HMRC is increasingly hitting bereaved families with penalties for filing inheritance tax returns late as they struggle with long, complicated forms, according to data from a Freedom of Information request.

The number of penalties issued by HMRC for filing inheritance tax (IHT) returns late increased 35% from 3,850 to 5,200 over the last five years, data up to the tax year 2024/25 obtained by TWM Solicitors showed.

Fines for late filing rapidly increase over time, from an initial £100 to up to £3,000 after 12 months.

Many families with modest estates have been drawn into paying IHT in recent years, largely because the IHT threshold has remained frozen since 2009. Even an average house can now trigger an IHT bill on its own.

But Duncan Mitchell-Innes, partner and deputy head of private client at TWM, said the increase in late penalties is also being driven by more families attempting to complete IHT returns themselves, without realising the complexity involved.

“People often underestimate the complexity of the UK’s IHT rules. What seems like a straightforward task can quickly become time-consuming and technically challenging, particularly when HMRC requires extensive supporting evidence. This can lead to penalties if deadlines are missed,” he said.

Complex IHT forms

The basic IHT400 form alone has 122 questions, often requiring detailed financial and historical information.

This is the main form families will need to fill in for inheritance tax purposes. But in many cases, it must be supplemented by additional schedules – requests for information – of which there are more than 30, depending on the nature of the estate.

One of the most time-consuming parts of an IHT return, according to lawyers, relates to the valuation of assets. Many assets, such as residential property, need to be valued professionally – market estimates are not enough.

In addition, some assets, such as shares, have specific ways of being valued for IHT purposes. Getting these valuations completed on the correct technical bases can be time consuming without prior technical knowledge.

Delays can also arise where executors struggle to identify all the relevant details needed for the IHT400. This can include tracing all bank accounts, investments and historical gifts, which sometimes go back many years – for instance due to the seven year rule. Many banks only provide this information by post.

Missing out on inheritance tax reliefs

Mitchell-Innes said it can be hard for people handling their loved one’s IHT return on their own to identify all the relevant technical reliefs and exemptions that may apply, together with gathering the evidence to support them.

For example, gifts made out of surplus income or more than seven years before death may be exempt, but finding evidence to support that exemption can take time.

Some families handling their own return even lose out on reliefs and exemptions available to them simply because they do not know they exist.

“Reliefs aren’t applied automatically. People must actively claim reliefs and exemptions and find the evidence to support them where needed, which can be time-consuming. Without proper advice, families risk penalties and leaving valuable reliefs unclaimed,” said Mitchell-Innes.

The number of penalties for late filing of inheritance tax returns is likely to increase further after unused pension pots are brought into the IHT net from April 2027, leading to more families having to submit a return.

The development is expected to increase the demands on personal representatives – those in charge of administering the estate left behind after a death – to get the pension IHT paperwork right, or face potential fines themselves.

Inheritance tax is a tricky topic. Taboos around speaking about money and the emotion that comes with thinking about death create a perfect storm for misunderstanding it. But with such complex rules around inheritance, it is a topic well worth talking about – and sooner rather than later.

Lisa Conway-Hughes, a certified financial adviser and founder of LCH Wealth, speaks to Kalpana Fitzpatrick on MoneyWeek Talks about how the inheritance tax regime is changing from April 2027. She reveals her biggest trick to help protect your pension. Tune in now on YouTube or on most podcast platforms.

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MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

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From acorns grow oak trees: that's the sales pitch from fans of the Seed Enterprise Investment Scheme (SEIS), though the scheme's offer of more generous tax incentives than any other similar investment initiative is also part of the appeal. And with other opportunities to shelter from rising taxes now diminishing, many experts think the SEIS is set to become more popular than ever in the current tax year, which began earlier this month. Introduced in 2012, the SEIS aims to help very small and very young companies raise money to fund their growth. These are businesses that may lack the trading record necessary to borrow money from the bank, or to raise capital from other sources. Without access to finance, their growth may be stunted, preventing them from fulfilling their potential.

We really are talking about acorns. Raising money through the SEIS is only an option for businesses that have been trading for less than three years, which have assets of no more than £350,000 and fewer than 25 employees. There are also several more technical qualifying rules that limit SEIS eligibility to start-ups and very early-stage businesses. Inevitably, many of these businesses fail, taking investors' money with them. A recent study from Warwick Business School put the three-year survival rate for start-ups in the UK at 47% – falling to just 10% after ten years. Even businesses that show some early success – those that might therefore catch investors' eyes – often don't progress. Just 7% of businesses making it to £1 million of turnover go on to surpass £3 million, the Warwick study found.

That said, some start-ups do turn into scale-ups. New investors come in at higher valuations; SEIS investors who took the early risks may be able to exit at a handsome profit. It's even possible for SEIS-backed firms to make it all the way to a stock market listing.

SEIS can offer some extraordinary tax breaks

One example of a successful SEIS investment is Cognism, now regarded as one of Europe's leading data technology companies. The business raised SEIS funding in 2017, two years after its launch, with investors then able to exit when the business secured new backers in 2022; their returns were estimated to be worth around 40-times their initial stake. Only a handful of such winners can be rocket fuel for a SEIS portfolio, says Alex Davies, founder and CEO of investment platform Wealth Club. “The SEIS offers the chance to back very early-stage businesses with genuine high-growth potential, while recognising that most won't succeed,” Davies says. “The key is that you don't need many winners to generate significant returns.”

In part, that's because a few very large gains will compensate you for losses elsewhere. But the tax incentives offered on the SEIS – the government recognises that investors need some encouragement to risk their money – also provide plenty of insulation. Those tax breaks genuinely are quite something. You can invest up to £200,000 each tax year through the scheme, but you get 50% income-tax relief on this subscription, reducing its cost by half as long as you're earning enough to claim relief in full. In addition, you can claim capital-gains-tax reinvestment relief – if you've got taxable profits on other investments, you can reduce the bill by 50% by reinvesting these gains through the SEIS.

There's also support later on. Once you've held shares in a SEIS company for three years or more, any profits you make on the investment are free from capital-gains tax. Alternatively, if the business goes bust, you can claim loss relief, setting your losses against other taxable income you may have. SEIS investments also get preferential treatment on inheritance tax. The first £2.5 million worth of qualifying investments don't count towards the value of your estate for inheritance tax (IHT) purposes; on investments above this threshold, IHT is charged at only 20%, half the usual rate.

The combined effect of all these reliefs is significant. “SEIS tax reliefs turbocharge returns when things go well and cushion the impact when they don't,” explains Davies. “In today's high-tax environment, it's increasingly difficult for non-tax-advantaged investments to compete.” If you invest £100,000, say, in a portfolio of SEIS investments that returns 50%, your effective gain after income tax and capital-gains reinvestment relief will be 112%. But even if there's no growth and you only get your starting capital back, you would still be making a 62% gain.

Alternatively, the tax reliefs limit downside risk. If your £100,000 investment halves in value, you'll still be making a positive return of 12% after the income-and capital-gains tax breaks. Or, in the worst case scenario, where your investment ends up worthless, the actual loss on your initial £100,000 stake would only be £15,500.

Such perks look even more attractive given that the tax reliefs available on similar schemes are being reduced. The upfront income-tax relief on offer to investors in venture capital trusts (VCTs) – which also invest in early-stage businesses – fell from 30% to 20% on 6 April. At the same time, the tax burden that investors in these schemes are often looking to mitigate is increasing. Most notably, the IHT net will shortly be extended to include unused pension savings, while exemptions for business and agricultural assets are being eroded. Together with an ongoing freeze on the thresholds at which IHT becomes payable on estates, this has the potential to drive up bills for many families.

In fact, the SEIS is one of the few tax-efficient investment schemes to offer relief on IHT – along with its big brother, the Enterprise Investment Scheme (EIS). Cash and assets held within an individual savings account (ISA), for example, will count towards the value of your estate for IHT purposes. The same is true of VCTs. No wonder that the SEIS is attracting more interest, with investment in qualifying businesses already on an upward trend. “The SEIS is a key part of the UK's dynamic start-up environment, and recent changes with the reduction of tax relief for VCT investors make it even more attractive by comparison,” says Matt Cooper, co-CEO of the private market investment platform Crowdcube.

Pause and think about the risk

In the 2023-2024 tax year, the most recent period for which data is available, 2,290 companies raised £242 million through the SEIS, up more than 50% on the previous year, partly thanks to a tweak to the rules that enabled more companies to participate and to raise more money. Almost 10,150 investors put money into companies qualifying for the scheme, a 23% increase compared to the 2022-2023 tax year. The early indications are that the SEIS saw further growth in 2024-2025, with HM Revenue & Customs receiving 3,195 applications for “advanced assurance” – essentially requests from companies for guidance that they qualify for the SEIS scheme before they seek investment. That was 18% more than in the previous year.

Nevertheless, investing in the SEIS simply for tax reasons would not be sensible. Given the elevated risk profile of SEIS companies, this is an investment only suitable for wealthy and sophisticated investors who feel comfortable with the possibility of losing some or even all of their money. You will almost certainly have made good use of ISA and pension allowances before thinking about the SEIS; you may well have invested in VCTs and the EIS too. Also, remember that the scheme is most tax-efficient for investors who have other capital gains to roll over into it.

Still, the good news from an investment perspective, argues Joseph Zipfel, the chief investment officer of early-stage investment specialist SFC Capital, is that the SEIS has matured since its launch more than a decade ago. “The risk profile has changed materially,” he says. “While early-stage investing will always carry risk, the underlying quality, maturity and resilience of SEIS-backed companies has improved over the last ten years.”

The explanation, Zipfel believes, is that the UK's start-up ecosystem has improved markedly in terms of the amount of support available to entrepreneurs, with help on offer from universities, incubators, accelerators and government-backed organisations such as the British Business Bank and Innovate UK. Business founders are more sophisticated as a result – and the backing available has encouraged a broader range of people to launch their own enterprises.

Moreover, many SEIS-eligible businesses are now run by more experienced founders. “The SEIS has funded more than 2,000 companies every year for more than a decade; one of the most important consequences of this scale is the recent emergence of a second wave of entrepreneurs building their second or third venture,” Zipfel adds. “These founders bring hard-earned lessons from their first businesses, whether successful or not. They are typically more disciplined in capital allocation, clearer on go-to-market strategy, and faster at identifying what does not work.”

Add in the changes to the SEIS rules made in 2023, which saw slightly larger businesses become potentially eligible, and the overall picture is of a more resilient set of opportunities. “This evolution does not eliminate risk,” says Zipfel, “but it does mean that the starting point is much stronger and the overall risk-adjusted opportunity has improved materially.”

How to invest in the SEIS

There are two ways to take advantage of the investment opportunities and tax incentives that the SEIS offers. Your first option is to invest directly in a qualifying company that is currently raising money. The firm will need to have checked its SEIS eligibility with HMRC and should be able to tell you that it has received assurance that investments are likely to qualify.

The easiest way to find such opportunities is via a crowdfunding site – an online platform where early-stage companies appeal directly to retail investors. Platforms including Crowdcube, Crowd for Angels, Republic Europe (until recently known as Seedrs) and SyndicateRoom all feature SEIS-eligible businesses making pitches to investors.

The advantage of investing directly is that you have total control over which firms you decide to back. The downside is that it may be harder to spread your bets – you'll need to invest in multiple qualifying companies to avoid the danger of being exposed to a single high-risk business, or even a small handful. You'll also need to do your own due diligence.

Option two, therefore, tends to be more popular. Many investors opt for a SEIS fund – essentially a portfolio of ten to 25 or so qualifying companies chosen by a professional investment manager who specialises in investing in early-stage companies. Specialists in this area include Fuel Ventures, Guinness, Haatch and SFC. Wealth Club is one central point of access to a choice of SEIS funds.

With a fund, you get diversification and the benefit of the manager's expertise and experience. Funds may also have access to a wider range of opportunities, including attractive companies not on your radar. Investing in SEIS funds can also be a useful way of spreading risk, “although this needs to be balanced against the likelihood of higher returns from a direct individual investment if it goes well”, says Crowdcube's Matt Cooper.

There are downsides to the fund approach, too. Expect to pay much higher charges than on other types of collective investment funds, which will dilute your returns. You'll also be surrendering control of investment decisions and losing the direct relationship with individual firms, which many investors enjoy.

Finally, note that once you've made your investment, the business or fund will send you a form so that you can claim the various tax reliefs through your self-assessment tax return. This paperwork – known as the SEIS3 form – is critical; you won't be able to apply for relief from HMRC without it.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

It was better news on tax receipts than we are used to. After several months of the borrowing figures rising higher and higher, and with the gilts market turning more and more nervous, January's data suddenly looked a lot better than had been expected.

The first month of the year is always a bumper four weeks for HMRC, as self-assessed tax falls due, as so does capital gains tax (CGT). Even so, January 2026 was better than usual.

The government racked up a surplus of slightly over £30 billion last month, more than double the £15 billion in January 2025.

That doesn’t mean Britain is suddenly in the black. We will still end the year borrowing more than £100 billion to keep the country afloat.

Still, it does mean that chancellor Rachel Reeves has a little more money to play with and the gilts market will be reassured. The IMF won’t be flying into Heathrow any time soon.

And yet it is indicative of the way this government thinks that influential figures such as pensions minister Torsten Bell believe that simply squeezing more and more tax revenue out of a stagnant economy is a measure of success.

Tax receipts are not growing because the economy is growing, because earnings and profits are surging, or because retail sales are growing. It is simply that the state is taking more and more of the pie, leaving less for everyone else.

That becomes painfully clear as soon as you start to drill down into the figures. The biggest increase was in receipts from CGT, with £17 billion collected from the sale of assets, a 69% year-on-year increase, and £1.1 billion more than the Office for Budget Responsibility forecast.

Employers’ national insurance contributed a lot more than last year, as did the self-employed through self-assessment, and frozen thresholds mean the yield from income tax has been heading up. Add them all up, and it is not hard to see why revenues are increasing.

Labour backbenchers will no doubt be thinking of ways they can spend the money. Train drivers and junior doctors could be awarded another pay rise. Welfare benefits can be made more generous. The government can give away more free stuff. Ed Miliband can buy some state-of-the-art windmills.

When it comes to spending money, Labour politicians need little encouragement. It is the one thing they are good at and it will be harder for Reeves to tell them the cash is not available.

There are two big problems, however. To start with, the huge rise in CGT receipts is unlikely to be sustained. With all the speculation about an increase in the rate in the last Budget, investors rushed to sell assets, landlords to get rid of their properties, and entrepreneurs to offload their companies. But you can only sell assets once and the total is certain to fall sharply next year.

It is hardly encouraging for growth that investors are ditching British shares and companies at a record rate, even if it does generate a bit more tax revenue.

The state is taking too much in tax receipts

More importantly, it shows the state is taking too much tax.

The huge tax rises Reeves has imposed are crushing the life out of the economy. The big rise in employers’ NI might raise cash, but it has also destroyed jobs, sending unemployment above 5%, and vacancies to record lows.

Frozen income tax thresholds are destroying incentives, with marginal rates of 60% or more, once student loans and tapered reliefs are taken into account.

It’s hardly surprising if people choose to work less and turn down promotions rather than pay that much.

Likewise, the self-employed are stumping up more tax for now. But there are already worrying signs that many of them are working less or taking early retirement instead of paying punitive rates of tax – the number of people working for themselves has already fallen from a peak of more than five million at the start of the decade to 4.3 million now.

The tax haul tells us the chancellor has pushed taxes too high and she should use the Spring Statement to hand some of the cash back.

A £30 billion round of tax cuts paid for with the January surplus would give the economy a massive boost – and repair some of the damage of the past 18 months.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

With falling interest rates and continued market volatility amid geopolitical tensions, investors may find it harder to balance risk and return – forcing many to turn to money market funds to earn a decent return on cash and while keeping their risk exposure to a minimum.

Money market funds have been growing in popularity as they feed into the lower risk appetite investors currently have yet allow you to earn a reasonable return while still investing.

The latest figures from the Investment Association show investors pumped £1.4 billion into these funds during November 2025 alone. This compares to just £522 million in November 2024.

But what exactly are money market funds, how do they work and how can you get exposure to them?

What are money market funds?

Money market funds are investments which fall at the lower end of the risk scale. You can hold it as part of your ISA or add it to your pension portfolio. These funds typically hold low-risk assets such as short-term debt from governments and businesses, offering slightly better returns than cash. According to AJ Bell, they offered an average return of 4.45% in 2025.

