Managing personal tax obligations: Staying ahead of rate changes and reliefs

Managing personal tax is about making informed choices before the year gets away from us. With thresholds still frozen and some allowances trimmed, many people will pay more tax unless they plan early. Inflation has cooled but remains above target – the Consumer Prices Index was 3.8% in August 2025 – so pay rises can quietly push us into higher bands while thresholds stand still (ONS, 2025). The Office for Budget Responsibility has also highlighted how frozen personal thresholds are lifting receipts through fiscal drag, so the system won’t do us any favours if we leave things to chance (OBR, 2025).

In this article we set out what changed for 2025/26, then how we approach managing personal tax for clients in Scotland and across the UK. We include simple examples and practical steps you can take now to protect cashflow and avoid unwelcome surprises.

What changed in 2025/26 for managing personal tax

A few important features define the current year:

• Personal allowance: £12,570 remains frozen for 2025/26, with tapering from £100,000 of income until it’s lost entirely at £125,140 (HMRC, Income Tax).
• Scottish bands: Scotland continues with six rates – Starter 19%, Basic 20%, Intermediate 21%, Higher 42%, Advanced 45%, Top 48% – with band thresholds set out in the Scottish guidance (HMRC, Scottish Income Tax).
• Dividend allowance: Still £500 for 2025/26; above this, dividend tax is charged at your marginal dividend rates (HMRC, Dividends).
• Capital gains tax annual exemption: £3,000 for individuals in 2025/26, so more gains are taxable than in previous years (HMRC, CGT allowances).
• National Insurance (employees): Main Class 1 rate remains 8% between the primary threshold and upper earnings limit, then 2% above, for 2025/26 (House of Commons Library, 2025).

Why it matters: thresholds are fixed while earnings have been rising – average weekly earnings stood around £727 for total pay in July 2025 – so more income falls into higher bands even when your real spending power hasn’t grown much. That’s why managing personal tax actively this year is worth the effort.

Managing personal tax: Plan your income mix early

Think about how different income types are taxed and when they arise.

• Salary and bonuses: Consider timing a bonus across tax years if possible. For Scottish higher- and top-rate payers, moving income into pension contributions may be more efficient than taking a cash bonus.
• Dividends from a company: The £500 dividend allowance disappears quickly. If you and a spouse or civil partner both hold shares, splitting ownership can help use two allowances and two basic rate bands where appropriate.
• Savings interest: The starting rate for savings can give up to £5,000 of 0% tax on interest if your other income is low; this tapers by £1 for every £1 of non-savings income above the personal allowance. Combine this with the personal savings allowance where relevant.

Example: You expect £3,000 of dividends and £2,000 of interest in 2025/26, with Scottish employment income of £46,000. Spreading £1,500 of the dividends to a spouse in the basic rate band could save tax, and using ISAs for both dividends and interest shelters income entirely.

Use allowances and reliefs before they’re wasted

Small changes add up when thresholds are frozen.

• ISAs – Cash and stocks & shares ISAs: Shelter dividends and interest completely; useful now the dividend allowance is only £500.
• Pensions – Relief at marginal rates: Contributions reduce taxable income for Income Tax, and often avoid higher or advanced Scottish rates.
• Marriage allowance – Transferable allowance: If one of you is a non-taxpayer and the other is a basic rate payer, transferring £1,260 of allowance can cut the tax bill.
• Capital gains – Bed and ISA or bed and spouse: Crystallise gains up to the £3,000 exemption, then re-invest within an ISA or transfer assets to a spouse/civil partner to use two annual exemptions and two bands.
• Gift Aid –  Extend your basic rate band: Gift Aid donations can increase the band before higher or advanced rates apply.

Worked example: A Scottish taxpayer with £80,000 salary and £8,000 gross pension contributions sees taxable pay assessed at £72,000. That pushes less income into the 42% higher rate and may prevent any from falling into the 45% advanced rate, improving take-home pay while boosting retirement savings.

Scotland-specific points to watch

Rates differ from the rest of the UK, so decisions should reflect Scottish bands.

• Relief timing: Pension contributions and Gift Aid deliver relief at your highest marginal rate. For those close to the £75,000 and £125,140 thresholds, contributions can be particularly valuable.
• Company owners: If you take both salary and dividends, remember that dividends still interact with the UK-wide dividend rates and allowance, while your employment income is taxed at Scottish rates – plan the mix with care.
• Moving between bands: Keep an eye on irregular income such as vesting shares, large overtime, or a one-off consultancy fee. A single payment can push part of your income into the 45% or 48% band; pre-planning with pension contributions can soften the impact.

Common risks we help clients avoid

• Losing the personal allowance – £100,000 taper: Every £2 of income over £100,000 reduces the allowance by £1. Effective rates can exceed headline tax rates. Pension contributions or Gift Aid can restore the allowance if planned.
• Dividend tax surprises – £500 ceiling: Many investors now owe tax for the first time because the allowance is so low; use ISAs and pensions to shield investment income.
• Underusing CGT exemption – £3,000 limit: Deferring disposals can store up gains that later exceed allowances; staged disposals or transfers between spouses can help.
• National Insurance blind spots – 8% employee rate: Salary increases may lift NI as well as tax; check the impact before agreeing to salary-sacrifice or cash-instead-of-benefit choices.
• Poor cashflow planning -Payments on account: If your tax bill rose last year due to dividends or gains, your January and July instalments may be higher; set aside funds monthly to avoid strain.

If you want a tailored review, see our personal tax planning support on our site and get in touch – we’ll map out actions for this year and next.

What to do next with managing personal tax

Frozen thresholds, lowered allowances, and steady earnings growth mean more households could drift into higher tax this year. The latest CPI reading of 3.8% underlines how nominal pay can rise without making us feel better off, while still lifting tax bills through fiscal drag. The OBR has been clear that frozen thresholds are a key driver of rising receipts through to 2027/28, so relying on “business as usual” is risky.

Our advice is straightforward:

• Review your position now: Confirm projected income across salary, dividends, interest, and gains.
• Use ISAs and pensions: Maximise wrappers, consider Gift Aid, and share assets where appropriate.
• Plan timing: Move or split bonuses, dividends, and disposals across tax years where commercially possible.
• Monitor Scottish bands: For clients near £75,000 or £125,140, pension contributions often deliver outsized value.

If you would like a clear, personal plan, contact us to book a review – we’ll focus on managing personal tax for 2025/26, align actions with your goals, and keep your cashflow predictable. Start now: get in touch with our team.