Make your income more tax-efficient in 2026/27 with these 5 tax allowances

The 2026/27 tax year started on 6 April 2026, running until 5 April 2027.

Many tax allowances and exemptions reset when a new tax year starts. Making the most of them could help you pay less tax and keep hold of more of your money.

Here are five you could use this year to make your income as tax-efficient as possible.

1. Personal Allowance

Before you pay Income Tax you have a tax-free threshold called the ‘Personal Allowance’ (£12,570 in 2026/27). Any income below this amount isn’t subject to tax. That applies to earnings from work or money you draw from your pension.

Depending on your circumstances, you may be able to make effective use of the Personal Allowance:

• Earning a salary - if you have earnings above the Personal Allowance, you could make tax-efficient contributions to your pensions to reduce your taxable income. 
• Self-employed - while sole traders may have less control, limited company directors can draw income from their companies in different ways. Taking a mix of salary, dividends, and pension contributions could help you stay below or close to the Personal Allowance.
• In retirement - you could draw pension income (from age 55, rising to 57 from 2028) up to the Personal Allowance each tax year to keep this tax-free. You could then combine this with other tax-efficient sources, such as your tax-free lump sum or ISAs, to keep your tax bill low. Bear in mind that State Pension income counts towards your Personal Allowance. In 2026/27, the full new State Pension pays £12,547.60 a year. If you receive this, you may quickly exceed your Personal Allowance when taking income from other sources.

It’s also worth being aware that high earners may have a reduced Personal Allowance. For every £2 you earn over £100,000, your Personal Allowance is typically reduced by £1. This sees it taper away completely when your earnings are £125,140 or more.

As a result of this, you can end up paying an effective tax rate of 60% on income between £100,000 and £125,140. Making pension contributions can help you reduce your taxable income and escape this tax trap. 

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2. Marriage Allowance

Spouses and civil partners could use the Marriage Allowance to make their total joint income more tax-efficient.

If one of you has earnings below the Personal Allowance (£12,570), they can give some of their allowance to a higher earning spouse or partner. 

As long as the higher earner is a basic rate taxpayer, they can effectively benefit from a further £1,260 of Personal Allowance. This could save up to £252 a year in tax, and you can claim back up to four years. That could give you a tax-free refund of just over £1,000 in one go. 

3. Trading allowance

Each tax year, you can earn up to the trading allowance of £1,000 from self-employed work before you have to pay tax. You’ll need to register for Self-Assessment if you earn more than £1,000 in trading income.

This allowance may be more flexible than you think. For example, employed workers can enjoy £1,000 of tax-free income from a side hustle without completing a Self-Assessment return.

Likewise, you might supplement your retirement income by working part-time or ad hoc in later life. 

Meanwhile, if you’re self-employed, you can claim the trading allowance rather than deducting your annual expenses. 

However, you can’t claim the trading allowance and deduct expenses. So, if your expenses are more than £1,000, it may be more efficient to deduct your expenses instead. Otherwise, you’d lose deductions above this amount. 

You also can’t use the trading allowance to report a commercial loss.

4. Property allowance

The property allowance works similarly to the trading allowance, but it applies to income from property and land.

You can earn £1,000 a year in income from land or property, such as rental income, without having to report it to HMRC. That includes your share of rental income if you jointly own a property.

You must report property income between £1,000 and £2,500 to HMRC. You’ll need to complete a Self-Assessment return on property income in excess of £2,500.

5. Tax-free childcare

You can receive government help with paying for childcare each tax year.

This works similarly to pension tax relief. You set up and contribute to a childcare account and the government will add 25%. So, for every £8 you contribute, the government tops it up to £10.

You must then use this money to pay a registered childcare provider, such as a:

• nursery;
• childminder;
• nanny; or
• after school or holiday club. 

You can receive £500 every three months per child aged 11 or younger, up to £2,000 a year. If your child is disabled, you can receive £1,000 every three months (up to £4,000 a year) for children aged 16 or younger.

That means you could pay in £8,000 for children aged 11 or younger and receive £2,000 a year. Or, for disabled children aged 16 or younger, you could pay in £16,000 and receive £4,000 a year.

To qualify, you and any partner you live with must earn at least National Minimum Wage for working 16 hours a week. 

Your adjusted net income must also not be more than £100,000 a year. This is a ‘cliff-edge’ threshold that will see you lose access to this benefit if you exceed it by even £1. 

Make the most of your pension 

As part of making the most of your income this tax year, you might want to make the most of your pension too.

The pension annual allowance resets when the new tax year starts. In 2026/27, the current standard annual allowance for pension contributions is £60,000 - this includes personal, employer and any third party contributions.

You might also be able to carry forward unused allowance from previous years. However, your annual allowance may be reduced if your earnings are above certain thresholds, or if you have already flexibly accessed your pension.

Use the PensionBee Pension Calculator to track your progress and see how increasing your contributions could impact your savings over time.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Please note that tax rules change regularly, and the actual tax benefits you receive will depend on your individual circumstances. If you’re not sure, please seek professional advice.