This compares to the average easy access savings account in 2025 which paid 3.5%, according to Moneyfacts.

How do money market funds work?

Money market funds are mostly invested in cash deposits and aim to give a higher return than a cash savings account, though, unlike a savings account, this is not guaranteed.

The return on a money market fund is heavily led by interest rate expectations.

Interest rates have been high in recent years which means money market funds have performed well, as the figures above have illustrated.

Unlike savings accounts which sometimes come with restrictions on the amount of money you can pay in – for example, you can hold a maximum of £250,000 in the Marcus by Goldman Sachs Online Savings Account – money market funds don’t impose such limits.

Investors can place as much as they like in money market funds, though experts generally suggest you don’t have more than 10% of your portfolio in these funds. That’s because while they tend to beat returns on cash, they don’t offer the potential returns of riskier options, such as stocks and funds.

“It’s important to consider your allocation to money market funds in the context of your risk appetite and your wider holdings, including cash in the bank,” said Laith Khalaf, head of investment analysis at AJ Bell.

“Money market funds and cash are covering very similar bases, so you don’t want too much duplication.

"If you already have an emergency fund saved in cash accounts and in addition want to run a balanced investment portfolio with broadly 60% invested in equities, it would be reasonable to hold 10% in money market funds and 30% in other fixed interest funds.”

What do money market funds invest in?

Money market funds are different from other investments, mainly because their primary objective is preservation of capital – in other words, to minimise loss rather than aim for huge returns. As such, these funds invest in cash via short-term cash deposits with banks and some funds combine cash with bonds – backing short-term bonds issued by governments and high-quality companies.

Bonds are a type of IOU issued by a government or company in return for paying regular interest payments.

There are different types of money market funds with differing rules that apply to them. For example, there's a requirement to have a minimum of 7.5% of the assets maturing daily and 15% within a week for standard funds, ensuring easy cash access.

Short-term money market funds – that hold short-term bonds – are very popular with investors as the data below shows.

Top money market funds

Money market funds have been growing in popularity in recent years.

During 2025, the Royal London Short Term Money Market fund was the number one most-bought fund every month during 2025 by Interactive Investor clients. The next most popular money market fund was the L&G Cash Trust – which featured in seven of the 12 monthly most-bought funds lists across 2025.

November – the month of the 2025 Autumn Budget – was the most popular month for money market funds, with five money market funds in the top 10 most-bought funds list.

They were:

1. Royal London Short Term Money Market
2. L&G Cash Trust
3. Vanguard Sterling Short Term Money Markets
4. Fidelity Cash
5. abrdn Sterling Money Market Fund.

Source: Interactive Investor, top five money market funds bought by clients in November 2025

The Royal London Short Term Money Market fund also featured in AJ Bell’s 10 most popular funds bought in 2025.

“Sterling money market funds (MMF) were popular in 2025 and proved a reasonable allocation for cautious investors,” said Alex Watts, senior investment analyst at Interactive Investor.

“The IA Short-term MMF sector average return was 4.1% with negligible volatility. Those investors who allocated to longer-duration bonds/funds experienced volatility owing partly to a steepening yield curve (where fixed-interest securities are plotted against the length of time they have to run to maturity) during the first three quarters of the year.”

Will HMRC block money market funds from stocks and shares ISA allowance?

In November’s Budget, chancellor Rachel Reeves announced some important reforms to how ISAs work.

From April 2027, the ISA system will be reformed for under 65s so that a maximum of £12,000 can be sheltered in a cash ISA, down from £20,000.

The annual ISA allowance of £20,000 will remain, but should you wish to utilise the rest of this valuable tax-free shelter, the remaining £8,000 must be invested in a stocks and shares ISA.

Cash ISAs are by far the most popular type with official data from HM Revenue & Customs revealing that 66.2% of ISA subscriptions last year were into cash.

If cash is where you want your money, you might want to find alternatives for the remainder of your precious ISA allowance.

But the government is already looking at ways to block savers from finding loopholes, as currently, money market funds enable you to effectively hold cash within a stocks and shares ISA wrapper.

Under new rules published by HMRC, ‘cash-like’ investments – which experts believe could include money market funds and similar investments like short-dated bonds – will be subject to tests to establish whether they are eligible to be held in a stocks and shares ISA or a cash ISA.

If the government says they cannot be used in a stocks and shares ISA, it could stop new or cautious investors from using these products to manage their risk while they build confidence.

If there’s no change, savers could – in theory – place £12,000 in a cash ISA and put the remaining £8,000 into money market funds using a stocks and shares ISA – utilising their entire £20,000 ISA allowance but keeping money in low-risk, cash-like investments.

“Every ISA investor and potential investor will need to navigate a more confusing ISA landscape from April 2027,” said Tom Selby, director of public policy at AJ Bell.

“While an expected ban on transfers, measures to impose a tax charge on cash held in stocks and shares ISAs and potentially making ‘cash-like’ investments ineligible for stocks and shares ISAs could hit a far wider group of people.

“The frustrating part is that, for all this extra complexity, there is little, if any, evidence that lowering the cash ISA allowance will encourage more people to invest for the long term.”

Selby suggested many savers will instead choose to put less money into cash ISAs and opt for cash alternatives outside of ISAs, such as NS&I’s Premium Bonds or taxable savings accounts.

He added: “It would have made far more sense to focus ISA reforms on the needs of retail investors by simplifying the system, starting by combining cash ISAs and stocks and shares ISAs into a single main vehicle for short-term saving and long-term investing.”

Money market funds and other near cash assets might be restricted in some way but it remains subject to the final HMRC rules.

Do money market funds keep up with inflation?

In money market funds, your savings are still vulnerable to the effects of inflation. This means there is a risk that its value will be eroded over time. Your cash in these funds may not keep pace with the rising cost of living over the longer term.

This is one important reason these funds are not regarded as being suitable for growing savings over the long term as yields are typically below inflation.

Are there any other risks?

While they are considered one of the lowest-risk investment options, it’s important to know that money market funds are not without risk. As with any kind of investment, it is still possible to end up with less than you put in.

Plus, unlike a standard savings account, there are charges to factor in, though the fees are on the low side at around 0.1% and could still leave you better off with the returns being tax-free via the ISA wrapper.

However, you won’t get consumer protection for your investments in a money market fund. Unlike UK-regulated savings accounts, money market funds are not backed by the Financial Services Compensation Scheme (FSCS), which allows you to claim up to £85,000 back if the financial institution your savings are with fails.

What alternatives are there?

If you want to take a little more risk, but stay in the low-risk zone, you can look at short-dated fixed income (bonds). They could be another route to finding cash-like returns without adverse risk.

Bonds, also known as fixed income or fixed income securities, are a form of IOU. You lend money to a company or government, and it pays you a fixed return – sometimes called a coupon – for doing so. At the end of the bond’s term, when it matures, you get back the original amount you paid for the bond.

It’s possible to invest savings in a bond fund, which contains a collection of bonds and can be held in a stocks and shares ISA.

There are lots of types of bond funds to choose from. Some stick mainly to government bonds, while others focus on corporate bonds issued by companies. Strategic bond funds have more freedom to move around the market and pick where they see the best opportunities.

The number of Brits earning six-figure salaries is set to exceed two million for the first time in the 2026/27 tax year, pulling tens of thousands more workers into an effective 60% tax rate.

Around 2.06 million taxpayers – around 6% of the total UK workforce – will earn above £100,000 in the next tax year, according to a Freedom of Information request of HMRC’s estimates by wealth manager Rathbones.

That is an increase of 5.7%, or around 112,000 individuals, from HMRC’s current estimate for the 2025/26 tax year of 1.95 million.

When placed in the context of the last five years, the latest estimates show the number of people earning £100,000 or above are expected to have increased by around 69% (842,000 people) between 2021/22 and 2026/27.

As wages rise, more people than ever before will be subject to a quirk of the tax system that means they can be paying an effective 60% tax rate on their earnings.

While the top rate of income tax is 45% in the UK (excluding Scotland), those who earn over £100,000 will start to see their tax-free personal allowance of £12,570 gradually reduce.

It starts to taper when you earn £100,000 at a rate of £1 for every £2 worth of income over this threshold. It is completely lost once you earn £125,140 a year, meaning people are subject to an effective 60% tax rate while their earnings are within this range.

For example, if your pay increases from £100,000 to £110,000, you would pay 40% in tax on the £10,000 pay rise, which is £4,000. However, you would also lose £5,000 of your personal allowance.

The 40% rate would then apply on that £5,000 – equating to £2,000 in tax. You are therefore paying £6,000 in tax on the extra £10,000 – which is an effective tax rate of 60%. You lose the personal allowance entirely at £125,140, and will need to pay the 45% additional tax rate on income above this threshold.

Parents on £100,000 penalised further

But that is not all. High-earning parents are penalised even further. If your income is just £1 over £100,000, you can lose childcare support as all entitlement to tax-free childcare and free childcare hours is lost. Rathbones estimates this to be worth almost £20,000 for parents with two children under five.

Olly Cheng, senior financial planning director at Rathbones, said: “Earning £100,000 once felt like financial freedom, but today it often comes with a hidden tax sting. Frozen thresholds are inflating tax bills, dragging more people into higher bands, while inflation erodes the real value of earnings.

“This has created a generation of HENRYs – high earners, not rich yet – where those on strong salaries struggle to build wealth because of the double hit of a growing tax burden and the corrosive effect of inflation.”

Frozen tax thresholds mean more people than ever will pay 60% tax rate

Since the 2022/23 tax year, income tax thresholds have been frozen after the then-chancellor Rishi Sunak announced tax bands would not be adjusted yearly with inflation, as had previously been the norm.

The freeze was extended until the 2027/28 tax year by Tory chancellor Jeremy Hunt. It was then extended again until the 2030/31 tax year by Labour chancellor Rachel Reeves in the 2025 Autumn Budget.

By freezing income tax bands, rather than adjusting them for inflation, people are ‘dragged’ into higher tax brackets when their earnings increase. This phenomenon is known as fiscal drag. It is often called a “stealth tax”.

With tax thresholds now frozen until at least 2030/31, more people will be dragged into the effective 60% tax rate as thresholds remain at 2022 levels. This is despite eight years of inflationary pressures making £100,000 mean less in real terms.

Cheng at Rathbones added: “Fiscal drag has become one of the most damaging factors affecting the cost of living. What was once considered a ‘stealth tax’ is now widely understood and much maligned.”

Can you avoid the 60% tax trap?

With an effective marginal tax rate of 60% on each pound you earn between £100,000 and £125,140, many high-earners will be asking whether they can avoid the tax trap.

The good news is that there are ways to avoid a 60% tax rate – but you won’t necessarily have more in your pocket immediately.

One option is to give up a portion of your salary, if you’re still working, and add it into a workplace pension through salary sacrifice, thereby reducing your annual pay.

Cheng at Rathbones said: “One of the simplest ways to avoid or limit the impact of the 60% income tax trap is to pay more into your pension. Doing so via salary sacrifice not only saves on income tax but also National Insurance for both employee and employer, making it a more tax-efficient way to boost pension savings compared to personal contributions.”

This can be done through either an employer pension scheme, or through a self-invested personal pension (SIPP).

If you are a parent, sacrificing your salary to keep your adjusted net income below the £100,000 threshold may mean you retain your eligibility to the tax-free childcare scheme.

Another way to avoid the 60% tax trap is to donate to charity as Gift Aid contributions lower your adjusted net income in the same way that pension payments do.

Cheng explains: “If your workplace permits it, you can also use salary sacrifice to make charitable contributions or exchange part of your salary for non-cash benefits, such as private medical insurance, which further reduces your adjusted net income. National Insurance savings apply here too.”

Finally, you can also make the most of share loss relief if you have qualifying shares and offset your losses against your income, bringing it below the £100,000 mark.

Cheng said: “If you subscribed for qualifying shares – such as those in an Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) company – and they fall in value, you can elect to offset the loss against your income rather than capital gains.

“This means the loss reduces your taxable income at your marginal rate, which for higher earners can potentially save a significant amount in tax.”

A range of tax rises will come into force this year that could add to what you owe HM Revenue & Customs (HMRC).

While it’s not possible to avoid these tax rises, there are steps you can take which could reduce what you will need to pay. Being prepared for these changes is crucial to staying in control of your money in 2026.

Here are 13 taxes rising this year – and how to minimise those increases.

1. Dividend income tax

The tax rates on income from dividends – which are separate to your standard income tax bill – will increase by two percentage points in April this year. Dividend tax is charged at three separate rates depending on what rate of income tax you pay. Dividend income tax for basic rate taxpayers will rise from 8.75% to 10.75% and for higher rate taxpayers it will rise from 33.75% to 35.75%.

For those who pay additional rate income tax, the dividend tax charge will remain unchanged at 39.35%.

You can earn up to £500 in dividend income in a tax year without paying any tax on it, regardless of your income tax band.

If you earn more than this each year, your bills will rise from 6 April.

How to take action

There are steps you can take to reduce your tax bills on dividends. Ensuring you use your ISA allowance is a no-brainer, as dividend income (and growth) is tax-free on money held in an ISA. If you hold dividend-producing shares outside an ISA, you can move them inside, if you have any unused ISA allowance for this year. Otherwise you can wait until the allowance resets when the new tax year begins on 6 April.

2. Capital gains tax (CGT) on business assets

The rate of capital gains tax (CGT) where business asset disposal relief (BADR) applies will increase from April. So if you’re planning to sell business assets this year, you should know that changes to Business Asset Disposal Relief (BADR) and Investors’ Relief (IR)—previously known as Entrepreneur’s Relief, could lead to higher capital gains tax bills.

The tax rate on gains will increase from 14% to 18%.

How to take action

If you have business assets to sell it might be tax efficient to sell them before the end of the tax year. This depends on your wider tax situation of course.

3. Income tax

The rate at which we pay income tax will not rise in 2026, but many people will pay more income tax.

That’s because, without an annual increase to the thresholds (for England and Wales) within which we pay income tax – and the tax-free personal allowance currently frozen at £12,570 – our bills rise.

The government policy of freezing the thresholds – rather than increasing them in line with the cost of living – is known as fiscal drag.

In England, Wales and Northern Ireland, taxable income between £12,571 to £50,270 is subject to the 20% basic rate, with the 40% higher rate applying on taxable income between £50,271 and £125,140. The additional rate threshold applies on taxable income over £125,140. The freeze of these thresholds will continue until April 2031.

By doing nothing, the government effectively pushes more people into the higher income tax rate bracket, as their wages go up either with an annual pay rise or a promotion offering a bigger salary.

If you live in Scotland, the way that income tax is calculated is slightly different. Everyone still has a £12,570 personal allowance. Then there are tiers – starter rate, basic rate and intermediate rate. There are no changes to the current Scottish income tax rates or the introduction of new bands this year.

Scottish workers will also be subject to the effects of fiscal drag.

How to take action

One of the most effective ways to reduce your income tax bill is by increasing your pension contributions. You can either speak to your employer about increasing contributions to a workplace pension scheme or contribute to a self-invested personal pension (Sipp). The latter is also the option if you’re self-employed.

4. VCT investments

Upfront income tax relief on VCTs will fall from 30% to 20% from 6 April 2026, reducing the incentive for some investors. VCTs (venture capital trusts) are a type of investment that allow you to back small UK businesses. You buy shares in a VCT, which is a fund that invests in a basket of typically 40-80 privately owned fast-growing companies.

For every pound you invest in a VCT you can get up to 30p back in tax relief – upfront. There’s tax-free capital gains and dividends, which means you can boost your income without increasing your taxable income.

For those who don’t need the income, the dividends can also be reinvested into new VCT shares, potentially providing an additional 30% tax relief – or 20% after 6 April.

You can invest up to £200,000 into a VCT each year.

How to take action

If you want to invest in a VCT, do so before April to enjoy higher tax relief. But don’t just invest for the tax benefits. Make sure you understand the risks.

5. Air passenger duty

From 1 April 2026, Air Passenger Duty (APD) rates will increase again, adding to flight costs, with higher rises for long-haul.

It will add up to £2 to the cost of a short-haul economy flight and £4 to that of a short-haul flight in premium or business class cabins. Airlines collect APD as part of their ticket price.

How to take action

Make sure you get the best deal on flights by checking comparison websites and being flexible with departure days if you can.

