Give your finances a tax-centric spring clean

• ISA benefit amid less generous capital gains tax regime: you don't pay any capital gains or income tax on returns from investments held within a stocks and shares ISA
• Salary sacrifice means there is no national insurance to pay on pension contributions, so someone earning £60,000 and paying 5% of their salary (£3,000) into their pension each year would save £60 in national insurance
• For parents, lowering your adjusted net income through pension contributions can retain eligibility for childcare initiatives
• Pension top-up tax boost:someone earning £60,000 could save £480 in tax by increasing their pension contribution by 2% of their salary - equivalent to £28,992 over 40 years - potentially adding £79,081 to their pension pot if invested.

The start of a new tax year is the perfect opportunity to give your finances a spring clean and take advantage of a fresh set of tax allowances.

New calculations from interactive investor, the UK’s second-largest DIY investment platform, reveal that Britons could save thousands of pounds in tax through ISA and pension contributions - including salary sacrifice.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Giving your tax position a once-over as part of your financial spring clean can pay real dividends. It’s not just about making sure you’re compliant - it’s about making sure you’re not missing out. From claiming the right allowances to making use of tax-efficient savings vehicles such as ISAs and pensions, a quick review could uncover opportunities to boost your financial resilience.”

Capital gains tax savings through ISA investing

• Basic-rate taxpayer: the capital gains tax (CGT) rate on gains above the £3,000 tax-free threshold is 18% for basic-rate taxpayers. This equates to a CGT liability of £360 on gains of £5,000. On gains of £10,000, £20,000 and £50,000, the CGT liabilities would be £1,260, £3,060 and £8,460, respectively
• Higher-rate taxpayer: For higher-rate taxpayers, the CGT rate on gains above the £3,000 threshold is 24%. On gains of £5,000, £10,000, £20,000 and £50,000, the CGT liabilities are £480, £1,680, £4,080 and £11,280, respectively.
• ISA benefit: you don't pay any capital gains or income tax on returns from investments held within a stocks and shares ISA.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The less generous CGT regime provides a strong incentive to shift investments from a general investment account into a tax-efficient stocks and shares ISA. This move shields future gains and dividends from tax through a Bed & ISA strategy. The start of a new tax year is an ideal time to make use of the freshly reset £20,000 ISA allowance. Be aware, however, that transferring assets in this way involves selling and repurchasing investments, which may trigger a CGT bill.

“Moving existing investments into a tax-efficient wrapper such as an ISA or SIPP can really pay off. Over the long term, the tax benefits are likely to outweigh any associated costs.”

Beat fiscal drag and maintain valuable childcare benefits with salary sacrifice

• Thefreeze on the personal allowance at £12,570, coupled with rising wages, means more people will fall into higher tax brackets over time – an effect known as fiscal drag
• By April 2028, a middle earner on £35,000 in 2025 could be paying £845 more in annual tax. A higher earner on £100,000 could pay £2,445 more annually over the same period
• These figures assume a 5.8% wage increase in 2025-26, based on ONS data, with wage growth continuing in line with the OBR’s inflation forecast through April 2028
• Salary sacrifice means there is no national insurance to pay on pension contributions, so someone earning £60,000 and paying 5% of their salary (£3,000) into their pension each year would save £60 in national insurance. The savings is £100 for someone on £100,000
• If invested, these savings could grow to £9,661 and £16,106 respectively over a 40-year career, assuming 2% annual wage growth and 5% investment returns.

Tax savings from salary sacrifice

Source: interactive investor. Assumptions: 2% annual wage growth and 5% investment return.

Myron Jobson says: “With salary sacrifice, you agree with your employer to contribute part of your salary directly into your pension. Since this reduces your gross income, it lowers both income tax and national insurance contributions before you’re even paid.

“For high earners, it can also reduce your adjusted net income and help you avoid tax cliff edges - such as the 60% effective tax rate that applies between £100,000 and £125,140 due to the gradual withdrawal of the personal allowance.

“Parents can also benefit, as lowering your adjusted net income may help retain eligibility for Free Childcare and Tax-Free Childcare. Likewise, salary sacrifice pension contributions can help those near or over the £60,000 threshold avoid the High Income Child Benefit Charge.

“However, it may impact entitlements like maternity pay or mortgage applications, so consider the broader financial implications.”

Boost pension wealth by increasing contributions

• Contributing to a pension allows taxpayers to lower their taxable income and benefit from tax relief, effectively reducing their tax bill while growing their retirement savings
• Any pension contributions made by an individual, whether to an occupational pension scheme (including salary sacrifice) or to a personal pension will reduce your adjusted net income and could help you retain eligibility for childcare initiatives
• interactive investor calculations show that a middle earner on £35,000 could save £140 in tax by increasing pension contributions by 2%, leading to a total tax saving of £8,458 over 40 years. This would result in additional pension savings of £22,933, assuming a 5% annual return and 2% wage growth
• For someone on £60,000, the annual tax saving is £480, totalling £28,992 over 40 years and boosting pension wealth by £79,081 if invested. For someone on £100,000, the respective figures are £800, £48,322, and £132,075.

Annual tax saving from upping pension contributions

Source: interactive investor. Assumptions: 2% annual wage increase.

Tax saving over 40 years

Source: interactive investor. Assumptions: 2% annual wage increase.

Value of tax saving over 40 years (with 5% investment growth)

Source: interactive investor. Assumptions: 2% annual wage increase and 5% investment growth.

Myron Jobson says: “Upping your pension contributions offers a powerful double benefit: you not only reduce your tax bill but also significantly grow your retirement savings. For every pound you invest, the taxman effectively contributes too. For those who can afford it, it’s a smart, tax-efficient way to build long-term financial security.”