If you’re putting money into investments, knowing your way around tax allowances can make a real difference to how much profit you actually keep. Now that we’re well into the 2025/26 tax year, it’s a great time to get clear on the numbers so you’re not caught out when the taxman comes knocking.
Let’s start with the bits that matter most if you’re investing, then cover other important allowances everyone should know.
What Investors Should Keep Front of Mind
Using your allowances smartly can help reduce tax bills and boost your returns. Plan withdrawals and sales to stay within limits and make the most of pension relief.
Personal Allowance
Everyone gets to earn £12,570 in the 2025/26 tax year before paying any income tax. That means you can make up to this amount from all sources, salary, dividends, rental income, without paying a penny in tax. This is your personal allowance.
Dividend Allowance
If you’re invested in shares that pay dividends, you get £500 tax-free this year. Any dividend income over that is taxed depending on your overall income: 8.75% if you’re a basic-rate taxpayer, rising to 39.35% if you pay the highest rate.
Capital Gains Tax
Made a profit selling shares, property (that’s not your main home), or other assets? You won’t pay capital gains tax on the first £3,000 of gains in 2025/26. Beyond that, gains are taxed at 10% if you’re a basic-rate taxpayer and 20% if you pay higher rates. For property gains, the rates are higher, 18% and 28% respectively.
Pension Contributions
Pensions remain one of the best ways to reduce your tax bill. You can put up to £60,000 into your pension this tax year and claim tax relief on those contributions. But if your adjusted income tops £260,000, this allowance gradually falls.
Other Allowances Worth Knowing
Allowances like marriage relief and small trading or rental income exemptions can save tax in everyday life. Knowing thresholds helps avoid unexpected bills.
Marriage Allowance
If you or your partner don’t use all of your personal allowance, you can transfer up to £1,260 of it to the other. This can reduce your partner’s tax bill by up to £252 — handy if one of you isn’t using their full allowance.
National Insurance Thresholds
You only start paying National Insurance as an employee on earnings above £12,570 per year. Employers pay NICs on earnings above £5,000. Certain regions and zones have different, more generous thresholds.
Inheritance Tax
You can pass on up to £325,000 tax-free, plus an extra £175,000 if you leave your home to direct descendants. Keep in mind some reliefs, especially on AIM shares, will reduce from 2026 — worth planning ahead if you invest in smaller companies.
Trading and Property Allowances
If you make a bit on the side from casual trading or renting out a room, you can earn up to £1,000 tax-free from each of those activities without having to report it.
Tax rules can be a headache, but knowing these basic allowances means you’re in control. Whether you’re a seasoned investor or just getting started, having these numbers at your fingertips helps you keep more of your money where it belongs, with you.
Investments Where You Don’t Pay Tax – or Get a Bigger Allowance
Some investments either let you sidestep tax entirely or give you far more generous allowances than standard income or gains.
ISAs
You can invest up to £20,000 in ISAs this tax year, and any returns, whether interest, dividends, or capital gains, are completely tax-free. A simple, flexible option for building a portfolio over time without worrying about tax.
Premium Bonds
Issued by NS&I, they don’t pay interest, but you’re entered into monthly prize draws. With premium bonds any winnings are tax-free, though there’s no guaranteed return, so it’s more about luck than strategy.
Spread Betting
Profits from financial spread betting aren’t subject to income tax or capital gains tax. That said, it’s a high-risk activity, and losses can’t be offset. It’s more suitable for short-term speculation than long-term investing.
These tax-friendly options can be useful alongside more traditional investments, especially if you’re already using your personal and capital gains allowances. Just be clear on the risks before diving in.