6. Work from home tax relief

Employees who work from home will no longer be able to claim tax relief from HMRC for extra, non-reimbursed household costs, such as gas and electricity.

7. Benefit in kind tax

Benefit in Kind (BiK) is a tax you pay when you buy a car through your company’s salary sacrifice scheme. BiK rates, like vehicle excise duty, are dependent upon your car’s CO2 emissions.

BiK rates are scheduled to increase again by 1% in the 2026-27 financial year. From 6 April 2026 onwards, electric vehicles will pay 4% BiK instead of the current 3%.

Household bills

Households will see a number of bill hikes in 2026, starting with the energy price cap rising on 1 January.

How to take action

Make sure you are in control of your household bills by keeping a close eye on what you’re paying for each utility, subscription and service. When you reach the end of a contract on any element of your household bills, call up and see what offers you’re eligible for.

8. Energy bills

From the beginning of the year to 31 March 2026, there will be a small monthly increase for energy bills. The average household on the energy price cap is now paying 0.2% more for their energy than they did in the last quarter of 2025.

A typical household on a dual-fuel variable energy tariff paying by direct debit will pay £1,758 a year until 31 March. This is £3 more than under the previous price cap.

How to take action

Consider a smart meter which can help you understand where most of your energy use comes from and work out ways to reduce that usage where you can.

9. Water

Further increases are planned for water bills in 2026/27 and beyond that will be announced in the coming weeks.

How to take action

If you don’t have a water meter, but you think you use less water than you pay for, you can ask to have a water meter fitted for free. The Consumer Council for Water has a calculator to show you whether a water meter could save you money.

10. Council tax

Most households (in England) will likely see a hike to the amount they pay in council tax this year. From April, tax bills are likely to rise by an average of 5% across most local authorities, which is usually the maximum rise permitted. However, permission for much higher hikes for 2026 has been given to some local authorities due to funding cuts and low existing rates. These include some London boroughs as well as Maidenhead and Windsor.

11. TV licence

The TV licence fee is expected to rise in April, but it is yet to be confirmed. Currently, a colour licence costs £174.50. A black and white licence costs £58.50.

12. Fuel

The fuel duty freeze, which has been in place since January 2011, will be phased out from September 2026 onwards, when fuel duty will increase annually in lines with inflation.

13. Alcohol duty

The cost of your favourite tipple might rise next month. All alcohol duty rates will rise in line with the retail price index (RPI) at 3.66% in February. That works out at about 11p on a bottle of Prosecco, 13p on a typical red wine and 38p on a bottle of spirits, according to the Wine & Spirit Trade Association.

We list the key money dates for 2026 in a separate piece.

Many workers will be anticipating a boost in their payslip in the coming weeks when Christmas bonuses arrive – but there may also be an impact on your tax bill.

Staff from industries such as financial services, property and consultancy may be looking forward to Christmas bonus season.

Some commentators attribute Christmas bonuses to the Santa rally in investment markets as bankers may invest their rewards.

But there are warnings that much of the income could be swallowed up by tax, especially for higher earners.

Kundan Bhaduri, executive director at asset manager The Kushman Group, said: “A £10,000 bonus pushes many earners from the 20% basic rate into 40% higher rate territory, while those already earning £100,000 face the notorious 60% effective rate as personal allowances disappear.

“The timing makes it worse. December bonuses often coincide with other year end payments, creating artificial income spikes that HMRC treats as permanent earnings progression rather than one off windfalls.”

There are ways to ensure you can keep more of your bonus this year though.

Boost your workplace pension contributions

The most popular way to keep your tax bill down from a regular salary is through pension contributions by using salary sacrifice.

One option for those receiving a bonus is to defer some or all of it into their pension.

Chris Eastwood, chief executive of pensions platform Penfold, said this will cut any income tax and national insurance deductions and boost retirement savings and employer contributions.

He said: “A Christmas bonus can be a welcome boost, but also often easy to lose to tax and short-term spending. However, in redirecting a bonus into your pension, you can make the reward go much further.”

Eastwood explains that choosing to forgo a cash bonus has future benefits if employees choose to pay it directly into their pension, adding: “It is more important than ever for workers to understand how to protect the value of year-end rewards. As bonuses are taxed as regular income, many employees end up disappointed by what actually lands in their accounts after deductions.

"Bonus sacrifice ensures the full value goes through to your pension instead, avoiding these deductions entirely and keeping more of the reward working for your future.”

Eastwood said bonus sacrifice is quick and easy to set up and just requires preparation with payroll departments.

The next few years are ideal times to do this, especially as, from April 2029, the amount of salary sacrifice on pension contributions that is exempt from National Insurance contributions will be capped at £2,000.

Check your company benefits

There may be other company benefits you are eligible for through salary sacrifice that your employer may be able to redirect some of your bonus to.

This would help reduce your overall taxable pay.

Samuel Mather-Holgate, managing director of the independent financial advisers Mather and Murray Financial, said: “You could buy a bike, increase your life insurance or look to beat the queue at the GP surgery and get private medical.

“All can be sacrificed so you don’t just get a tax saving but your employer has a significant national insurance saving that they are usually keen to share with you.”

Equity options

Depending on your role and the industry you work in, some technology and financial roles may offer equity instead of cash as a bonus.

Luke James, tax director at Gravitate Accounting, said: “More commonly, this sits alongside bonuses for senior managers or directors as part of a wider remuneration package.

“Free or discounted shares are treated as a benefit‑in‑kind and therefore boost taxable income at the point of award, but the valuation is often heavily discounted compared to their potential long‑term worth.”

James suggested the upfront tax charge may be outweighed by future capital growth, adding: “Beyond the initial award, dividend income from those shares will add to taxable income, but this is typically taxed at dividend rates alongside the dividend allowance.”

Millions of savers in the UK are being dragged into paying tax on their savings interest because the personal savings allowance (PSA) has been frozen for a decade, according to new research.

By the end of the 2025/26 tax year, taxpayers will have paid over £28 billion in tax on their savings interest since the PSA was launched, with basic rate taxpayers alone paying £4.7 billion, analysis of HMRC data and forecasts by Yorkshire Building Society found, outlining the impact of a policy that has been unchanged since it was introduced in 2016.

Despite jumps in interest rates and frozen tax thresholds pushing more people into higher tax bands, the PSA remains frozen at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, while additional rate taxpayers still have no allowance at all. During the same period, the Bank of England base rate has climbed from 0.50% to 3.75%, instantly pushing ordinary savers over their allowances even on fairly modest sums.

The landscape for savers has materially changed over the past decade. When the personal savings allowance was introduced on 6 April 2016, the majority of easy access accounts paid 1% or less. Now most pay 3% or less. This means while in 2016 basic-rate-tax payers would have been able to put away as much as £100,000 in a typical savings account, in 2026, with interest rates hovering around 3%, savers would only be able to save around £33,000 without breaching their allowance. For those earning over £50,271 and paying higher-rate tax, that amount would fall to around £16,000.

At the same time people need bigger savings nest-eggs to be able to reach ordinary milestones. The median average house deposit has jumped from £25,000 in 2016 to £36,500 in 2024/5 – an increase of 46%, according to the English Housing Survey Headline Report.

Tina Hughes, director of savings at Yorkshire Building Society, said: “Ordinary people are being penalised by a system that simply hasn’t kept pace with reality. These aren’t wealthy investors — they’re people putting money aside for a house deposit, families saving for their children, or those planning a well-earned holiday.

“When the PSA was introduced, almost no one breached it. Today, millions do — not because they’re rich, but because the allowance is frozen and thresholds haven’t moved. People doing the right thing are facing rising tax bills and fewer ways to protect their savings. It’s time for a modern, fair framework that gives savers clarity and confidence.”

Millions at risk of 'unnecessary' tax bill

Basic rate taxpayers (who earn between £12,571 and £50,270) in the UK hold £516 billion in non-ISA savings accounts that have large enough balances to breach the personal savings allowance, separate data from Paragon Bank showed in November 2025.

The personal savings allowance shields some taxpayers from having to pay income tax on savings interest – basic rate taxpayers can earn up to £1,000 a year in savings interest, while the allowance is £500 for higher rate taxpayers.

However, 5.2 million UK savings accounts owned by basic rate taxpayers were on track to earn more than the £1,000 allowance in interest in 2025, the data shows, leaving them with a 20% tax bill on the savings interest above the threshold.

The problem becomes even worse for higher rate taxpayers.

Higher rate taxpayers (people who earn between £50,271 and £125,140) have their personal savings allowance cut by half, leaving them with just £500 of tax-free savings interest outside an ISA.

Nine million UK non-ISA savings accounts owned by higher rate taxpayers, worth over £632.7 billion, were expected to earn more than £500 in interest in 2025, Paragon’s research shows, meaning these savers should prepare for an extra tax bill.

Additional rate taxpayers, who pay the highest rate of income tax, don’t get a personal savings allowance at all, meaning any interest they earn outside an ISA is subject to tax.

Brits who earn above the personal savings allowance in interest have increasingly helped bolster the government’s coffers. HMRC expected to generate £6 billion in income tax on savings interest in 2025, up from £2 billion in the 2022/23 tax year.

Additional rate taxpayers are expected to contribute the most (£4.2 billion), followed by higher rate taxpayers (£1.3 billion), and basic rate taxpayers (£500 million).

Andrew Wright, head of savings at Paragon Bank, said: “Savers should act now to protect their hard-earned money by moving funds into a tax-free wrapper such as a cash ISA.”

Using an ISA to shield your savings

The easiest way for UK savers to shield their savings interest from the taxman is by using an ISA.

You can put up to £20,000 into ISAs each tax year. There are different types of ISA – including cash ISAs and stocks and shares ISAs. The appeal of an ISA is that any interest or investment income earned within the ISA is shielded from the taxman.

For example, let’s assume you are a basic rate taxpayer who has built up an ISA holding of £100,000 by saving the maximum amount in a cash ISA for five years.

If you placed the entire amount into the best cash ISA on the market right now, from Plum, you could expect to earn 4.66% interest over the next 12 months.

At the end of the 12 months, assuming the interest rate did not change, this £100,000 would grow by £4,660. Because this money was held in an ISA, you would not be charged any tax on that.

However, if this £100,000 was held and grown in a non-ISA savings account, the £4,660 earned would breach the £1,000 personal savings allowance, meaning £3,660 of your interest earned would be taxable. You would therefore pay the government £732 in tax.

Adult cash ISA balances surged in 2025 as savers moved to protect tax‑free returns ahead of the Autumn Budget, with Paragon Bank analysis showing cash ISA balances increasing by over £50 billion as non‑ISA balances fell.

Between the end of January and end of December 2025 savers took a big shift towards tax-efficient savings ahead of the anticipated reduction in the cash ISA allowance announced in the Autumn Budget, CACI data for the period found.

Over the period, the average adult cash ISA account balance increased from £15,919 to £17,225. Meanwhile the average non-ISA account balance fell marginally from £11,919 to £11,909. The data suggests savers were seeking to maximise tax-free interest before potential ISA threshold changes in the 2025 Budget.

Total adult cash ISA balances rose by £57 billion during the period, with much of the growth driven by strong demand for fixed-term products. Overall, adult cash ISA balances in accounts totalled £436 billion across 25 million accounts at December 2025.

Fixed-term ISAs accounted for £35.8 billion of the overall increase, rising to £237.7 billion as customers locked in rates ahead of an expected reduction in interest rates. Instant access ISA balances also grew, albeit at a steadier pace, increasing by £22.4 billion to £192.9 billion.

In contrast, non-ISA balances fell by £1.8 billion over the same period to £845.6 billion across 71 million accounts. This was mainly driven by fixed-term non-ISA balances falling as savers reallocated money into tax-efficient wrappers.

Andrew Wright, head of savings at Paragon Bank, said: “2025 marked a clear shift in saver behaviour, with many people taking proactive steps to protect their returns by making greater use of tax-efficient savings. Anticipation of changes announced in the Autumn Budget encouraged savers to review where their money was held and to maximise the benefits of cash ISAs while allowances remained unchanged.

“What’s particularly notable is the strength of demand for fixed-term ISA products. Savers were not only responding to potential tax changes but also looking to lock in competitive rates amid expectations that interest rates would begin to fall. This combination of tax planning and rate certainty made fixed-term ISAs especially attractive.”

If you've used up your annual allowance, we look at other ways to shield your savings from tax in a separate guide.

The number of people paying the highest rate of income tax in the UK hit more than one million last year as frozen thresholds dragged hundreds of thousands more into the additional rate band.

Roughly 720,000 people paid the 45% rate on income between £125,140 and £211,562 in 2024/25, according to a freedom of information (FOI) request submitted to HM Revenue and Customs (HMRC) by advisory firm Bowmore Financial Planning.

A further 385,000 paid the 45% rate on income above £211,562, according to the FOI.

Had the top income tax rate moved in line with inflation since 2013, when it was lowered from 50% to 45%, it would now stand at £211,562, Bowmore said.

It means the 720,000 additional rate taxpayers in 2024/25 wouldn’t have had to pay the 45% rate if the threshold had risen along with the cost of living.

John Clamp, fellow of the Personal Finance Society and chartered financial planner at Bowmore Financial Planning, said: “Both the 45% and 40% rate of income tax are capturing more and more taxpayers.

“A lot of people who consider themselves as having very little disposable income are now finding that they are having to pay the very highest rate of income tax.”

Income tax thresholds are currently frozen until April 2028, with rumours swirling the chancellor could announce an extension to the freeze in this month’s Budget.

The move is known as a “stealth” tax as it increases tax revenue for the government without rates actually increasing. As inflation rises, more people are drawn into paying tax – known as fiscal drag.

Even if the freeze isn’t extended beyond 2028, more people will likely have to pay more tax on their income over the next three years, based on inflation continuing to rise.

Clamp said: “The Government is content to let inflation do its work and add more and more people to the highest tax rate.

“Many people are working harder but taking home less, simply because inflation has drawn them into higher tax bands.”

Clamp added frozen thresholds could explain why productivity was stagnating in the UK, with workers dissuaded from working longer hours and boosting their pay.

UK wages continue to grow slowly, while GDP grew by just 0.3% between June and August. Meanwhile, the Office for National Statistics (ONS) says productivity has remained stubbornly low since 2009.

“It’s perhaps unsurprising productivity is stagnating,” Clamp said.

“If extra work barely boosts take-home pay because of frozen tax bands, people are less inclined to work longer hours or push themselves – and that ultimately drags on the economy.”

A Treasury spokesperson said: “The UK’s income tax system is highly progressive with an internationally high personal allowance.

“These figures relate to the previous government’s 2022 Autumn Statement.

“This government inherited the previous government’s policy of frozen tax thresholds and lowered Additional Rate Threshold.”

How to cut your tax bill

There are ways to avoid paying more tax if frozen thresholds are eating away at your hard-earned cash.

Clamp said those still working can reduce their income tax bill through salary sacrifice.

This sees you contribute more to your pension out of your salary, thereby reducing the amount of taxable income and therefore cutting the income tax and National Insurance contributions you pay.

That said, the government could look at abolishing or reforming salary sacrifice in the upcoming Budget.

Meanwhile, if you’ve got cash stashed away in a traditional savings account, you should also make the most of your annual ISA allowance.

You can currently add a total of £20,000 a year into multiple ISAs with any interest on savings or returns being non-taxable.

Any savings held outside ISAs are subject to the personal savings allowance. Basic rate taxpayers can earn £1,000 per year before being taxed and higher rate taxpayers £500. Those over the additional rate threshold don’t get any allowance.

Savers paying income tax on their nest eggs with no ISA allowance left have some other options if they want to shield their money from HMRC.

Over two million people are forecast to pay income tax on their savings interest in 2025/26 thanks to frozen income tax thresholds, a fixed personal savings allowance (PSA) and higher interest rates on saving accounts, according to research by investment platform AJ Bell.

Higher and additional-rate taxpayers are particularly vulnerable as their PSA’s are lower than basic-rate taxpayers.

Despite inflation slowing to 3%, people’s hard-earned cash is still being eroded in real terms and even though savings rates have steadily fallen since 2023, returns could nevertheless be high enough to breach the PSA.

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “While inflation has eased to 3% and is expected to fall to the Bank of England’s 2% target by April, that’s not only the issue savers need to consider.

“Many could still end up paying tax on the interest they earn, particularly on the most-competitive accounts, if their returns push them above their personal savings allowance.”

The prospect of having to pay tax on savings interest has seen the popularity of adult ISAs boom, with 15 million people paying into one in 2023/24, the highest amount since 2010/11.

