New tax year: maximising opportunities at every life stage

ISA and pensions: the foundation of tax-efficient planning

ISAs and pensions usually sit at the heart of a long-term financial strategy.

It is not a binary choice between the two, as both offer significant tax advantages that can boost your tax position.

Growth, interest and income within an ISA are free from income tax and capital gains tax (CGT).

In the 2026/27 tax year, individuals can pay up to £20,000 into an ISA – in stocks and shares, cash, or a combination of these. From April 2027, under-65s will be limited to £12,000 in cash ISA contributions, while the overall ISA allowance will remain at £20,000. This means £8,000 could still be placed into a stocks and shares ISA if the full cash ISA allowance is used.

Any unused ISA allowance cannot be carried forward to the next tax year. There is no limit on the amount you can save into a pension. However, there is a cap on the amount of those contributions that can obtain the full benefit of tax relief each year, depending on individual circumstances.

The standard annual allowance is £60,000. This limits the total contributions from you, your employer or anyone else into your pension each year without them being subject to a tax charge. In addition, tax relief on personal contributions is limited to the higher of 100% of your annual earnings or £3,600.

For higher earners, the annual allowance may be reduced under the tapered annual allowance (TAA) rules. If your threshold income (broadly speaking all taxable income) exceeds £200,000 and your adjusted income (threshold income plus all pension contributions) is over £260,000, your annual allowance will be tapered down, potentially reducing it to as little as £10,000.

Unused pension annual allowances can potentially be carried forward from the previous three tax years, provided you meet certain eligibility criteria. These include having been a member of a UK-registered pension scheme during those years.

Pension savers receive tax relief at their highest rate of tax. When you pay into a personal pension, the scheme automatically claims basic rate tax relief of 20% on your behalf. If you pay tax at a higher or additional rate, you can claim the extra 20% or 25% from HM Revenue and Customs (HMRC). This can usually be done through your tax return or by contacting HMRC.

Early career: building foundations

Beginning early can make a big difference when it comes to saving and financial planning. 

If you have recently started working, it can be tempting to prioritise short-term enjoyment and spending over investing in your future. But starting to save and invest early, even in small amounts, can reduce financial pressures further down the line.

At this stage, building a financial safety net is important, but flexibility and access to finances is also key. Younger people can achieve this balanced strategy through a blend of ISAs and pension contributions.

If you are an employee, it is worth considering the benefits of your workplace pension. Auto-enrolment helps employees build pension savings over time, but any additional contributions and salary sacrifice options, if available, are tax-efficient and can make a meaningful difference in the future.

If owning a home is one of your goals, a Lifetime ISA (LISA) could help you get there sooner. You can save up to £4,000 a year, with the government adding a 25% bonus. This means a full £4,000 annual contribution could be topped up with a £1,000 bonus, subject to eligibility and withdrawal rules.

Mid-career: growing and protecting

As your career progresses, your income is likely to increase, but so are your commitments.
This phase is likely to require a more targeted approach to wealth accumulation and protection.

Consider increasing your ISA and pension contributions, where possible, to boost financial resilience. Review your level of investment risk regularly and ensure you are diversifying across asset types to support your long-term goals.

Any milestones, such as buying a house, marriage, and children could materially affect your income, spending and priorities and will likely have longer-term implications. Therefore, each of these life events should prompt a comprehensive review of your finances.

With growing assets, some may want to consider additional planning and investment options such as unit trusts, investment bonds or offshore investments. These should complement existing saving plans. Some investments can be complex and are highly dependent on tax circumstances. This means accessing professional financial advice will be important.

This life stage is also an appropriate time to write a will if you have not already done so, and to consider bolstering your insurance arrangements to protect family and assets.

Pre-retirement: positioning with purpose

As retirement gets closer, the emphasis typically shifts from growth to tax-efficient income planning.

Start thinking about how to achieve tax efficiency in retirement. This includes, but is not limited to:

• how and when you will want to access your retirement savings
• if and when to use the 25% tax-free lump sum from pensions
• managing a potential inheritance tax (IHT) liability on your estate.
   

You can access your pension benefits from age 55 (rising to 57 in 2028). As you approach this stage, it becomes increasingly important to understand how different withdrawal strategies interact with income tax and allowances. Again, financial advice can be invaluable as you navigate your options.

For non-pension assets, disposals can trigger CGT. Gradual disposals could help spread gains across multiple tax years and reduce your overall CGT exposure.

Retirement: securing your legacy

In retirement, your personal allowance continues to apply, although the way you draw income can affect tax outcomes.

During this phase, your financial strategy is likely to include estate and IHT planning. Those looking to reduce an IHT liability will want to consider different options.

In the 2026/27 tax year, individuals can gift up to £3,000 per tax year without any tax implications (including IHT). And unused annual gifting allowances can also be carried forward for one tax year.

Regular gifts made out of surplus income (which do not reduce your standard of living) can also fall outside your estate for IHT purposes. HMRC may audit these arrangements, so keeping track of any regular gifts is essential.

Larger gifts may fall within your estate if you die within seven years of making the gift. In such cases, IHT may apply on the gift, depending on the value and circumstances of the overall estate. Certain types of decreasing term life insurance policies, written in trust, can sometimes be used to mitigate this risk.

Under the IHT nil rate band, individuals can leave £325,000 of assets to beneficiaries free of IHT. If your assets include your main residence, you are entitled to leave an additional £175,000 free of IHT to direct descendants. This is known as the residence nil rate band.

Assets passed between spouses and civil partners are exempt from IHT. The IHT nil rate band and the residence nil rate band can also be transferred to a surviving spouse or civil partner if no other gifts to non-spouses/civil partners are made on death. As a result, married couples and civil partners can typically pass on up to £650,000 free of IHT, rising to a maximum of £1 million if the residence nil rate band is fully available.

For estates worth more than £2 million, the residence nil rate band reduces gradually. It falls by £1 for every £2 the estate exceeds this threshold.

There is a chance that you or a loved one might need long-term care in the future, so planning for this should not be overlooked. Private care costs can be substantial. Also consider setting up legal documents, such as lasting power of attorney, to ensure arrangements are in place for different eventualities.

A financial plan tailored to you

People at similar life stages may share common financial goals, but their circumstances and priorities will rarely be the same.

While some may be able to maximise allowances consistently, others may struggle to do so at certain points in life, for example, when there are other conflicting demands on their money.

There is no single correct financial plan, only one that is appropriate for you at a given time and one that is adaptable as life changes.

Seeking financial advice can help prepare you for opportunities and challenges at every stage of life.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Please note that cash ISAs and Lifetime ISAs are not available through St. James's Place.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James's Place and along with trusts are not regulated by the Financial Conduct Authority.