAs together may support long-term tax and estate planning, subject to rules and future legislative change.

The tax benefits of pension investments make them a key consideration in planning. Individual saving accounts (ISAs) also have income tax and CGT advantages.

When you put money into a pension you benefit from a tax relief payment too. On every £100 you put in £25 is added. Additionally, in most cases, an employer must put money in, and you do not pay tax or National Insurance on that value. Investments held within a pension are generally exempt from UK tax on capital gains, dividends and interest income.

Most individuals can start withdrawing their pension savings from age 55, although this will increase to 57 from 6 April 2028 and is expected to remain 10 years before State Pension Age. When you start accessing your pension, up to 25% of the fund is usually tax-free, while any remaining pension income is taxed as income.

The money in a pension can be converted in part or wholly into a guaranteed income for life or remain invested and this is an area to carefully consider. Before accessing your pension, most people find it’s worthwhile taking professional advice, as your choices can have a long-term financial impact.

For business owners with a strategic interest in how they pass on their wealth, changes to two key Inheritance Tax (IHT) reliefs are worth reviewing. You can learn more about these updates below, alongside some handy ISA, LISA and JISA tips.

Key IHT updates: Agricultural and Business Property Reliefs from April 2026

From 6 April 2026, significant reforms will apply to Inheritance Tax (IHT) Agricultural Property Relief (APR) and Business Property Relief (BPR). The government is introducing a new combined allowance for these reliefs, which will affect the amount of qualifying property that can benefit from the full 100% relief rate.

Under the new rules, the first £2.5 million of combined agricultural and business property in an individual’s estate will continue to qualify for 100% relief from IHT. Any value above this threshold will attract relief at a reduced rate of 50%. This change means that, for married couples or civil partners, up to £5 million of qualifying assets can be passed on free of IHT, as the unused allowance is transferable between spouses or civil partners, including where the first death occurred before 6 April 2026.

The £2.5 million threshold will be fixed until April 2030, after which it will be indexed in line with the Consumer Prices Index (CPI).

The updated allowances also apply to agricultural and business property gifted into trusts, with a £2.5 million allowance for 100% relief and 50% relief applying to the value of qualifying property above this amount. This can open planning opportunities for individuals and families looking to help mitigate their potential Inheritance Tax, however, the rules can be nuanced and complex. If you would like to discuss how these new rules could impact your planning options, please get in touch.

Further IHT changes to be aware of from April 2026:

• Some AIM and overseas business shares are expected to qualify for a lower rate of Business Property Relief.
• More agricultural and business assets will be able to use the option to pay IHT in instalments.
• Transitional rules may affect certain gifts and trust planning carried out before April 2026.

The government has stated that all of these changes are intended to better target relief at smaller and family-owned farms and businesses, while ensuring that only the largest estates are affected by the reforms. According to official estimates, around 85% of estates claiming agricultural property relief in 2026–27 are forecast to pay no more inheritance tax because of these changes.

How can I make the most of my Individual Savings Accounts (ISAs) for 2025/26 and 2026/27?

ISAs continue to offer income tax and CGT advantages, as investments within ISAs are free of UK tax on investment income and capital gains. From 6 April 2024, the rules were simplified, allowing you to subscribe to multiple ISAs of the same type in a tax year, and partial transfers between providers are now permitted. These changes remain in place for 2025/26 and 2026/27.

Anyone aged 18 or over can invest in any number of cash ISAs, stocks & shares ISAs, or innovative finance ISAs. If you are aged 18 to 39, you can also invest up to £4,000 in a Lifetime ISA (LISA). The overall annual ISA subscription limit remains at £20,000 for 2025/26 and is expected to remain unchanged for 2026/27, but always check for any updates in the Spring Budget.
ISA investments do not need to be reported on your tax return, and ISAs are effectively inheritable by a surviving spouse or civil partner, who can inherit an additional ISA allowance equal to the value of the deceased’s ISAs.

Lifetime ISAs

The government continues to add a 25% bonus to investments of up to £4,000 a year in a Lifetime ISA. You can use these savings to help buy your first home (up to £450,000) or keep the funds for retirement. Lifetime ISAs may be more attractive than traditional pensions for some, or you can use both. Withdrawals before age 60 (other than for a first home purchase) incur a 25% charge, so you may get back less than you paid in.

Junior ISAs

Parents and others can contribute to a Junior ISA for children under 18 who do not have a Child Trust Fund. The contribution limit remains at £9,000 for 2025/26 and is expected to remain unchanged for 2026/27.

Don’t forget your Personal Savings Allowance:
•  Basic rate (20%) taxpayers: up to £1,000/year tax-free interest
•  Higher rate (40%) taxpayers: up to £500/year tax-free interest
•  Additional rate (45%) taxpayers: no PSA

If you have an ISA, check if you have maximised your annual investment limit. ISAs are an excellent way to optimise your tax-free earnings, and it is usually beneficial to make full use of your £20,000 entitlement each year.

Kirk Rice’s financial planners are on hand to advise you. Whether it’s pensions or ISAs, our team of independent advisors will explain your options clearly and help you set a plan to maximise your money. Get in touch today at info@kirkrice.co.uk

Kirk Rice’s dedicated IHT and Estate Planning specialists are here to help. You can learn more about our services here: IHT & Estate Planning.

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.