The annual ISA allowance allows individuals to shelter up to £20,000 a year without paying tax on interest earned – or investment returns if you choose to use a stocks and shares ISA.

But what if you have already used up your ISA allowance for the year? Are there other tax-efficient options?

What is the personal savings allowance?

The PSA allows most people in the UK to earn a certain amount of savings interest tax-free each tax year. The allowance depends on your income tax band.

Basic rate taxpayers can earn up to £1,000 interest on their non-ISA savings and for higher rate taxpayers the limit is halved to £500. Top rate taxpayers do not have a PSA.

Premium Bonds

Premium Bonds offer savers the security of a government-backed bank, tax-free returns and the hope of a bumper £1 million jackpot win each month. Instead of paying interest, Premium Bonds with National Savings and Investments (NS&I) offer the chance to win monthly cash prizes of up to £1 million.

You can own up to £50,000 worth of Premium Bonds; each bond costs £1 and you have to hold a minimum of 25.

The Premium Bonds prize rate has been falling and is currently 3.6%, but will drop to 3.3% in April. Currently, there are 2,713,707 unclaimed Premium Bonds prizes worth £114,769,950 waiting to be claimed.

If you are one of the two lucky jackpot winners of the month that has won the £1 million prize you’ll have a visit in person from NS&I's Agent Million – an individual who informs lucky winners that they have scooped the biggest prize in the monthly draw.

Of course, you could win absolutely nothing and receive zero return on your money.

Pensions

A pension is a tax efficient wrapper that you can begin paying into when you start working either in a workplace scheme or a private pension – or both. You can actually start contributing from birth using a Junior Sipp (self-invested personal pension).

Taxpayers automatically get 20% added to personal pension contributions through pension tax relief, while higher and additional rate taxpayers claim their extra relief through a self-assessment tax return.

Returns on money invested in your pension are free of capital gains tax and income tax, so your savings can grow faster. Further, you can take out up to 25% of your pension completely tax-free.

There are limits to how much you can pay into a pension each year. The annual limit is £60,000 a year for adults and £3,600 for children. However, if you’re a high earner and your income is more than £240,000 a year, the tax relief you can get on contributions is limited to a reduced annual allowance, known as the tapered annual allowance. The £60,000 annual allowance reduces by £1 for every £2 over £240,000.

However, the trade-off for these unrivalled tax breaks is that you can’t access money saved in a pension until the age of 55 – rising to 57 in 2028.

VCTs

A VCT (venture capital trust) is a type of investment that allows you to back small UK businesses. A VCT itself is a fund that invests in a basket of typically 50-80 privately owned fast-growing companies chosen by a fund manager.

You buy shares in a VCT and for every pound you invest you can get up to 30p back in tax relief. This is being reduced to 20p from April. There’s tax-free capital gains and tax-free dividends and you can invest up to £200,000 into a VCT each year. To qualify for the tax break you must hold the investment for at least five years.

There are risks of course. VCTs invest in early-stage businesses, which are much more likely to fail, and charges can be high. Investments in VCT schemes are not protected by the industry safety net, the Financial Services Compensation Scheme (FSCS).

Enterprise Investment Scheme (EIS)

The EIS is another tax efficient way to back small UK businesses. You can invest in a single company or a fund that holds a basket of around 10 firms and get income tax relief at 30%. Returns are free of capital gains tax if held for three years and you can invest up to £2 million a year in qualifying companies.

EIS investments allow you to elect for all or part of your EIS shares bought in one tax year to be treated as though they were bought in the previous tax year.

While there is a risk of investing in smaller businesses, you can claim loss relief (at your marginal tax rate) if things go wrong. There is no inheritance tax due so long as you have had the EIS investment for two years when you die.

Recent analysis from wealth management firm Rathbones found UK investors who have used up their ISA and pension allowances are increasingly turning to VCTs and EIS’s to tax-wrap their cash.

Isabella Galliers-Pratt, senior investment director at Rathbones, said: “Once they’ve used ISA and pension allowances, the next question we hear from clients is: where does my next pound go?

“As wealth increases, investors are more willing and able to take on higher levels of risk. Greater financial resilience gives them the confidence to explore opportunities beyond mainstream wrappers.”

Offshore bonds

This is an investment tax wrapper held outside the UK in which you can invest a lump sum or make regular payments. You can choose from a range of investments including funds, discretionary investment managers and bank deposits.

The income and gains of the underlying investments are not taxed within the bond – the tax charge applies when there are withdrawals.

The amount of tax you’ll have to pay will be based on your marginal rate at that time. Though income from the bond could push you into a higher rate.

The rules of offshore bonds allow you to access up to 5% of the original capital per year without any immediate tax to pay. This withdrawal allowance is cumulative so if you don’t draw 5% in the first year you own it, in the second year you could draw up to 10%. This is something to consider with the help of a financial adviser.

Other considerations:

Paying off debts

If you have any debts then it might be more financially viable to pay them off rather than worry about tax bills.

Loans, credit cards and overdrafts are almost always the most expensive kind of debt. If you don’t use any regular borrowing you could consider paying down your mortgage.

Gifting for estate planning

If you’re in the fortunate position of having used your tax allowances for the year on savings and investment vehicles you deem appropriate, and still have money you don’t need attracting tax, you may wish to consider some estate planning.

Inheritance tax is charged on an estate, which is the property, money and possessions left behind to loved ones who will pay 40% on anything above the threshold.

You can leave up to the £325,000 threshold before loved ones face a tax bill. This tax-free threshold can be increased via the residence nil rate band.

The good news is that there are plenty of measures individuals can take to reduce the amount that HM Revenue & Customs (HMRC) can claim when it eventually comes to assessing IHT.

So if you have more money than you think you might need, you could consider handing over some of your wealth while you’re still around.

The ‘annual exemption’ allows you to give financial gifts, tax-free, to the value of £3,000. You can also give £250 to any number of people every year, but you can’t combine it with your annual £3,000 exemption. You can also give away all types of assets, including cash, property and shares tax-free, as long as you live for seven years after making the gift. Known as a “potentially exempt transfer”, it must be an outright gift from which you can no longer benefit.

There is a way of giving away unlimited cash without using the seven-year rule – as long as it’s from surplus income and doesn’t reduce your standard of living or force you to dip into your capital to cover day-to-day costs.

You might also consider setting up a trust which can mitigate inheritance tax. A financial adviser can help with this and all things surrounding estate planning, as well as making a will.

Millions of pensioners and savers may have received an unexpected tax bill over the summer from HMRC, under the taxman’s simple assessment system.

Frozen tax thresholds mean more of people’s earnings and savings interest are pushing people into higher tax brackets.

Any untaxed income or savings interest is usually reported to HMRC automatically through pay-as-you-earn or through self-assessment.

Some people don’t typically earn enough or fit the criteria for PAYE or self-assessment, such as if you don’t have a job, are retired and don’t run your own business.

However, rising state pension payments and higher savings interest are pushing more people over their tax allowances.

In some cases, the only way for HMRC to get the tax owed, if someone doesn’t fit the criteria to regularly file a tax return, is through simple assessment.

The taxman has sent 1.4 million simple assessment letters to people who owe money over the past month.

Many may be confused by the letters and not believe it is from HMRC.

But HMRC’s chief customer officer Myrtle Lloyd says it is important to not ignore it, adding: “If a letter drops on your mat – or appears in your online Personal Tax Account – you’ve been sent it for a reason. Anyone who receives a simple assessment letter and wants to find out more is encouraged to go online to GOV.UK, where there’s plenty of guidance to help."

Here is what you need to know.

What is simple assessment?

The simple assessment system is designed to simplify payments for those with relatively straightforward tax affairs who may owe money to HMRC.

The letters are usually sent if your income exceeds the personal allowance and the unpaid tax cannot be collected automatically through pay as you earn (PAYE) or self-assessment.

Simple assessment letters are automatically generated and sent to customers when HMRC receives information about a customer’s income. This information can come from a number of sources including employers, the Department for Work and Pensions (DWP), banks, building societies and financial institutions.

There is no fixed income threshold that automatically triggers a simple assessment.

HMRC generally issues them when a person owes more than £3,000 in unpaid income tax and is not already in self-assessment, if tax cannot be collected through PAYE, such as from the state pension, or if HMRC believes it has enough information to calculate the tax due accurately.

Critics say it creates unnecessary and annoying administration for the public.

Eamonn Prendergast, chartered financial adviser for Palantir Financial Planning, said: “For many, it’s their first encounter with self-assessment, and the experience is confusing, stressful, and outdated. Letters often land without warning, phone lines mean hours on hold, and you can’t even email HMRC; a 20th century system for a 21st century problem.

“This isn’t just fiscal drag; it’s administrative drag too. Unless thresholds are unfrozen, more ordinary people will face surprise tax bills, the risk of paying the wrong amount, and unnecessary stress.”

He said people can protect themselves by checking tax codes and keeping records, adding: “But fundamentally this is a problem created by policy, not by savers.”

Why have I received a simple assessment letter?

The simple assessment letter should provide you with an assessment of any tax you owe and how it was calculated.

It shows in detail where any additional income has come from. Income may come from a number of sources including savings, a second job, paying too little tax as well as income from pension.

If you believe the assessment is wrong, you need to get in touch with HMRC within 60 days to raise a query.

Rob Mansfield, independent financial adviser at Rootes Wealth, said: "Nobody likes getting a letter from HMRC.

"For a long time interest was so paltry that it was difficult to gain more than the threshold. Higher interest rates and tighter allowances mean that more people are now affected. If you get a bill, check it and make sure it's right as HMRC do make mistakes. If you don't want a bill in future years, make sure you use things like your ISA allowance to shield your money from the taxman.”

How to pay a simple assessment tax bill

The quickest way to pay is by using the secure HMRC app or through your Personal Tax Account.

Payments can also be taken via GOV.UK, by bank transfer, by cheque or over the telephone using the contact number in your letter. A full list of payment methods can be found on GOV.UK.

But watch out for HMRC tax return scams.

Lloyd added: "Simple assessment may well provide criminals with an opportunity to attempt to commit fraud. The only way HMRC will contact simple assessment customers is via a letter or through their Personal Tax Account.

“Criminals use phishing and scam emails, phone calls and texts to try to steal information and money from taxpayers.

“Customers should never share personal details including their HMRC sign-in details.”

The payment deadline for the 2024/25 tax year is 31 January 2026, similar to the online self-assessment deadline, unless customers are given an alternative date in their letter.

Simple assessment payments can be made in full, or in instalments, before the deadline.

What are wealth taxes?

Taxes that make you pay a levy based on your assets – typically your net wealth – rather than your income from work. Such taxes used to be far more common globally than they are now. Sweden charged an annual levy on net assets for the best part of a century, with a top marginal rate that peaked at 4% in 1984; it was abolished in 2007. France had a wealth tax (riddled with loopholes) that was scrapped in 2017. As late as 1990, 12 OECD nations (advanced economies) still had wealth taxes, though they raised a paltry 1.5% of all tax revenues, on average. Today, only three countries still levy a tax on net wealth, namely Switzerland, Norway and Spain. Several European countries – France, Italy, Belgium and the Netherlands – do still levy wealth taxes on selected assets, but not on an individual’s overall wealth.

What are typical rates?

In Switzerland, which first introduced a net wealth tax in 1840, the level varies by canton between about 0.3% and 1% of a taxpayer’s net worth above a threshold typically in the low six figures. In Norway, where the tax dates back to 1892, the government currently charges 1% on individuals’ wealth exceeding a threshold of NKr1.76 million (£130,500). So if you lived in Norway and you had £250,000 in investments and £500,000 equity in your house, you’d pay an extra £6,190 a year in taxes. Above NKr20.7 million, the rate ticks up fractionally to 1.1%.

Why did wealth taxes fall out of favour?

In part, because wealth taxes are hard to introduce and administer, and are inevitably accompanied by a thriving cottage industry to help the truly wealthy avoid them. The only time a UK government was elected promising to introduce one was Labour in 1974. But over the course of his five years as chancellor, wrote a rueful Denis Healey in his memoirs: “I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” The value of some assets is fairly easy to record, but for others – property equity, say – valuations are expensive, subjective and wide open to legal challenges. HMRC does not currently have an overview of the wealth of every citizen, and no way of doing so without a big investment of time and resources, and political will. All that makes wealth taxes a giant headache.

Why else are wealth taxes unpopular?

Bluntly, because wealth taxes don’t work. Calls for wealth taxes are readily understandable: governments everywhere – not least in the UK – are facing vast fiscal challenges in an era of low-growth and ageing populations. Meanwhile, in recent decades, the very wealthy have got much wealthier. In 2010, the combined wealth of the top 100 people on The Sunday Times Rich List was £172 billion. Last year, it was £594 billion. At the same time, the rich have remained as canny as ever about mitigating their tax liabilities (ie, paying as little as possible). The problem, though – even for fans of big government who think it’s fine for the state to tuck into individuals’ private assets – is that wealth taxes end up raising less than hoped and do so much collateral damage to the economy that they are self-defeating in fiscal terms. If that was true in Healey’s day, it’s even more so now.

Why’s that?

Because wealth, and the wealthy, are far more mobile. Dan Neidle, the Labour-supporting tax lawyer turned campaigner, recently published a 16,000-word essay “explaining why a wealth tax is a really stupid idea”, says Robert Colville in The Times. Executive summary: if you tax something, you get less of it, and wealth is no different. Neidle examines a model backed by campaigners and some Labour backbenchers, which posits that a 2% wealth tax on those with assets of more than £10 million would raise at least £24 billion a year. But he calculates that, under this system, 80% of the revenue would come from just 5,000 people and 15% from just 10. “So the entire thing could be scuppered if a dozen people got on a private jet.” Neidle favours, instead, a wholesale reform that scraps several existing taxes – including stamp duty, council tax and business rates – with a land value tax.

What are other arguments against wealth taxes?

Not only do wealth taxes not work, but they also distort the economy. Since debt is tax-deductible, wealth taxes tend to encourage the rich to avoid the tax by borrowing to invest in exempted asset classes (farmland or woodland, say), thus shrinking the tax base and distorting incentives. Alternatively, they might simply leave the country for a lower-tax jurisdiction, as did thousands of wealthy French citizens who set up in Belgium, or the thousands of the richest Norwegians who live abroad. Opponents argue that a wealth tax would only work if it were adopted globally – in practice, that means never. Another argument against wealth taxes is that rather than diminish billionaires’ political power, they would increase it by encouraging them to spend their money on nefarious political causes.

But we will get them anyway?

It’s unlikely, given that Rachel Reeves has ruled it out. But she may well be looking at more stealthy ways of taxing assets. Indeed, this summer has seen almost constant Treasury kite-flying in the press, with tales of various different property and inheritance taxes the government is said to be mulling over. There’s certainly significant wealth there, and it would be possible to tax it, says Neil Unmack on Breakingviews. Some £7 trillion of value is stored in British housing, making the full capital gains tax exemption for primary residences look tempting to target. Inheritance tax exemptions mean the average taxed estate pays 13%, not the 40% headline figure. The risk is that any such raids would add “affluent middle-class voters to the ranks of Reeves-haters". "Yet targeting them would make it politically easier for her to cut welfare spending. Especially if she does so with a degree of stealth.”

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Daily penalties are being given out to taxpayers who fail to submit their tax return on time, with late filers being fined £10 a day.

Every year, the final self-assessment tax return deadline is 31 January, with HMRC requiring all eligible taxpayers to complete a self-assessment by that date.

While millions of Brits met the deadline, there are still many who are yet to file their tax returns.

All late filers are fined a flat £100 if they don’t complete their self-assessment in time but after three months, those who still haven’t done it are fined an extra £10 a day.

As the deadline was more than three months ago, we are now in that territory, meaning late submitters are racking up charges each day that they delay.

Here is everything you need to know about self-assessment, and the deadlines to watch out for.

When is the self-assessment tax return deadline?

There were two main deadlines for filing a self-assessment tax return for the 2024/25 tax year, depending on whether you did it online or by post.

The online deadline was 31 January 2026, while for those who preferred to file a paper tax return, it was 31 October 2025.

The January deadline applies to filing your return, and paying any income tax due – regardless which format of tax return you choose.

Some taxpayers also need to make payments on account. We explain that in more detail below.

The first deadline passed on 31 January, but the second payment on account deadline is fast approaching on 31 July.

