Pensions are one of the most tax-efficient ways to save for retirement. Contributions made into a registered pension scheme benefit from favourable tax treatment, helping you build longer-term financial security while reducing your current tax liabilities.
Pension tax relief means that when you contribute to a registered pension plan, the Government effectively boosts your savings by giving tax-free growth and reducing the amount of tax you pay on your income.
This relief can make pensions a highly attractive component of a broader financial strategy—whether you are saving for retirement, planning income flexibility, or managing tax exposure.
When you contribute to a pension through your employer:
Contributions are typically deducted before tax is applied
This means you receive tax relief at your marginal income tax rate
If you are a basic rate taxpayer, every £80 you invest can be worth £100 in your pension
Self-employed individuals contribute to personal pension plans and claim tax relief through their Self Assessment return. Pension contributions can reduce your taxable profit, lowering both income tax and National Insurance exposure.
Each tax year has a limit on the total amount that can receive tax relief. This annual allowance applies to both personal and employer pension contributions.
Exceeding the annual allowance may trigger a tax charge, so planning contribution levels is important to avoid unexpected liabilities.
If you have not used your full annual allowance in previous years, you may be able to carry forward unused allowance from up to three previous tax years. This can allow higher pension contributions in a single year without breaching limits, provided you meet the eligibility conditions.
While annual allowances help manage how much you can contribute annually, the lifetime allowance limits the total amount you can build up in pension benefits free of extra tax charges.
Careful planning is needed if your pension savings approach or exceed this limit to mitigate potential tax charges on excess amounts.
Employer pension contributions are usually allowable as a business expense and do not attract National Insurance contributions for the employee. This can offer considerable tax efficiency for business owners and directors.
Maximising employer contributions (where justifiable) can be an effective way to boost retirement savings while reducing taxable profits.
Pensions typically provide tax-free cash upon retirement (up to a set limit) and taxable income thereafter. Withdrawals above the tax-free threshold are subject to income tax based on your marginal rate in the year of withdrawal. Planning for tax-efficient withdrawal is essential to maximise your retirement income.
Tax-free lump sum: A portion of your pension can usually be taken as a tax-free lump sum at retirement
Drawdown flexibility: Taking income via drawdown gives control over how much and when you withdraw, with potential tax planning advantages
Death benefits: Depending on circumstances, pension funds can be passed to beneficiaries tax-efficiently
Pension tax rules are detailed and constantly evolving. Getting the most from pension tax relief requires careful planning and personalised advice.
Applegrow can help you:
Understand your pension tax position and allowances
Structure contributions to maximise relief
Integrate pension planning with overall financial and tax planning
Prepare for tax-efficient retirement income
Whether you are planning for retirement or reviewing existing arrangements, Applegrow provides clear, practical pension tax guidance.
A capital gain arises when a chargeable asset is sold for more than its original cost. The gain is calculated as:
Sale proceeds (less selling costs)
minus
Purchase price (including acquisition costs)
CGT applies to assets such as shares, business assets, investment property, and certain personal possessions.
For the 2025/26 tax year, CGT rates depend on your total taxable income and gains:
18% on gains that fall within the basic rate income tax band
24% on gains above the basic rate band
These rates apply to most assets, subject to specific exceptions and reliefs.
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can significantly reduce CGT on qualifying business disposals.
For 2025/26:
Qualifying gains are taxed at an effective rate of 14%
The lifetime limit for BADR is £1 million
The rate will increase to 18% from 2026/27
BADR may apply to:
The sale of a sole trade or partnership business
Shares in a personal trading company
Assets used in a business that has ceased within the last three years
Associated disposals (such as personally owned property used in a business) may also qualify, although restrictions can apply, particularly where rent has been charged.
To qualify for BADR on company shares:
You must have been an employee or director
You must hold at least 5% of ordinary share capital
You must hold at least 5% of voting rights
Additional distribution or proceeds tests must be met
The qualifying ownership period is two years leading up to the date of disposal.
Where a shareholder’s holding falls below 5% due to fundraising through new share issues, BADR may still be protected. An election can be made to crystallise the gain before dilution, with the option to defer tax until the shares are actually sold.
This area requires careful planning.
Investors’ Relief is designed for external investors in unlisted trading companies.
Key conditions include:
Shares must be newly issued for cash
The company must be unlisted and trading
Shares must be held for at least three years
The CGT rate under Investors’ Relief is:
14% for 2025/26
Increasing to 18% from 2026/27
The lifetime limit for IR is £1 million.
Each individual can realise gains up to the £3,000 annual exemption (2025/26) without paying CGT. Couples should consider planning disposals jointly to maximise the use of both exemptions.
Shares of the same class in the same company are treated as one pooled asset. However:
Same-day transactions are matched first
Purchases within 30 days after disposal are matched next
Remaining shares are matched from the pooled holding
These rules are designed to prevent short-term tax planning.
Additional reliefs may include:
Private Residence Relief
Business Asset Rollover Relief
Gift Holdover Relief
Offset of carried-forward capital losses
Some disposals, such as those involving EIS, VCTs, or share exchanges, can be complex and should be reviewed in advance.
Capital gains tax planning should always be done before an asset is sold. Early advice can significantly reduce tax exposure and avoid unexpected liabilities.
Applegrow can help you:
Identify available CGT reliefs
Plan business or investment disposals
Structure transactions tax-efficiently
Ensure compliance with current legislation
Maximise pension relief and secure a tax-efficient retirement plan today.
