Five ways to lower your bill and pay less tax in 2026

Pension contributions, reporting losses and more can help you pay out less to the taxman

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How would you like to give yourself a net pay rise, by cutting your tax bill?

Although income tax won’t increase in 2026, many people will be paying tax at a higher rate than before.

That’s because the income tax thresholds have been frozen for several years, while inflation has raised both prices and earnings quite significantly.

Every year, this pushes more people across the threshold into a higher tax band - that’s what you’ll have heard be called fiscal drag.

If you’re one of them, you might be looking for legitimate ways to reduce your tax bill, so you get to keep more of your earnings. Here are some to consider:

1. Pay more into your pension

For most people, a pension is the most tax-efficient way to build wealth. Your contributions are limited to 100 per cent of your annual earnings and capped at the annual allowance (for most people, £60,000), but if you pay in within these limits, tax relief is immediately applied at at least the basic rate of 20 per cent.

Higher-rate taxpayers are eligible for tax relief at 40 per cent, and for additional-rate taxpayers, it’s 45 per cent.

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Plus, if you earn more than £100,000 a year, paying the excess into a pension can reduce your adjusted net income to below £100,000, to help you avoid personal allowance tapering (also known as the 65 per cent tax trap) and access free childcare hours, if you need them.

2. Use your ISA allowance

Your annual ISA allowance allows you to protect up to £20,000 of savings and investments from tax.

If you haven’t yet used your full £20,000 ISA allowance for the 2025/26 tax year, and you have savings or investments that are currently in a different, taxable account, then simply moving them into an ISA could reduce your future tax bills. Be aware you could need to pay tax on sales for this tax year though.

This year not much will change but next year, on 6 April 2027, your ISA allowance resets, and the rules change. Here’s a brief overview:

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• UK adults still have the same £20,000 annual allowance.
• However, you can then only put up to £12,000 into a cash ISA in the coming tax year (unless you’re over 65).
• The remaining £8,000 must go into a different type of ISA, such as a stocks and shares ISA.
• If you have a Lifetime ISA (or you’re eligible to open one), you can put in up to £4,000 of your total £20,000 in here.

3. Transfer assets to your husband, wife or civil partner

Married couples and couples in civil partnerships can move money and assets between the two of them in tax-free transactions.

So, assuming you and your partner share your finances, it makes sense for cash, investments, and valuable possessions to be legally held by whoever will pay less tax on the income or gains they generate.

For example, dividend tax rates are very different for a basic-rate taxpayer (10.75 per cent from April 2026) and an additional-rate taxpayer (39.35 per cent).

If an additional-rate taxpayer owns a portfolio of shares that pays dividends of roughly £10,000 a year, transferring ownership to their partner, a basic-rate taxpayer, could reduce their combined tax bill by over £2,000.

4. Report capital losses

Once in a while, a large tax bill might occur because you’ve sold something valuable in the tax year (such as a second home, a portfolio of shares, a cryptocurrency holding, or an artwork or antique). You’ll be due to pay capital gains tax (CGT) on profits above your annual exempt amount of £3,000.

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You can reduce your CGT bill by offsetting losses you’ve made, not just in the current year but in any previous year (as long as the loss is reported within four years of the year it occurred, and hasn’t already been offset against a previous gain).

Even if you don’t have a taxable gain in the current year, reporting any shares, crypto assets, valuables, etc. that you’ve sold at a loss could help you to save in future years.

5. Claim tax relief on Gift Aid donations

Making a Gift Aid donation primarily benefits the charity you donate to, boosting the donation amount by 25 per cent. But it also has benefits for higher-rate and additional-rate taxpayers, who can reduce their tax bill by reporting the donations they’ve made.

For every £100 you’ve donated, you can claim £25 in tax relief as a higher-rate taxpayer, or £31.25 as an additional-rate taxpayer.

You can claim this relief up to four years after the year the donation was made, so it might be worth looking back over previous years to see what you’ve paid and how much you could be due to get back.

Other tips

There are plenty of other ways to legitimately reduce your tax bill, but they’ll depend on your income, relationship status, and goals. Here are a few general rules:

• Make sure you’re using all your tax-free allowances, such as the personal savings allowance and dividends allowance
• Consider tax-efficient investments and savings products, such as gilts (which are free from CGT) and premium bonds (which are free from income tax)
• Claim for any allowable expenses you’re entitled to through your tax return.

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.