A rundown of all the deadlines for the 2024/25 tax year can be found below.

What happens if I miss the self-assessment tax return deadline?

If you missed the self-assessment tax return deadline, you have to pay a penalty to HMRC. The size of this penalty depends on how late you are and why you filed your tax return late.

Failing to submit your self-assessment on time means you could face paying a penalty of hundreds, or even thousands, of pounds depending on length of delay.

You’d also have to pay, as it stands, 7.75% interest on top (the Bank of England base rate plus 4%).

One day late

There is a flat £100 fine for filing the return late, even if only by one day.

Three months late

After three months (so if you file an online tax return, that means from 1 May), you get hit with additional daily penalties of £10, up to a maximum of £900.

We are now in this period.

Six months late

After six months, a further penalty applies – either 5% of the tax due or £300, whichever is greater.

12 months late

The same fine (5% or £300) applies again once you are 12 months late.

Paying your tax bill late

You can also be hit with a penalty if you pay your tax bill late.

You get a penalty worth 5% if you have not paid your tax bill after 30 days.

This 5% penalty applies again at six months and 12 months. Interest is also charged on top.

Self-assessment is payable via gov.uk or you can download the HMRC app and pay that way.

Some people put off dealing with their paperwork because they can’t afford to pay their tax bill but this is a bad idea.

Anyone who may struggle to pay their bill in full can contact HMRC about a possible payment plan.

What happens if I make a mistake with my tax return?

If you make a mistake with your tax return, you can correct it even after the deadline. Mistakes can be corrected within 12 months of the return being filed, with a new tax bill due on the updated return.

You will need to wait at least 72 hours after filing your return to make any changes.

How do payments on account work?

Payments on account are advance payments you make towards your next tax bill ahead of the deadline.

They are designed to help you spread the cost of your tax rather than having to pay it in one go.

There are two payments on account due, each of which is around half of the previous year’s tax bill. Once you file your tax return, you can determine whether a top-up payment is needed in order to clear the amount owed, or whether you can claim a refund.

For the 2024/25 tax year, the first payment on account deadline was 31 January 2026, and the second is upcoming on 31 July 2026.

If your tax bill is likely to be lower than the previous tax year, you can apply to have your payments on account reduced.

You can do this by signing into your online account via gov.uk and selecting the option to ‘reduce payments on account’.

How to hit the tax return deadline on time and avoid overpaying

To avoid unnecessary stress involved with filing a self-assessment tax return correctly and on time, there are several steps you can take.

First and foremost, give yourself as much time as possible.

While the ship has sailed for the 2024/25 tax year, you can still prepare yourself well in advance for the upcoming 2025/26 deadline.

Because the postal service is still sending paper versions of the Unique Taxpayer Reference (UTR) number, the earlier you start, the better.

Gather together all the relevant paperwork before you start attempting to fill in the return – your payslips and P60, P45 or P11D forms, details of other income sources, savings and investments, pension contributions and charitable donations.

Understanding any applicable tax allowances and reliefs might help reduce the actual tax you have to pay.

Make sure you’re clear on any eligible expenses such as travel or uniform allowances. HMRC also allows up to £1,000 tax-free for casual income, like selling personal items or odd jobs.

Make sure everything is accurate before you submit – even errors made in good faith can incur penalty charges.

After you file for the relevant tax year, it’s worth planning ahead. Are there lessons you can apply to future years to reduce your tax bill?

Topping up your pension is a great way to lower your tax liability, as well as helping provide for your retirement.

Keep an eye on your tax code and check it remains accurate for your circumstances.

Who needs to file a self-assessment tax return?

If your only source of income is your salary and you are not self-employed, then you probably don’t need to file a tax return. Your income tax will be deducted from your salary before you receive it through PAYE (pay as you earn).

Pension income is generally taxed through PAYE too, if you exceed the personal allowance.

While many people associate self-assessment with the self-employed, it doesn’t just apply to that group.

If you earn income from savings and investments held outside an ISA, a business, second home or another source, it’s likely you will need to file a tax return.

In recent years, more people have been dragged into the self-assessment net due to fiscal drag – inflation has been high but tax thresholds have remained frozen, meaning the tax-free allowances are worth less than they once were in real terms.

If you’re unsure whether you need to file a tax return, HMRC’s online tool helps you check.

Child Benefit is a valuable payment given to parents or those responsible for raising a child but increasing numbers could see some of the perk clawed back through tax.

If you are responsible for bringing up a child who is under the age of 16, or under the age of 20 but still in approved education or training, you could be entitled to Child Benefit.

This is a valuable payment worth up to £1,406 per year for your oldest child and £930 for any subsequent children (2026/27 rates), with no limit on the number of children you can claim for.

Child Benefit is paid to more than 6.87 million families, supporting 11.73 million children, according to the latest government data. This makes it one of the most widely-accessed forms of benefit in the UK.

Checking what Child Benefit you are entitled to can give household finances a healthy boost.

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “Parents can either use the money to fund everyday costs or deposit it into a Junior ISA to help save for items like a child’s university costs, first car, or deposit on a future property.”

What is the High Income Child Benefit Charge (HICBC)?

High-earning parents could lose some or all of the money through tax.

Child Benefit is means tested, meaning high earners start to lose the payments once their income (or their partner’s income) exceeds £60,000. They lose it entirely once they cross the £80,000 threshold. This is known as the high income Child Benefit Charge (HICBC).

You lose 1% of Child Benefit for every £200 of income you earn over the £60,000 threshold until hitting £80,000. For example, someone earning £75,000 a year would lose 75% of their Child Benefit entitlement.

HMRC does not automatically adjust the amount high earners receive. Rather, you receive the full amount and are then required to return the excess by filing a self-assessment tax return or will have it deducted through your tax code.

Using the government’s Child Benefit tax calculator can help you work out how much you need to repay.

Critics have previously lambasted the HICBC as unfair, as the charge is based on each individual parent’s income rather than household income.

This means a family where one parent earns £80,000 and the other earns nothing at all will not qualify for any Child Benefit, whereas a household where both parents earn £60,000 will qualify for the full amount, despite having a higher total household income (£120,000).

Frozen tax thresholds also mean more parents could find themselves hit with the HICBC as fiscal drag moves them into higher tax brackets faster than expected as their wages rise.

HMRC’s official forecasts, obtained through a Freedom of Information request (FOI) by wealth management firm Quilter, found that the number of families liable for HICBC will rise from 324,000 in 2025/26 to 359,000 in 2028/29. The projected increase of roughly 35,000 reflects the drag of frozen tax thresholds and static benefit parameters against rising nominal incomes, Quilter said.

Most affected families are expected to be in the tapering range of liability, between £60,000 and £80,000 meaning they will repay a proportion of their Child Benefit rather than the full amount.

Shaun Moore, tax and financial planning expert at Quilter, said: “Our FOI shows that tens of thousands more families will be pulled into the High Income Child Benefit Charge over the coming years purely because frozen thresholds let inflation and nominal earnings shifts do the work of tax increases. Families may not be better off in real terms, but more and more of them will see support withdrawn as a result.

“The data shows that each successive year more parents will be subject to clawbacks of Child Benefit that eat into household budgets at a time when costs of living remain high.”

HMRC also recently admitted in a FOI request to Quilter that it does not hold comprehensive data showing how many taxpayers who earn above £100,000 are responsible for children.

Moore, from Quilter, said: “It is worrying that HMRC cannot say how many higher earners have children, because it means the government lacks full visibility of who faces these financial cliff edges.

“As more families cross into higher income brackets in name alone, policymakers are effectively taking a shot in the dark on a key piece of family finances.”

“Together with the rising HICBC caseload, this lack of data shows how fiscal drag is reshaping support for parents. A comprehensive review of how family benefits interact with income policy is needed so that support keeps pace with economic reality.”

There are some strategies parents can use to avoid losing Child Benefit payments. For example, you could qualify for Child Benefit by boosting your pension contributions through a salary sacrifice scheme. This is because making the contributions could bring you back under the threshold.

Why you should still claim Child Benefit even if you have to pay the HICBC

Claiming Child Benefit gives you National Insurance contributions (NICs) which count towards your state pension, provided your child is still under the age of 12. This can be particularly valuable if you have taken time out of work to look after them.

It is still worth registering for the benefit to ensure you receive the NICs, even if you are over the HICBC threshold. There are several ways of returning or declining any money you aren’t entitled to.

Parents can either pay the HICBC money back at the end of each tax year by filing a self assessment tax return, or they can tick a box on the original application form to opt out of receiving the payment (while still receiving the valuable NIC).

A new service, launched last summer, also allows parents to repay any excess Child Benefit through their PAYE tax code.

You will typically qualify if you have no other reason to complete a self-assessment tax return.

If you think you are eligible to repay Child Benefit through PAYE or have been told you are by HMRC, you have until 31 January 2027 to opt in for the latest 2025/26 tax year, which ended on 5 April 2026. You'll only need to do this once – you'll then keep paying the charge through PAYE every year unless your circumstances change.

You can opt in using the online form on Gov.uk or the HMRC app.

How much is Child Benefit?

Child Benefit is currently £27.05 per week for your eldest or only child, and £17.90 per week for additional children. This is equivalent to £1,406.60 per year for your oldest child and £930.80 for any subsequent children. These are the rates for the 2026/27 tax year.

Payments increase each year in line with inflation. The increase happens in April, but is based on the previous September’s inflation reading. The most recent increase for 2026/27 was 3.8%.

Only one person can claim Child Benefit for each child, but there are no limits on the number of children you can claim for.

It should not be confused with the two-child benefit cap, which is something different. This refers to a previous government rule which restricted Universal Credit and child tax credits for families with more than two children, however the cap was scrapped in April 2026.

How to apply for Child Benefit

You can claim Child Benefit 48 hours after you have registered the birth of your child, or once a child comes to live with you. It can be backdated for up to three months.

You can use the government’s online service to make a claim. You will need your child’s birth or adoption certificate, your bank details, your National Insurance number and your partner’s National Insurance number (if you have a partner).

How is Child Benefit paid?

Child Benefit is paid into your account every four weeks on a Monday or Tuesday. You can only get the money paid into one account.

Only one person is able to receive Child Benefit, so you need to decide whether it is better for you or the other parent to claim. If you cannot agree, HMRC will decide on your behalf.

Building up your state pension entitlement

You will automatically receive National Insurance credits if your child is under 12 and you claim Child Benefit. These contribute towards your state pension entitlement.

You need a minimum of 10 years of NICs to qualify for any state pension at all, assuming you fall under the new state pension. To receive the full new state pension amount (currently £12,547 per year), you need 35 years of contributions.

These credits help prevent gaps in your record if you have taken time out of work to look after young children. They can also prove valuable if you do not earn enough to pay National Insurance contributions – perhaps because you have gone part-time and are under the threshold.

If you do not need the credits, your family may be eligible for the support instead.

Your husband, wife or partner can apply to transfer the credits, or another family member who looks after your child can apply for them instead. These are called specified adult childcare credits.

For example, you may wish to transfer your NI entitlement to a grandparent who is involved in childcare responsibilities. They are only eligible to receive them if they are under state pension age.

Quilter says each year of transferred credit is currently worth £330 in additional state pension income (based on 2025/26 rates), potentially adding £6,600 over a 20-year retirement.

Can you claim Child Benefit if you move overseas?

It is likely that you will lose the right to claim Child Benefit if you move overseas, although some countries have a social security agreement with the UK, which could entitle you to the benefit.

You should contact the Child Benefit Office if you go abroad for more than eight weeks.

The government announced in 2025 it was clamping down on claims from parents who have moved abroad in an effort to save £350 million – an attempt to prevent money being lost through fraud and error.

Thousands of people who left the UK but carried on claiming Child Benefit have reportedly been removed from the system already.

How to extend your Child Benefit claim for 16 to 19-year-olds

Child Benefit will stop when your child turns 16, unless they remain in education or training. You will be sent a letter during your child’s last year at school asking you to confirm their next steps.

In 2026, around 1.5 million letters were sent to parents from late April.

Education must be full-time – more than 12 hours a week of supervised study or course-related work experience. This can include A-Levels, T-Levels, the International Baccalaureate, Scottish Highers, most vocational qualifications up to level three, pre-apprenticeships and other approved training. It also includes home schooling.

Your Child Benefit payments will continue once you confirm to HMRC you are still eligible. Parents can do this quickly and easily online or via the HMRC app. You should act by 31 August, otherwise your payments will automatically stop.

Parents can also scan the QR code in their reminder letter which will take them straight to the digital service.

“Child Benefit is a real financial boost for families, so if your teenager already knows they’re staying in education or training after their GCSEs or National 5s, you don’t need to wait for our letter,” said Myrtle Lloyd, chief customer officer at HMRC.

“You can extend your Child Benefit claim today in minutes via the HMRC app or online at GOV.UK.”

Millions of self assessment taxpayers are being urged by HM Revenue and Customs (HMRC) to watch out for scams that claim to be from the department, promising tax refunds in exchange for private information or forced payment.

Worried taxpayers reported more than 170,000 scam referrals to HMRC in the 12 months to 31 July 2025. While that is a 12% reduction compared to the previous year, more than 47,000 of these reports still involved fake tax refund claims targeted at people who file a self assessment tax return.

Scammers often impersonate HMRC, offering fake refunds or demanding urgent payments to steal personal and banking information.

The fraudsters often try to convince people it is safe to share personal details with them – but extremely private information such as passwords, usernames, and access codes should never be shared, even with someone you trust or who helps you with your tax.

To help people avoid falling foul of fraud, HMRC recommends filing self-assessment tax returns early. This can help taxpayers spot scams more easily as those who have already submitted their tax return are less likely to be caught off guard by scam attempts closer to the self-assessment 31 January 2026 deadline for payments on account.

Laura Suter, director of personal finance at AJ Bell, said: “Scammers prey on people up against the 31 January deadline as well as those who file well ahead of time.

“This period is also the ideal time for a phishing mission to try and intercept personal data including bank details from people who might not be used to the self-assessment system and how HMRC communicates with taxpayers.”

Signs of HMRC scams

Scammers are getting increasingly sophisticated, including by using artificial intelligence scams. They can make convincing copies of texts and emails from HMRC, as well as use high pressure tactics on phone calls to frighten people into complying with their demands at times they know people are busy and distracted, like during the commute or school run.

Kelly Paterson, HMRC’s chief security officer, said: “Scammers target individuals when they know self-assessment customers will be preparing to file their tax returns.

“We’re urging everyone to stay alert to scam emails and texts offering fake tax refunds. Taking a moment to pause and check can make all the difference.”

There are some clear signs a communication is not legitimately from the tax office. HMRC will never:

• leave voicemails threatening legal action or arrest
• ask for personal or financial information via text message or email
• contact customers by email, text, or phone to inform them about a refund or ask them to claim one

Anyone due a refund can claim it securely via their HMRC online account or via the free HMRC app.

If you think you have been targeted by a scammer, report any suspicious activity to HMRC before the fraudsters do any more harm.

You can report phishing scams – attempts to illicit personal information and/or money – to HMRC by forwarding emails to phishing@hmrc.gov.uk, reporting scam phone calls via GOV.UK and forwarding suspicious texts to 60599.

A record number of tip-offs on alleged fraud were sent to HMRC in the last tax year, as informants reported individuals and firms they believed to be cheating the system.

The taxman received 164,670 anonymous tip-offs of alleged tax offences through its fraud hotline channels in the 2024/25 tax year, a 9% increase on the 2023/24 tax year when 151,763 reports were received.

A combined total of £852,438 was given to informants whose tip-offs provided actionable intelligence on tax fraud, 13% less than was given by HMRC in the previous tax year (£978,256), according to a Freedom of Information (FoI) request by Price Bailey.

The declining number of rewards paid and the increasing number of tip-offs suggests HMRC is being inundated with more low-value or unverifiable evidence while getting even less valuable information that would merit discretionary payments, the chartered accountancy said.

Furthermore, as more people realise HMRC offers rewards for information about suspected tax fraud, Price Bailey says the taxman is having to contend with growing numbers of speculative, exaggerated, or malicious claims.

The scheme is designed to reward informants who give the taxman actionable information about alleged tax fraud and is one way the government has tried to close the £5.5 billion ‘tax gap’, the difference between the amount of tax owed and the amount of tax actually paid.

Unlike systems elsewhere in the world, like the United States, HMRC does not reward informants with a percentage of the tax collected, but instead offers discretionary, modest payments to informants.

