The tax-free allowances most people don't fully use

Good tax planning isn't exotic. Most of it is just using the allowances Parliament has deliberately provided, every year, without fail. Here's the checklist.

ISAs: £20,000 each, every year

Everything inside an ISA is free of income tax and CGT, forever, with no need to even mention it on a tax return. The allowance is £20,000 per adult per tax year — £40,000 for a couple — and it doesn't carry over.

Variants worth knowing: the Lifetime ISA (up to £4,000 of your allowance, with a 25% government bonus, for first homes or retirement, with strings attached), and Junior ISAs (£9,000 per child per year). Note the government has announced changes to how much of the ISA allowance can go into cash ISAs from April 2027 — the overall £20,000 allowance is unchanged, but check current rules if you're a cash-heavy saver.

Pension contributions

Covered in depth in our pensions articles, but no allowances list is complete without the single biggest one: up to £60,000 a year of pension funding with tax relief at your marginal rate. For higher earners it beats everything else on this list.

The personal savings allowance

Interest on ordinary savings is tax-free up to £1,000 a year (basic rate taxpayers) or £500 (higher rate). With decent interest rates, a surprisingly modest cash balance can breach this — one reason cash ISAs regained their point in recent years.

The dividend allowance

The first £500 of dividends each year is tax-free. Modest, but for couples holding investments jointly or in the right name, it's £1,000 a year of tax-free income — and dividend tax rates above the allowance (8.75% basic, 33.75% higher) make putting income-producing investments in the lower earner's name worthwhile.

The CGT annual exemption

£3,000 of capital gains tax-free per person per year — see our CGT guide for how to use it systematically.

The marriage allowance

If one of you earns under £12,570 and the other is a basic rate taxpayer, the lower earner can transfer 10% of their personal allowance across, saving up to a few hundred pounds a year. It can be backdated up to four years — one of the most under-claimed reliefs there is.

The habit that matters

None of these is dramatic on its own. Used together, every year, by both halves of a couple, they compound into serious money: a couple can shelter £40,000 into ISAs, £6,000 of gains, £1,000 of dividends and £1,500–£2,000 of interest annually before pensions are even counted. The families who end up wealthy at retirement are usually the ones who did the boring things relentlessly.

This article is for general education only and isn't personal advice. Allowances change — always check current figures.