The new tax year began on 6 April 2025, bringing a fresh set of allowances, thresholds, and opportunities that can significantly impact your retirement strategy. Whether you are approaching retirement or already enjoying life after work, understanding these changes can help you make smarter financial decisions.
1. Income tax and personal allowance thresholds
The personal allowance remains frozen at £12,570 for the 2025/26 tax year. This is the amount you can earn before paying income tax. The income tax bands in England continue as follows:
| Income range | Tax rate |
|---|---|
| Up to £12,570 | 0% (Personal Allowance) |
| £12,571 – £50,270 | 20% (Basic Rate) |
| £50,271 – £125,140 | 40% (Higher Rate) |
| Over £125,140 | 45% (Additional Rate) |
If you are drawing income from a private pension, part-time work, or rental properties, now is the time to review how your income is structured. By managing how and when you draw income, you may be able to avoid slipping into a higher tax band.
2. Pension contributions and tax relief
The annual pension contribution allowance remains at £60,000 for most people. This is the total amount you can contribute to your pension across all schemes and still receive tax relief.
Even if you are semi-retired or working part-time, contributing to a pension can still offer valuable tax relief. For those with no income, it is still possible to contribute up to £3,600 gross annually and receive basic rate tax relief.
It is a good time to check whether you are making full use of your allowances, especially if you want to reduce your taxable income or grow your pension pot efficiently.
3. ISA allowance and tax-free saving
Your annual ISA allowance has reset to £20,000 for the 2025/26 tax year. ISAs remain a tax-efficient way to save or invest, and withdrawals are free from income tax and capital gains tax.
This is especially valuable in retirement, where protecting your income from tax is key.
Options include:
- Cash ISAs for emergency funds or low-risk savings
- Stocks and Shares ISAs for long-term investments
- Lifetime ISAs (if under 50) for added government bonus
Using your ISA allowance early in the year means more time for tax-free growth.
4. Capital gains tax changes
From April 2025, the capital gains tax (CGT) annual exemption is reduced again, now down to just £3,000. This affects anyone selling second homes, shares, or other investments.
Retirees looking to downsize or realise gains should plan carefully:
- Spread disposals over multiple tax years if possible
- Use any remaining CGT exemptions
- Consider gifting assets to a spouse to utilise both exemptions
Understanding the new threshold can help reduce tax owed on gains and protect your nest egg.
5. Inheritance tax planning
The inheritance tax (IHT) threshold remains unchanged at £325,000. The residence nil-rate band continues at £175,000, available when passing your home to direct descendants.
Together, a married couple or civil partners can still pass on up to £1 million tax-free with the right planning. Now is a good time to:
- Review your will
- Make use of annual gift allowances
- Explore trusts or insurance-based solutions
These steps help ensure that your assets go to your loved ones, not to HMRC.
6. Action points for the year ahead
Here are a few practical steps to take now that the new tax year has started:
- Review your total expected income and assess whether you are nearing a tax threshold
- Maximise your ISA allowance early in the year if funds allow
- Consider topping up your pension while you still qualify for relief
- Spread capital gains over tax years if selling assets
- Review your estate plan, including wills and any potential IHT exposure
Speaking to a financial adviser can help tailor these steps to your specific situation.
Final thoughts
The start of a new tax year is an ideal opportunity to review and adjust your retirement strategy. Whether you are fully retired or still working part-time, small decisions now can lead to greater financial security and peace of mind later.
By understanding how these tax rules affect you, you can stay ahead of the curve and make the most of your retirement.