Andrew Park, tax investigations partner at Price Bailey, said “the current reward system lacks both scale and clarity” at a time when the taxman is increasingly depending on taxpayer intelligence.

“If HMRC wants informants to deliver high-value intelligence, it must rethink how it rewards risk and insight. A transparent, percentage-based system – like the one used by the IRS – would offer real incentives for exposing major fraud,” he added.

HMRC is set to shake-up how it rewards tax snoops

While the current reward system currently works to a certain extent, with over 164,000 tip- offs being received, HMRC seems alive to concerns such as those articulated by Park.

In March, a new whistleblower scheme was announced by HMRC as part of its efforts to crack down on tax fraud.

The new regime is more clearly inspired by the one used by the United States’ Internal Revenue Service (IRS) and will reward whistleblowers with a percentage cut of any tax that is recovered, though precise details are yet to be announced.

Park at Price Bailey says the new regime “could be a game-changer, but it must balance the right incentives with selectivity to avoid flooding the system with more noise”.

This is echoed by Kate Ison, partner at BCLP, who says: “The experience of the IRS shows that substantial amounts of money can be recouped by paying informants tax geared sums.

“HMRC’s current scheme has never really offered the right incentives to encourage major whistleblowers to come forward.”

How to report tax fraud to HMRC

If you know or suspect that an organisation or individual is committing tax fraud, the government urges you to report it.

You are able to make a report when you suspect that someone is defrauding HMRC in a number of ways, including:

• Tax avoidance or evasion
• Child Benefit or tax credit fraud
• Hiding or moving assets, cash, or crypto
• Illicit alcohol, tobacco, and road fuel
• Smuggling of precious metals
• Importing or exporting goods without a licence
• Importing or exporting goods that are subject to sanctions

To make a report, you can either use the form on gov.uk’s online portal or contact the HMRC fraud hotline on 0800 788 887.

You will not necessarily be given a reward just for tipping HMRC off to the suspected fraud.

Rewards are only given to informants who provide actionable information that the taxman can use to recover lost tax. Additionally, reward payments are not bound by precise rules and are discretionary.

Park at Price Bailey explains: “HMRC makes payment for tip-offs on a case-by-case basis, determined by discretion rather than a fixed percentage of recovered tax”.

“There's no published formula linking the quality of intelligence to the tax revenue secured, which means whistleblowers can't predict whether their efforts will be rewarded,” he adds.

Savers are facing a tax crackdown as banks and building societies will be forced to share more of customers’ financial details to HMRC under new rules.

From April 2027, savings providers will be required to ask both new and existing customers for their National Insurance numbers to make it easier for HMRC to tax savers who breach their personal savings allowance.

The requirements – which affect savings accounts but not current accounts – will see more workers pay savings tax directly from their pay packets without submitting a self-assessment tax return.

While HMRC already holds data from banks and building societies on interest credited or paid to customers, this does not always include National Insurance numbers.

An HMRC spokesperson tells MoneyWeek that the reforms will improve its “ability to match third-party data to taxpayer records”, including paying tax on savings income, helping “prevent error and fraud”.

They add: “These reforms will make it easier for customers to get their tax right first time.”

However, Stefanie Tremain, partner at the accountancy firm Blick Rothenberg, calls the rules “intrusive” and says there are “many opportunities for this to go wrong”.

She adds: “It seems that the pain will be felt by the taxpayer and in this case, the banks.”

How will the new rules affect savers?

Millions of savers pay tax on their interest each year. This is because they have non-cash ISA savings account(s), which pay out interest above their tax-free limit.

For example, basic-rate taxpayers have a personal savings allowance where they can earn up to £1,000 of interest tax-free each year.

For higher-rate taxpayers, that drops to £500, while additional-rate taxpayers get no allowance. Any tax due is levied at the same rate as the saver’s income tax band.

Cash ISAs pay interest tax-free to the saver, regardless of their income tax threshold, and are not affected by the reforms.

Under current rules, the amount savers earn in interest from traditional savings accounts is already shared with the taxman, but some of it is “unreadable”. This means the tax owed cannot be automatically collected.

HMRC usually collects savings tax by changing the customer’s tax code through the PAYE system. Alternatively, it can be paid via self-assessment.

According to an HMRC consultation, only about 37% of all accounts reported by financial institutions contain the customer’s National Insurance number.

The new rules say that savings providers must make “reasonable efforts” to obtain National Insurance numbers for new and existing “interest-bearing depository (savings) accounts”.

By doing this, HMRC says it will “help taxpayers get their tax right the first time, whilst closing the tax gap”.

So, savers may soon receive a request from their provider for their National Insurance number, if the provider does not already have this data.

When opening a savings account, there could also be a new field on the application form asking for the National Insurance number, alongside other information such as name, address and date of birth.

National Insurance numbers can be found on P60s, payslips and other documents, on someone’s digital Personal Tax Account, or via the HMRC app.

Savers already give their National Insurance number when opening a cash ISA.

Will this make it simpler for savers – or is it intrusive?

Tremain believes the reforms are intrusive, but says it’s because HMRC is “resource-constrained and increasingly forced to find ways to pass the administration of the tax code onto the taxpayer and (as is the case here) third parties”.

She also says relying on National Insurance numbers can be problematic.

“We do see older people who have never worked nor claimed benefits, who do not have [these numbers]. Similarly, foreign nationals who move to the UK but do not work or have the right to work, will not have them.”

According to Tremain, obtaining a National Insurance number is not straightforward [for adults] and usually requires an in-person meeting, which means there could be an influx of applications – and potentially delays to get one. Those born in the UK and turning 16 are automatically issued with the number.

“The additional administration burden may also reduce the attractiveness of the UK as an investment centre for those coming here, particularly if people are unable to open a bank account without a National Insurance number,” she warns.

Another issue is children’s savings accounts held by parents or grandparents as nominees. As people under the age of 16 don’t have National Insurance numbers, Tremain says there’s a risk interest could be incorrectly attributed to the account holder rather than the beneficial owner.

The reforms are expected to cost the taxman about £35 million, and the banks have said it could cost them millions to administer the change.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, comments: “On the face of it, this looks like it will become a costly and long-winded change across providers to both request and update existing account details to include someone’s National Insurance number.”

She adds: “I wouldn’t be surprised if such changes to make an NI number mandatory, expected from April 2027, [will also] include current accounts, because many use these to earn interest too.”

How to make sure you pay the correct amount of savings tax

It’s important to keep your own records about your savings accounts and interest earned so you can provide evidence to HMRC if you feel you have been incorrectly taxed.

Tremain notes: “Where interest income has been automatically populated into a tax return the taxpayer should take care to make sure the information is correct.”

Where savings tax is collected via PAYE code, higher and additional-rate taxpayers in particular are at risk of overpaying, according to Tremain.

“This is already a flawed system as the correct amount of tax will only be collected if HMRC has not only the correct income figures, but the correct Gift Aid donation and personal pension contribution amounts,” she comments.

So it’s vital you double-check your records with your taxes – or ask your accountant or financial adviser to help if you have one.

Springall adds: “Millions of consumers are falling into higher-rate tax due to fiscal drag, and we don’t yet know what is going to come out of the Autumn Budget. Using cash ISAs will remain an essential way to protect any hard-earned cash from tax in the meantime.”

HMRC has opened more than a thousand extra investigations into families where it believes people have not paid the right amount of inheritance tax, according to new figures.

The number of official probes into families’ financial affairs has jumped in the 2024/25 tax year to 3,961. This is up from just 2,807 in the previous year – a 41% increase.

HMRC can open an inheritance tax investigation into an estate if it finds or suspects irregularities in the reporting of its assets, through error or omission.

This can include where it thinks assets have been undervalued for inheritance tax purposes, or where a large gift has been made before the death to try to avoid inheritance tax.

Where inheritance tax is due on an estate – which can be up to 40% – it usually must be paid within six months of the death. However HMRC may check on estate valuations as much as 20 years after payment of the IHT.

Sean McCann, chartered financial planner at NFU Mutual, which obtained the data through a Freedom of Information request, said: “Where there is a suspicion inheritance tax has been underpaid, HMRC has substantial investigatory powers and will check a range of sources to build a picture of the deceased individual’s financial affairs.”

We look at common IHT myths and ways to reduce your inheritance bill in separate articles.

What happens if you underpay inheritance tax?

If HMRC thinks you have underpaid inheritance tax its investigations can include analysing bank statements to identify income which may suggest the existence of undisclosed assets such as investments or property or significant foreign currency transactions’.

“HMRC leaves no stone unturned in these investigations. For example, they will look at outgoings such as gifts made in the seven years before death, or premiums for life insurance policies which if not written in trust will form part of the taxable estate,” McCann said.

The interest rate executors pay on overdue inheritance tax stands at 8.25%, which can add a significant amount to the bill. This can compound what for many is already a challenging and distressing situation. Investigations can take months and occasionally years to complete.

Keeping good records makes it easier for families to provide the information needed for the inheritance tax return and manage any potential compliance check. This includes records of any gifts made, valuations obtained and details of any overseas assets or investments.

"If you’re taking advantage of the ‘gifts from normal expenditure’ exemption, recording your gifts, income and expenditure on the last page of the HMRC IHT403 form available on HMRC’s website allows you to record these during your lifetime Schedule IHT403,” said McCann.

"Getting it right first time reduces the chances of any potential penalties or interest payments.’’

HMRC said in the FOI: “The majority of people pay the correct amount of IHT. Investigations are opened into cases where compliance issues have been detected to ensure that everyone pays the right amount of tax.”

Will I have to pay inheritance tax?

Around 3,700 more deaths resulted in inheritance tax in the year 2022 to 2023, according to the latest figures from HMRC. This brings the total to 31,500 taxpaying IHT estates, an increase of 13% on the previous year.

Income to the government from inheritance tax for April to June 2025 was £2.22 billion, the latest HMRC figures show. This is an additional £134 million compared to the same period in 2024. It means inheritance tax revenues for this financial year so far are running 6% ahead of the same period last year, which was a record one.

With the £325,000 nil rate band and the £175,000 residence nil rate band frozen until 2030, experts expect more families will be caught in the inheritance tax net with ever increasing bills for those affected.

McCann said: ‘’With pensions added into the taxable estate from April 2027, we will see many families lose part or all the residence nil rate band that allows them to pass a share of their home tax free to ‘direct descendants’ as it is eroded by £1 for every £2 over £2m.”

‘’For many, it won’t just be inheritance tax on their pension funds they need to be concerned about – by breaching the £2m threshold they may lose or some or all of their tax-free residence nil rate band, pushing up their overall tax bill.”

The self-assessment deadline is looming as around 5.85 million people still need to file their tax return for the 2024/25 tax year before the 31 January deadline, according to figures from HMRC on 5 January.

But some people do not realise that you still need to fill out a self-assessment tax return even if you do not owe the taxman any money.

Even if you did not earn enough money to owe tax to HMRC, anybody who earns over £1,000 from something other than payrolled work must fill out a tax return and provide their details to the taxman.

This quirk of the tax system means that even if your total income in a given tax year falls below the £12,570 income tax personal allowance, you are still required to fill out a tax return.

Hundreds of thousands of people have already been caught out by this. Between 2018 and 2023, more than 600,000 people had to pay a fine of at least £100 for sending in their tax returns late despite owing £0 in tax.

A freedom of information request from Tax Policy Associates found it is disproportionately low-earners who bear the brunt of the impact.

Under current rules, if you did not earn enough money to owe any tax and you are late to file your tax return, you will be ordered to pay a fine of £100.

However, once the tax return filing is three months late, the fine swells by an extra £10 a day for the next 90 days (up to a maximum of £900 in addition to the original fine) for someone who owes £0 in tax.

Once the tax return is six months late, the penalty grows by a further £300. After 12 months, £300 more is added to the fine.

The way that late filing fines snowball means that a low-earner who owes nothing to the taxman but does not know or forgets to file a tax return could theoretically be fined up to £1,600 after 12 months of not acting on the late tax return. Interest is also added on top.

Dan Neidle, founder of Tax Policy Associates, called the policy “unjust” and urged the government to act and “stop the most vulnerable in society having their lives made harder by HMRC.”

He echoed calls from the Low Incomes Tax Reform Group who called on HMRC to use its powers to waive penalties for people who miss the deadline for the first time.

Neidle added that the government should go further, saying: “Nobody should face a late filing penalty when they don’t owe any tax.

“This is one tax reform that should be easy for any Labour Chancellor. The cost would be less than £6m per year.

“There would be a real benefit to some of the poorest and most vulnerable in society,” he added.

Those who believe that they have incorrectly received a penalty for filing their tax returns late are able to appeal to HMRC within 30 days of receiving the notice.

When do you have to fill out a tax return?

You are required to fill out a self-assessment tax return if you earn £1,000 or more in a tax year through any source other than PAYE employment.

This means that even if your total income is below the £12,570 tax-free personal allowance you still have to file a tax return.

You will also have to fill out a tax return if you have any untaxed income, such as rental income, tips and commission, foreign income, or income from savings and investments

If you were a partner in a business during a given tax year, had to pay capital gains tax, or you had to pay the high income child benefit charge, you will also have to submit a tax return.

If you are unsure whether or not you have to file a tax return on your level of income, the government has an online portal that helps you work out if you need to send a self-assessment tax return to HMRC.

It is also worth noting that if you have previously filed tax returns but no longer need to, for example if you used to be self-employed but are now employed by a company, you will need to notify HMRC of this.

You can do this by filling out an online form on gov.uk to close your self-assessment account and ask to be removed from self-assessment for a specific tax year.

If you do not do this before the self-assessment deadline, then HMRC is able to fine you if you do not fill out a tax return.

How to file a tax return

For those who have never done it before, filing a tax return could be intimidating. Even those who have done it for years can find completing their self-assessment tax return a daunting task.

This being said, the actual process of filing the tax return is relatively streamlined. First you register with HMRC, then gather your documents, and then complete the form, submit it, and pay your tax bill.

For more information, and a step by step guide, read our guide to how to file your tax return.

When is the tax return deadline?

The deadline to file your tax return for the 2024/25 tax year is 31 January if you plan to complete it online.

Those who wished to fill out a paper tax return have already missed the deadline, which was 31 October 2025.

Reminders from HMRC are arriving on the doormats and through the inboxes of the self-employed as millions face an extra tax return bill in the coming weeks when payments on account are due.

Much of the focus on self-assessments is around the 31 January tax return deadline when around 12 million people are usually expected to file a tax return for untaxed earnings from the previous financial year.

But HMRC doesn’t only want to get its hands on money owed from the previous tax year, it also has a way to ensure self-employed people like me are keeping up to date with their taxes through payments on account.

It comes as data shows HMRC has charged £513 million in interest on the late payment of income tax since 2020.

This marks a busy period for the self-employed, especially if you are running your own limited company.

From this autumn, all company directors must verify their identity with Companies House in time for when they next need to file a confirmation statement but the changes are causing confusion.

Everyone wants to pay their fair share of tax, but there are reasons why the payments on account system can be unfair for the self-employed.

What are payments on account?

If you owe more than £1,000 in tax through self-assessment or haven’t already paid more than 80% through your tax code, HMRC adds payments on account to your bill.

This covers tax that you technically will have owed HMRC since the start of the current tax year in April.

One portion is added to your 31 January bill and the rest is owed by 31 July.

For example, if your tax bill for the 2023/2024 tax year was £3,000.

The total tax to pay by midnight on 31 January 2025 would have been £4,500.

This includes your £3,000 tax bill for the previous financial year and the first payment on account of £1,500 - based on your previous earnings - towards your 2024/2025 tax bill

You will then owe a second payment on account of £1,500 on 31 July 2025.

If your tax bill for 2024/2025 ends up higher, you will also need to make a ‘balancing payment’ by 31 January 2026 as well as your first payment on account for the next tax year.

If your total tax for the year is £3,000, the only payment you will need to make by 31 January 2026 is your first payment on account for the following tax year.

Many accountants, tax experts and HMRC argue that this helps the self-employed as if you sort your self-assessment early enough when the tax year ends in April, you can budget for these payments.

Technically, if you are organised then you are giving yourself from April to January to pay half your current tax year's bill with the first payments on account instalment and then have another six months until the end of July for the rest.

You can ask HMRC to lower your payments on account if you think your earnings will fall and you can get a refund if you pay too much. There is a risk that you may be charged interest if you underpay though.

