The main legal ways to reduce your UK tax bill in 2026/27: ISAs, pension contributions, salary sacrifice, using a partner's allowances, CGT and dividend allowances, Gift Aid, and what has changed.
The UK tax system includes many allowances and reliefs designed to encourage saving, investing and giving. Using them is perfectly legal, and most are simple. This guide covers the main options for individuals in 2026/27. It's general information, not advice; for complex situations, speak to a regulated adviser or accountant.
1. ISAs
You can put up to £20,000 a year into ISAs. Interest, dividends and gains inside an ISA are tax-free, and you don't need to declare them. From 6 April 2027, the cash ISA limit falls to £12,000 for people under 65, with the rest of the £20,000 available for stocks and shares ISAs. Lifetime ISAs (for those who open one aged 18 to 39) add a 25% bonus on up to £4,000 a year, for a first home or retirement.
Tax-free growth is becoming more valuable: from April 2026 dividend tax rates rose by two percentage points (to 10.75% basic and 35.75% higher rate), and from April 2027 tax rates on savings interest rise by two points too.
2. Pension contributions
Pension contributions get tax relief at your marginal rate, up to the annual allowance (generally £60,000, or 100% of your earnings if lower). Employer contributions are also tax-efficient. Up to 25% of your pension can usually be taken tax-free from age 55 (57 from April 2028), subject to an overall cap.
3. Salary sacrifice
Under salary sacrifice, you give up part of your salary in exchange for an employer pension contribution, saving National Insurance as well as income tax. From April 2029, National Insurance relief on salary-sacrificed pension contributions will be limited to the first £2,000 a year. Salary sacrifice can affect some benefits and borrowing, so check before agreeing.
4. Couples: using both sets of allowances
- Transfers of assets between spouses or civil partners are usually free of CGT, so couples can use both CGT allowances and both basic-rate bands.
- Holding savings in the name of the lower earner can use their Personal Savings Allowance.
- Marriage Allowance can transfer £1,260 of personal allowance to a basic-rate partner.
5. Capital Gains Tax planning
- The annual exempt amount is £3,000.
- "Bed and ISA": selling investments and rebuying inside an ISA can shelter future gains.
- Your main home is usually exempt from CGT under Private Residence Relief.
- Report losses so you can offset them against future gains.
6. Dividend and savings allowances
The dividend allowance is £500. The Personal Savings Allowance is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. Holding investments in ISAs and pensions avoids using these allowances at all.
7. Gift Aid and charitable giving
Gift Aid adds 25% to donations, and higher-rate taxpayers can claim extra relief. Gifts to charities in your will can reduce Inheritance Tax.
8. Inheritance Tax basics
The nil-rate band is £325,000, plus a residence nil-rate band of up to £175,000 when a home passes to direct descendants. Gifts of up to £3,000 a year are exempt, as are regular gifts out of surplus income. From April 2027, most unused pension funds will count towards estates for Inheritance Tax.
What isn't legal?
Tax avoidance schemes promising to wipe out tax bills often fail, leaving users with bills, interest and penalties. HMRC publishes warnings about named schemes. If something sounds too good to be true, it probably is.
Frequently asked questions
Is it worth paying into a pension rather than an ISA?
Pensions get upfront tax relief and often employer contributions; ISAs offer flexibility. Many people use both.
Do I need an adviser?
For simple ISAs and workplace pensions, usually not. For larger sums, IHT planning or business income, advice can pay for itself.
Sources and further reading
- GOV.UK: Individual Savings Accounts
- GOV.UK: Pension tax relief
- GOV.UK: Changes to tax rates for property, savings and dividend income
- GOV.UK: Inheritance Tax
- MoneyHelper
Facts checked on 20 October 2026. Spotted an error? Tell us and we will correct it.