7. Make the most of your tax free allowances

How taxes affect you and your wealth

There are different types of tax that affect investors. All are worth being familiar with, as this will inform how you choose an investment product. Tax can be complex, and the rules often change and depend on your individual circumstances, so you may wish to seek specialist advice if you are unsure. 

Capital Gains Tax Allowance

Capital Gains Tax (CGT) is the tax you are required to pay when you sell or ‘dispose’ of an eligible asset for a profit, or 'gain'. A capital gain is, broadly speaking, the difference between the price you paid for something and the price you sell it for. The tax you pay is on the gain only – not the total sale price.

The CGT allowance, also known as the Annual Exempt Amount, provides each UK individual with the ability to make some initial gains that are free from tax. Currently, an individual can make total gains of £3,000 per tax year on assets they have sold or ‘disposed’ of before they pay CGT.

For example, if you were to buy an asset for £5,000 and later sell it for £20,000, you’d have made a £15,000 gain on the asset, which may mean you need to pay CGT. Assuming you’ve ‘disposed’ of no other assets in the current tax year, you would need to pay CGT on £12,000 – the capital gain (£15,000) less the CGT allowance (£3,000).

The Annual Exempt Amount has fallen in recent years. This means more individuals may be liable to pay CGT unless the assets they are selling are held in a tax wrapper such as a Stocks and Shares ISA. Note – tax-free contributions in a Stocks and Shares ISA are up to £20,000 each tax year.

Income Tax Allowance

Income tax is applied to most forms of income, including salaries, rent received by landlords, and business profits.

It’s also levied on interest and dividends from savings and investments. There are numerous allowances, however, that shield parts of your taxable income from Income Tax. 

Source: Money and Pensions Service (an arm's length body sponsored by the Department for Work and Pensions)

If you earn over £100,000, the Personal Allowance of £12,570 will be reduced by £1 for every £2 earned over the £100,000 limit. If you earn £125,140, you pay Income Tax on everything and there’s no Personal Allowance.

The Personal Savings Allowance allows basic rate taxpayers to earn up to £1,000 of savings interest tax-free, while higher rate taxpayers can earn up to £500 tax-free. It does not apply to additional rate taxpayers.

Income tax bands are different if you live in Scotland. These can be found here.

Marriage Allowance

The Marriage Allowance can be used to transfer £1,260 of your personal allowance to your husband, wife or civil partner. To benefit from this as a couple, the lower earner of the two must normally have an income below their personal allowance of £12,570. The lower earning partner can then transfer up to £1,260 to the higher earner. This could reduce their tax bill by up to £252 in the tax year.

Who can apply?

You can benefit from the Marriage Allowance if all of the following apply:

• You are both married or have entered a civil partnership
• One of you does not pay Income Tax or has an income below the Personal Allowance of £12,570
• The higher earning individual pays Income Tax at the basic rate, which means that their income is between £12,571 and £50,270* (before they receive the Marriage Allowance)

You can also backdate your claims to include a claim for up to each of the four previous tax years. Even if your partner has since died, you may still be able to claim the Marriage Allowance.

*If you are liable for higher or additional Income Tax rates, you will not be eligible for the Marriage Allowance. Similarly, if your circumstances change and you become ineligible to receive the Marriage Allowance, you may need to cancel it.

Inheritance Tax Allowance

When a person dies, the assets they leave behind form their 'estate'. Inheritance Tax is charged on the estate left, but only if it exceeds a certain threshold, which is currently £325,000, and only if it does not pass to a spouse, civil partner, charity or a community amateur sports club. Certain assets are also full or partially exempt. If you give away your home to your children or grandchildren your threshold can increase to £500,000.

Inheritance Tax is charged at a rate of 40% of the value of assets above the threshold known as the ‘nil-rate band’. We explain in greater detail how inheritance works – and how you can potentially reduce an inheritance tax bill – in a separate guide. 

Dividend tax rates increased in April 2026

The tax rates on dividend income increased at the start of the 2026/27 tax year. From 6 April 2026:

• Basic rate taxpayers now pay 10.75%, up from 8.75%
• Higher rate taxpayers now pay 35.75%, up from 33.75%
• Additional rate taxpayers still pay 39.35%. This is unchanged.

The £500 dividend allowance is also unchanged. If you receive dividend income outside an ISA, the elevated tax rate will apply to any dividends above the £500 allowance. You will not pay this tax on investments made using your Stocks and Shares ISA allowance. Dividends held within an ISA are completely tax-free.

Use different products for different goals

The vehicle you choose to invest with is important, and you’re not limited to just one. Some products also confer tax advantages on their users, and investors should aim to have a mix of tax wrappers if possible.

If you invest using an Individual Savings Account (also known as an ‘ISA’), you do not have to pay tax on the returns you make. ISAs are a tax-efficient way of investing, and there are different kinds available:

Stocks and Shares ISAs allow you to invest your money up to the annual allowance, without having to pay tax on the returns. The annual allowance for new ISA contributions is £20,000 per tax year. From the 2027/28 tax year, the Cash ISA allowance will be reduced to £12,000 per tax year. Over 65s would retain their full Cash ISA allowance of £20,000 per year. J.P. Morgan Personal Investing does not offer Cash ISAs. The Stocks and Shares ISA allowance will remain unchanged.

Lifetime ISAs allow you to invest towards your first home up to a value of £450,000, or your retirement at 60, and receive a government bonus of 25%, up to £1,000 per year. You can contribute up to the annual allowance of £4,000 up to the age of 50, but this forms part of your ISA allowance of £20,000*. Withdrawing outside of these scenarios means you will incur a penalty, and you may end up getting less than you originally contributed.

Junior ISAs are tax-free accounts, and you can contribute £9,000 a year on behalf of each of your children.

Personal Pensions help you to invest for your retirement. Contributions made within an annual allowance of £60,000, or your annual earnings, whichever is the lower, are exempt from tax – the tax you’d usually pay on the income you receive is added to your pension instead, through what is known as tax relief. Starting in April 2029, contributions to pensions via salary sacrifice over £2,000 per tax year will no longer be exempt from National Insurance Contributions (NICs). Your savings within a Personal Pension usually cannot be accessed before the age of 55, although this is due to increase to 57 from 6 April 2028.

General Investment Accounts are another option, for example if you have used up your £20,000 ISA allowance and £60,000 pension allowance in any given tax year. However, you will pay tax on any returns in a GIA.

Tax Year End

The tax year ends on 5 April 2027. But there are a number of dates that you need to know for the 2026/27 tax window, depending on which of our products you have.

We have a detailed guide on everything you need to know about tax year end.

You’re never too young – or old – to start investing. We offer a suite of products and investment styles that accommodate all types of investors, ranging from the most risk-averse to the most tolerant.

If you don’t feel like you have the knowledge or experience to invest, you can start your investment journey by speaking to our guidance service for free, as well as reading through our insights hub.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with J.P. Morgan Personal Investing can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. Pension, ISA, JISA and LISA eligibility rules apply. With LISAs, govt withdrawal charges may apply. 

J.P. Morgan Personal Investing does not provide tax advice. For personalised advice tailored to your specific situation please consult with a qualified tax adviser or financial planner. If you are unsure if a pension is right for you, please seek financial advice.

J.P. Morgan Personal Investing provides 'restricted advice', which means we will only make investment recommendations on the products and services that we offer.