HMRC can charge late payment penalties starting from 5% if a tax payment is 30 days late as well as 7.75% interest from the day after the payment is due, so it is important to pay.

"The payments on account scheme is designed to help people better manage the cost of their tax bill by splitting the amount into two payments and spreading the payments across the year," says Stevie Heafford, tax partner at accountancy firm HW Fisher.

"However, missing the deadline can be a costly mistake to make."

Paying tax is important but the payments on account system fails to reflect the realities of being self-employed.

What if you have unpredictable earnings?

Being self-employed brings plenty of flexibility but it also means my earnings can fluctuate.

As a freelance journalist, my income depends on the level of commissions I get each month and how generous editors are when it comes to shifts and rates.

So just because my latest tax return shows I have had a good year financially, that could all change in the next six months if commissions dry up.

It is like deciding to have an expensive meal at a restaurant once and then automatically being served and charged for the same thing the next time.

Invoicing issues for self-employed workers

Even if I know how much I am going to earn, another issue is actually getting paid.

There are plenty of publications that pay promptly, but in other cases I could be waiting weeks or months to have an invoice paid, or in some cases I may not ever get paid.

There are lots of professions with unpredictable income that this hits, especially if you have a sharp increase in earnings for one year.

“We work with a lot of barristers, and it can be a real issue for them,” says Scott-Taylor-Barr, principal adviser at Barnsdale Financial Management.

“They are being asked to pay taxes and then pre-pay tax on earnings they have billed for this year but may not see arriving in their bank accounts for years to come.”

Cashflow

The unpredictable earnings and invoicing issues can make it hard to start budgeting for payments on account, regardless of how early I start my tax return.

It therefore seems unfair to keep money locked up with HMRC for half a year when I could be using that for my own cashflow to pay bills or even myself.

Stephen Perkins, managing director of Yellow Brick Mortgages, highlights that you do not you pay tax in advance of earning other sorts of income, plus you don't get paid interest on the pre-payment either.

“In the first year of self-employment, you have to save twice the normal amount of tax to not be caught out by this,” he says.

“It shows a complete lack of trust from HMRC in the self-employed. Let them declare their income and then pay their tax bill with a deadline for payment.

“It is up to the individual to save their tax and plan for the bill, not for HMRC to force pre-payment. It is not a fair taxation policy and should be scrapped.”

Holiday homeowners, online marketplace sellers and people who rent out property on Airbnb face a tax crackdown after new rules came into force at the start of the year.

Digital platforms like eBay, Vinted and Airbnb are now required to report information about the income of users directly to HMRC. It could see thousands of people who earn a bit of extra income being caught out by the taxman if they haven’t declared it.

Around 44% of UK workers have found ways of earning extra cash to supplement their income during the cost of living crisis, according to new data by Finder, with 'social media influencer' being the top side hustle. 

“While extra cash is always welcome, some people won’t be used to the tax implications of working for themselves, and could easily land themselves in hot water with the taxman,” warns Cameron Jaques, business loans expert at money.co.uk.

We explain who needs to pay tax on extra income like a “side hustle” or renting out a property, whether you need to do a tax return, and what the new rules mean for you.

What do the new rules mean?

Digital platforms that allow people to make extra cash on top of their main income now have to start reporting how much money their users are making to HMRC, as a result of new rules which took effect from New Year’s Day.

Previously HMRC has been able to request this data on an ad-hoc basis, but it will now be shared automatically.

The rules affect websites and apps like Vinted, eBay, Depop, Etsy, Uber, Airbnb and JustPark. It means holiday rental hosts, delivery drivers, people who buy and sell clothes and other items using online marketplaces, and those who sell homemade crafts online, will be impacted.

The tax clampdown also affects digital platforms based overseas - including for holiday lets in Europe - so they now have to report to HMRC about their UK-resident sellers.

A copy of the details that the platform supplies to the taxman will be sent to the seller to help them comply with their tax obligations. HMRC hopes the rules will mean more people get their tax bill right and catch those who are deliberately avoiding paying.

Although, as Nick Winters, partner at the accountants Blick Rothenberg, points out, the digital platforms “will be reporting annually for calendar years [rather than tax years], so the first period of reporting will be the year ended 31 December 2024, which they need to report by 31 January 2025. This means that, as the reporting periods are different, the information will not directly correspond to those which taxpayers report on their tax returns.”

While the reporting requirement is from 1 January 2024, there is nothing to stop HMRC asking individuals whether income from that source started before then - which could cause big tax bills, and potentially fines, for some people.

The legislation comes from “The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023”, which were laid before the House of Commons on 19 July. They bring into force OECD rules that were adopted by the EU. 

Given the increase in people having a side hustle and earning money online using platforms like Vinted or renting out a holiday home on Airbnb, the legislation gives HMRC “the tools to keep up with modern trading methods”, according to Winters.

Do I have to pay tax on my side hustle?

It depends if you’re considered a “trader”, and if you are, how much money you make.

Being a trader usually means that you buy and sell online regularly to make a profit. For example, if you have a spring clean and sell some unwanted items without intending to make a profit, this is unlikely to be classified as trading. However, if you often buy and sell clothes online to make a profit, you could face a tax bill.

There is a handy tool to check if you need to tell HMRC about additional income on gov.uk.

In terms of paying tax, anyone who earns £1,000 or less from a side hustle in a tax year does not have to pay tax or declare this income, thanks to the trading allowance. So, if you earn £1,000 from property or trading income it will be tax-free – if you’re a basic-rate taxpayer this will save you up to £200 a year, or £400 a year for a higher-rate taxpayer.

Whether you’re renting out your driveway or even selling jam at the local market, and your earnings are within the £1,000 allowance, you won’t usually need to fill out a tax return - but just make sure you keep any relevant paperwork proving your income in case HMRC asks for it later.

If you earn more than £1,000 from your side hustle in a tax year, you’ll still benefit from the trading allowance, but you will need to fill out a tax return to report the extra income and pay any tax.

Note that if you’re letting out furnished accommodation in your home, such as renting a room to a lodger, you can also earn up to £7,500 tax-free using the rent-a-room scheme.

However, if you make even £1 above your annual allowances, you need to tell HMRC.

Jaques said: “The bottom line is, whether it's selling on sites like Vinted or Depop, or doing a bit of dog walking, if you’re earning more than £1,000 in a tax year from your side hustle, you must register as self-employed with HMRC, even if you are also in full-time employment.

“Understanding how to avoid any unwelcome tax bills is a key part of having more than one job, so if you are tempted to start a side hustle, do your research first.”

How do I pay the tax?

If you think you need to file a tax return for income earned in the 2022-23 tax year, the deadline to register for self-assessment was 5 October. If you haven't done it yet, don't panic - just try to sign up as soon as you can.

You then have until 31 January, 2024 to submit your tax return online and pay any tax due for 2022-23.

When you fill in your tax return, you need to include information about all sources of income, including your side hustle, your employment and anything else, such as buy-to-let or pension income.

You can pay the income tax in a variety of ways, including via online banking, by debit card online, at your bank or building society, or by posting a cheque. Just make sure the money arrives at HMRC by 31 January.

You can often change your tax code and pay extra tax through PAYE (in other words, deducted via the pay packets from your employer). However, Winters says: “The taxpayer cannot usually pay this tax through their PAYE. They would need to file a tax return and pay tax under the self-assessment regime.”

What about tax I need to pay for previous years?

If you have been earning a small amount over your allowance for a number of years, you can usually file self-assessment returns for those years retrospectively and pay the tax due.

However, if you have larger sums to declare or have filed tax returns and did not mention your additional income, you will need to make a voluntary disclosure. You can use the online voluntary disclosure process to tell HMRC about the income. 

Any penalties for outstanding tax will usually be lower if you proactively contact HMRC, rather than have the taxman chase you.

Fines can vary from 0-30% of the tax due for failing to pay it “because of a lack of reasonable care” to 100% in some cases where the failing is “deliberate and concealed”.

Winters adds: “Penalties can be reduced if you tell HMRC about the error, help them to calculate the extra tax and give them access to check the figures

“There will also be an interest charge for later payment – as interest rates have risen, this is now potentially significant too.”

Inheritance tax receipts (IHT) hit £4.6billion between April and October as frozen thresholds pushed more estates into paying the controversial charge.

Chancellor Jeremy Hunt is rumoured to be considering an IHT cut in the Autumn Statement this week but the latest HM Revenue and Customs figures show a £500m or 12% annual rise in receipts for the Treasury.

IHT allowances have been frozen at £325,000 until at least 2028, meaning more taxpayers will be pulled into paying IHT as wages and inflation increase, a process also known as fiscal drag. 

Rising house prices are also pushing more estates into paying IHT.

“The Treasury will welcome the news that IHT receipts have shown yet another year-on-year increase,” says Laura Hayward, tax partner at Evelyn Partners.

“All eyes are now on whether IHT will get a mention in the chancellor’s Autumn Statement tomorrow. 

“While abolishing IHT completely would be a popular move with many, it seems more likely that the government will reserve this as an idea for a Conservative election manifesto pledge.”

The increasing revenue from inheritance tax has caused a conundrum for the government, says Rosie Hooper, chartered financial planner at Quilter, given how emotive the tax can be and its power to split voters.

“Though a steadily increasing number of families are paying inheritance tax since the chancellor extended the IHT threshold freeze until April 2028, it still impacts relatively few people and reports that he was considering a cut to the headline rate came under heavy fire as a result.”

HMRC data shows only 3.73% of estates actually paid IHT in the 2021/2022 tax year but receipts are at their highest levels and experts are predicting another record year.

You don’t have to wait for reforms to reduce your IHT bill though.

How to cut your IHT bill

Hooper says some call IHT a “voluntary tax” due to the number of exemptions available.

Assets can be passed to a spouse tax-free.

If you are leaving assets to other people, up to £175,000 of the family home can be be passed on tax-free to a direct descendant such as a child or grand-child using the main residence nil-rate band.

This is doubled to £350,000 when combined with the allowance of a surviving spouse or civil partner.

 On top of this, the surviving spouse would still have the £325,000 standard nil-rate band is available, meaning it is possible to pass on £1 million IHT-free as a couple.

 You can also make gifts each tax year of up to £3,000, so as a couple this could be a combined £6,000.

It is also possible to make gifts of unlimited value using potentially exempt transfers, which will be IHT-free after seven years if you haven’t passed away.

Other options include investing in companies that qualify for Business Relief, which is IHT-free after two years or you can put assets into a trust that is free of IHT.

“Seeking professional financial advice can help people manage their tax affairs and make the most of their money, particularly if changes come into play during tomorrow’s Autumn Statement that may complicate current plans,” adds Hooper.

 “The rules and restrictions surrounding certain aspects of tax planning can be difficult to navigate, particularly where inheritance tax is concerned, so speaking to a financial planner is key to ensuring you plan effectively and mitigate unnecessary costs.”

Taxpayers wishing to submit a paper tax return must ensure that HM Revenue & Customs (HMRC) receives it by midnight on Thursday, 31 October – or risk being fined.

While most people file their self-assessment returns online, almost 400,000 people choose to fill in and post a paper version.

“If you are planning to complete a paper self-assessment return, remember that the Halloween deadline is the date by which HMRC needs to receive all necessary paperwork - not the last day that you can send your return off,” comments Stevie Heafford, tax partner at accountancy firm HW Fisher.

“If you don’t think you will have enough time, don’t be spooked - you can still decide to complete your return online, for which the deadline is 31 January 2025.”

However, anyone who files a paper tax return after the 31 October deadline could be fined by HMRC. You’ll pay a late penalty of £100 if your tax return is up to three months late. If it’s later than this, you could face fines totalling more than £1,000.

The deadline to pay any tax due for the 2023-24 tax year is 31 January 2025 - regardless of whether you submit a paper or online self-assessment return.

The 31 January deadline to pay tax or file an online tax return may feel like a long way off, but there are actually only 100 days to go. It’s a good idea to submit it as soon as you can, and then you don’t have it hanging over your head during the Christmas break and into the New Year.

According to HMRC, 3.5 million people have already beaten the clock and submitted their tax returns for the 2023-24 tax year.

More than 12 million people need to file a tax return; more than 97% of these are filed online.

Who sends a paper tax return? 

While an overwhelming majority prefer to complete their tax return digitally, there are still some individuals who choose to complete their return via post.

You need to request a paper return if you want to file your self-assessment this way. HMRC says: “We no longer automatically issue paper returns unless there’s a reason a customer can’t file online.”

You can either download the paper tax return (download SA100 on gov.uk), or call HMRC to ask for one (0300 200 3610, Monday to Friday: 8am to 5pm).

Do you need to file a tax return? 

You must submit a tax return if you have self-employed earnings or have received untaxed income over £1,000 - or if HMRC has issued a notice to complete one.

However, it’s not just the self-employed who have to complete a tax return. Here are some more reasons why you may have to file one:

• You're a buy-to-let landlord with untaxed rental income
• You’re a higher-rate taxpayer who pays into a pension or gives to charity
• You receive child benefit and you or your partner have an income above £50,000
• You make more than £6,000 in capital gains
• You have a side hustle and make more than £1,000 a year
• You rent out a spare room, and make more than the rent-a-room limit
• You invest in a VCT or EIS

Top tips for completing your tax return

Stevie Heafford gives the following tips to avoid making common mistakes:

• Allow yourself plenty of time. Gathering all the paperwork takes longer than you think. This includes your P60, which will confirm the total tax deducted at source from your income. You will also need a record of benefits and expenses, which can be found on your P11D or P9D forms. If you have left a job in the last tax year, you will also need a P45 from your previous employer.
• Don’t forget to claim tax relief on pension contributions. Make sure you keep details of any pension contributions made to allow you to claim the right tax relief for them.
• Make sure you include charity gift aid payments. For example, have you sponsored a friend to run for charity? This can be included as HMRC provides some tax relief on charitable giving.
• If you’re submitting a paper tax return, keep a proof of postage on file in case there are any postal delays. You should keep a copy of your completed tax return and related documents.
• Remember your starting rate for savings, personal savings allowance and dividend allowance. You could receive up to £5,000 in interest on savings tax-free in addition to your personal allowance and personal savings allowance. These allowances are reduced depending on income levels. There is also the dividend allowance, which was £1,000 for the 2023-24 tax year.

What happens if I miss the 31 October deadline?  

Don’t worry, if you miss the paper tax return deadline, you can avoid a fine by submitting it online instead. Just make sure it’s done by 31 January.

However, if you submit a paper return after the 31 October cut-off, you'll be charged a £100 penalty, even if there's no tax to pay.

If you still haven’t filed your self-assessment return after three months, further penalties of £10 a day are applied, up to a maximum of £900. After six months, HMRC will fine you 5% of the tax owed or £300 (whichever sum is greater), which is repeated at 12 months.

You’ll also be charged 7.5% interest on late payments.

Watch out for scams 

Self-assessment customers should beware of HMRC scams, as tax return season is a popular time for fraudsters to target victims.

HMRC warns that criminals may use emails, phone calls and texts to try to steal information and money from taxpayers. You should never share your HMRC log-in information with anyone. A fraudster could use them to steal from you or claim benefits or a refund in your name.

We have more information about how to protect yourself from scams and what to do if you are conned in Self-assessment tax scams on the rise.

An online service designed to simplify how you check your state pension and pay for missing National Insurance (NI) credits is due to launch within the next six months.

Many people have bought extra NI credits this year and boosted their state pension by thousands of pounds. The government has extended the state pension top-up deadline several times due to huge demand - you now have until April 2025.

But it is still time-consuming and complex to check and buy missing NI contributions; it requires a phone call to the Pensions Service and then another one to HMRC to get an 18-digit payment number, and some people have faced long wait times to get through on the phone lines.

However, the good news is the government has confirmed it is setting up a digital tool to make the process easier.

We explain how it will work and when it will become available. 

How will the online state pension service work? 

HMRC and the Department for Work and Pensions are working together to launch an online service, which the “vast majority of customers” should be able to use to check and top up their state pension.

The new service will contain information to help customers decide which years they may wish to make up shortfalls on, based on which gap years are available for them to fill and the cheapest or most beneficial years to pay voluntary NI contributions for. Customers will then be able to pay online, should they decide to do so.

The service will also give state pension estimates and forecasts based on National Insurance records. 

It is aimed at people who want to check and pay for NI credits quickly, and who do not need to speak to a government adviser before paying for voluntary contributions.

A government spokesperson said: “We are building a new online service to allow people to see if making voluntary National Insurance contributions would increase their state pension and then make any payments.

“The new service is currently being developed and tested to make absolutely sure it is easy to use and provides accurate information in a straightforward way.”

When will it launch? 

The government says it is aiming to introduce the service later in the financial year 2023-24. This means it should launch sometime in the next six months, before 6 April 2024.

Once the online tool is ready, the guidance on gov.uk around how to check your NI record and top up your state pension will be updated to explain how to use the new service.  

Can I still get advice and top up my pension over the phone?

Yes, if you feel more comfortable talking to someone over the phone, you can continue to call up to find out about your NI record, state pension forecast, and to pay for any missing years – and you'll still be able to do so once the online service has launched.

Contact the Future Pension Centre on 0800 731 0175, or if you're already at state pension age, contact the Pension Service helpline on 0800 731 0469.

How much can I boost my state pension by? 

Buying extra NI credits can be a great way to boost your state pension income with very little risk.

Spending £907 to purchase NI credits (which is one year of NI contributions) could unlock up to £7,740 in extra income over a typical 20-year retirement period.

According to the investment platform Interactive Investor, somebody purchasing 10 years of NI contributions at a cost of £9,070 (10 X £907) could boost their state pension by £77,400 over a 20-year retirement, £33,946 over a decade and £15,927 over five years.

Note the exact cost of buying a year of NI credits varies depending on which year it relates to, and whether they are class 2 or class 3.

To boost your pension entitlement, you can normally buy up to six NI years to fill any gaps. For example, if you've had a break from work to raise children or care for elderly relatives. You usually need 35 full NI years to get the current maximum state pension of £203.85 a week. This means if you have gaps in your record and don’t have 35 years of NI contributions, you may not receive a full state pension later in life.

However, when the new state pension was introduced in 2016, the government made it possible to plug gaps all the way back to 2006.

Right now, you have until 5 April 2025 to buy voluntary National Insurance credits to fill any gaps dating back to April 2006. After that, you can only buy credits going back six years.

Warnings have been raised about the rising threat of scams targeted at those who file self assessment tax returns.

Around 12 million taxpayers file a tax return each year, including the self-employed, who could be at risk as scams rise.

HM Revenue & Customs (HMRC) has urged those who file self assessments to be on their guard against scammers attempting to dupe them into sharing their personal or financial details, after having acted on thousands of self assessment scam reports over the last year.

With the tax return deadline just a couple of months away and many people set to file over the festive period, what do you need to do in order to protect yourself from tax return scams?

How do self assessment tax scams work?

Self assessment tax scams can work in a few different ways, but all involve the scammers impersonating HMRC.

They have become more sophisticated at doing this, with recent years seeing more convincing communication from scammers, such as genuine looking emails and text messages.

Once they have convinced you that they really are from the tax man, that’s when the scam kicks in.

In some cases the scam will try to win you over by offering you something, such as a tax rebate. In order to claim this supposed repayment you will need to share certain personal and banking details, either over the phone or by following a link in an email or text message from the scammers.

However, as this is not genuine, the scammers will instead use that information either to take money directly from your accounts, or more commonly to commit identity fraud by opening financial products in your name and making off with the proceeds.

An alternative route is to threaten you, using that fear of punishment to get you to either share your details or even send money directly to the scammers.

For example, over the last few years there have been many reports around scammers claiming to be HMRC and warning victims that they have underpaid tax, with the risk of arrest if they do not clear the ‘unpaid tax bill’ immediately.

In some cases they have encouraged victims to purchase gift cards worth hundreds of pounds in order to clear what’s owed, and then read the gift card’s unique number over the phone to the scammer.

Why are self assessment tax scams likely to rise?

HMRC received 144,298 reports about tax scams in the 12 months between November 2023 and October 2024- up 16.7% annually.

Around half of all scam reports (71,832) in the last year were fake tax rebate claims, HMRC said.

What’s more, we are heading into a period of the year when they become a more common tactic for scammers.

Many people use the quieter festive period to file their tax return. With those tax bills on our minds, the promise of a tax rebate ‒ or the threat of punishment over unpaid bills ‒ becomes more acute, potentially making taxpayers more likely to fall for the scam.

The economic situation also makes them a more appealing option for scammers. While inflation is falling, it has been persistently high over the last year, and many of us are feeling the pressure on our finances. As a result that may make us more susceptible to promises of a supposed tax repayment from HMRC.

There is also the simple matter of numbers, with greater numbers of people having to file a tax return than was previously the case.

AJ Bell highlights that cuts to the tax-free limits on capital gains tax and dividends tax, as well as lower the threshold for the additional rate income tax band, means more people than ever will be filing a return.

“Last year saw a record 11.5 million taxpayers file a self-assessment return by the 31 January deadline, with rising interest rates, reduced allowances and frozen tax thresholds combining to force more people than ever before into the tax return trap," says Charlene Young, pensions and savings expert at AJ Bell.

"With this year set to break records once again, HMRC has issued a warning for taxpayers to be on the lookout for scam activity.”

What should you do if you are targeted by a self-assessment scam? 

There are a few different steps you need to take if you are targeted by a self-assessment scam.

First off, it’s important to report suspicious messages directly to HMRC.

You can:

• Forward suspicious texts claiming to be from HMRC to 60599
• Forward emails to phishing@hmrc.gov.uk
• Report tax scam phone calls to HMRC on GOV.UK

It’s also worth reporting any dodgy messages to Action Fraud, the UK’s national fraud and cyber crime reporting centre.

If you fear that you have fallen for a self-assessment scam, then it’s really important that you speak to your bank as soon as possible. They may be able to step in and cancel any payments you have scheduled to the scammers, for example.

It’s also a good idea to keep an eye on your credit report. That way you can see if any applications for financial products in your name have been made, allowing you to step in and cancel them if they have come from the scammers rather than you.

Most people associate self-assessment tax returns with the self-employed, and think the deadline is in January.

But there are lots of other reasons why you may need to submit a tax return to HMRC - and there’s a deadline in October too.

Anyone who needs to register for self-assessment for the 2024-25 tax year must do so by 5 October 2025. The deadline to then file a tax return online and pay any tax owed is 31 January 2026. Taxpayers who make payments on account make a second payment by 31 July every year.

About 12 million people file a tax return each year, and 97% of customers do so online. There is an earlier deadline of 31 October for those submitting a paper tax return.

“Self-assessment angst usually strikes in January, but there are some people who need to get their skates on well before that, because they need to register for self-assessment before the deadline on 5 October. Those who have started a business or partnership are likely to be well aware of this, but there are other groups of people who may have no idea they need to sign up for the first time,” comments Sarah Coles, head of personal finance at Hargreaves Lansdown.

As HMRC puts it: “New self-assessment customers could be someone who has set up a side hustle to earn money in addition to their PAYE job or disposed of crypto assets; they may be newly self-employed or a new landlord renting out property. Whatever the circumstances, if a customer has any income that they have not already paid UK tax on, they need to register for self-assessment.”

HMRC recently put out a warning urging “side hustlers” to register for self-assessment. "Whether you are selling handmade crafts online, creating digital content or renting out property, understanding your tax obligations is essential. If you earn more than £1,000 from these activities, you may need to complete a self-assessment tax return,” explains Myrtle Lloyd, HMRC's director general for customer services.

Even if you don't owe any tax, you may still need to file a return to claim a tax refund, claim tax relief on business expenses, charitable donations, pension contributions, or to pay voluntary Class 2 National Insurance contributions to protect your entitlement to certain benefits and the state pension.

Here are 11 reasons for registering, from the well-known, such as becoming self-employed or a buy-to-let landlord, to more surprising, lesser-known, reasons.

Note that the list isn’t exhaustive, there are plenty more reasons for filing a self-assessment return, due to our complex tax regime! You can use HMRC’s online checking tool to assess whether you need to complete a tax return.

1. You work for yourself or you’re in a business partnership

As you don’t pay income tax through PAYE, you need to tell HMRC how much you earned and then pay any tax via self-assessment. You will likely have to make two payments each year, one by 31 January and the other by 31 July.

2. You’re a buy-to-let landlord 

If you’re earning money through renting out a property, or several properties, you need to tell HMRC so you can pay the correct amount of tax on this income.

3. You’re a higher-rate taxpayer who pays into a pension 

If you pay into a personal pension like a Sipp, or your employer runs a scheme on a “relief at source” basis, you’ll get basic-rate tax relief and need to claim the rest from HMRC. Higher-rate taxpayers can claim an extra 20% while additional-rate payers can get a further 25%.

If your employer makes contributions before tax (known as “net pay”), you’ll receive the full pension tax relief automatically and you don’t need to tell HMRC. The same is true if you have a salary sacrifice arrangement. If you’re not sure how your workplace pension works, check with your HR team or your pension provider.

If you have extra relief to claim, you can either complete a tax return, or if you’re employed you can write to HMRC and receive a one-off payment. Coles notes: “However, if you opt for a letter you’ll need a new one every time your salary or contributions change significantly, which might actually end up taking more effort.”

4. You’re a higher-rate taxpayer who gives to charity 

You automatically get 20% gift aid when you donate to charity, but you can claim back the rest of the tax relief through a self-assessment claim.

However, if this is your only reason for completing a tax return, there are alternatives. You can fill in a separate form to make the claim, or contact HMRC and ask them to amend your tax code instead.

5. You receive child benefit and you or your partner have an income above £60,000 

This means you’re subject to the high income child benefit tax charge. For the 2023-24 tax year, this kicks in at £60,000 annual earnings, and means you have to repay 1% of the benefit for every £200 you earn over the threshold.

The £50,000 threshold for child benefit rose to £60,000 in April last year, and the top of the taper rose from £60,000 to £80,000. So, some good news for parents for the 2024-25 tax return.

There’s more good news if you pay income tax through PAYE. In future, parents will be able to pay the child benefit tax charge through their payslip, rather than doing it via self-assessment. There are more details about HMRC’s new service on gov.uk.

Bear in mind that once you earn above £80,000, you’ll need to repay all your child benefit, so most parents find it easier to claim it but tell HMRC not to make any payments – which saves the bother of repayment but means you still get National Insurance credits, which count towards your state pension.

6. You make more than £3,000 in capital gains 

Capital gains are the profits you make when you sell something that’s increased in value. It also applies if you give something away to anyone other than a spouse or civil partner during your lifetime, so even if you’re not personally making the profit, the tax is due.

The capital gains tax threshold for 2024-25 was £3,000. If you made more capital gains than this, you need to complete a tax return and pay capital gains tax.

7. You make a capital loss

This information also goes on your tax return. If you make a loss you can set it against other gains in the same tax year, or carry it forward to offset losses in a future tax year.

Note that if you’ve never made a capital gain and you don’t otherwise need to do a tax return, you can write to HMRC instead.

8. You make £10,000 in interest and/or dividends 

If you make money over your personal savings allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and £0 for additional-rate taxpayers) or dividend allowance (£500 in 2024/25), you will usually have to pay tax, but if you’re employed you can ask HMRC to adjust your tax code to take the money.

If you have interest over your allowance, you’re not employed, don’t get a pension and don’t complete a tax return, HMRC will contact you at the end of the tax year with a tax demand, if applicable.

However, if you need to pay tax on over £10,000 in dividends, or your savings interest is £10,000 or more, you’ll need to fill in a self-assessment tax return.

9. You invest in an EIS or VCT 

Some investments like enterprise investment schemes and venture capital trusts come with tax benefits that you can claim via self-assessment. However, if this is your only reason for filing a tax return, you can arrange for the tax to be repaid through an amendment to your tax code.

10. You have a side hustle and make more than £1,000 a year 

Everyone has a £1,000 trading allowance, which can cover things like selling items through eBay or Vinted, or being paid to babysit or walk dogs. Any more than this and you normally need to do a tax return.

11. You rent out a spare room, and make more than the rent-a-room limit

You can make up to £7,500 a year tax-free by renting out a furnished room in your home, including through Airbnb. Any more than this, and you need to register for self-assessment.

TWO MORE SELF-ASSESSMENT TIPS 

If you think you no longer need to complete a tax return for 2024-2025, you need to tell HMRC before the deadline on 31 January 2026 to avoid any penalties or needing to complete a tax return. HMRC has produced two videos explaining how customers can go online and stop self-assessment if they are self-employed and those who are not self-employed.

Customers should be aware of the risk of falling victim to scams. Never share your HMRC log-in details with anyone, including a tax agent, if you have one. There is more scams advice on this HMRC page.

HM Revenue and Customs is on course to collect a record-breaking £8bn in inheritance tax (IHT) revenue this year due to fiscal drag.  

 HMRC raked in £3.2bn in IHT in the three months between April and August 2023, some £300m more than in the same period a year earlier.

IHT revenue has been increasing month after month as personal allowance thresholds are frozen until at least 2028. In many cases, higher property prices and inflation are pushing more households into the IHT net.

The average UK home has more than tripled in value over the past two decades from £84,620 in 2000 to £290,000 today, fast approaching the frozen IHT nil-rate band of £325,000. 

INHERITANCE TAX BANDS FROZEN 

The Treasury has collected £133m per week in inheritance this tax year so far, up by 10% compared to the same period last year. “Despite the slowdown in the housing market over recent months, many people will be caught by the IHT trap,” says Julia Peake, tax and estate planning specialist at Canada Life.

HMRC’s annual bulletin shows that in the financial year 2020/21, some 27,000 estates paid IHT, a 17% increase compared to the previous year.

“Rising IHT receipts are continuing to prove extremely lucrative for the Treasury and this doesn’t look set to change anytime soon,” says Laura Hayward, tax partner at Evelyn Partners.

HMRC says that receipts in June 2023 were the highest monthly total on record. This record-high month was attributed to possible effects from the recent rise in interest rates.

Experts say that 2023 is well on track to being a record-breaking year in IHT receipts for the Treasury.

“IHT receipts from April to August 2023 reached £3.2bn, £0.3bn higher than the same period last year. The total inheritance tax take for the 2022-23 tax year was £7.1bn, meaning this year’s take is well on course to break new records and could come close to £8bn,” Rachael Griffin, tax and financial planning expert at Quilter, says.

HOW CAN YOU MINIMISE YOUR INHERITANCE TAX BILL? 

Inheritance tax is charged at 40% on estates over £325,000. Individuals have an extra £175,000 allowance towards their main residence if it is passed to their children or grandchildren, and spouses can share their allowances. This can take the allowance up to £1m for a married couple.

Although the house will usually be the biggest factor when it comes to IHT, the value of the estate includes everything: property, cars, savings, investments and other assets, including personal items.

One of the best advice experts give when it comes to IHT is not to fall for the trap of believing that you will never get caught in this fiscal drag.

“Don’t be caught out by thinking that this won’t affect you. It’s not just the value of your home that you need to consider, it’s your whole “net estate” after liabilities  have been considered and reliefs have been applied, which adds up over a lifetime. Remember, if you miss the six month deadline to pay IHT, HMRC will start charging interest on top as well,” Peake warns.

Making gifts to family members can be one of the best places to start in reducing or eliminating an IHT bill, Hayward says. Gifts you make are generally not subject to IHT unless you die within seven years. 

Setting up trusts can be a helpful means of passing on assets to the next generation. Trusts can only be accessed at a certain time or for a particular reason.

You can read more about how to reduce your IHT bill. 

Inheritance tax (IHT) receipts totalled £2.6bn between April and July 2023, a £237m increase compared to the same period last year as a combination of fiscal drag and higher house prices pull more taxpayers into the IHT net. 

The figures from HM Revenue and Customs (HMRC) show IHT receipts in June hit the highest-ever monthly level, putting the government on track for a year of record receipts from IHT.

HMRC said a small number of higher-value payments as well as increasing interest rates were the reasons behind the record-breaking IHT tax take.  

 Inheritance tax receipts set to hit a record  

Canada Life tax and estate planning specialist, Julia Peake, says the increase means that “HMRC is on course for a year of record receipts from IHT”.

She adds: “The Office for Budget Responsibility (OBR) has forecasted that IHT will raise £7.2bn for the Exchequer this financial year.”

Property price gains and frozen thresholds are pushing more households into paying the tax. 

Rachael Griffin, tax and financial-planning expert at Quilter, says: “The latest HMRC figures show that bereaved families are increasingly filling government coffers due to frozen IHT thresholds.

“The chancellor’s IHT threshold freeze was extended last autumn until at least April 2028 and is set to rake in record amounts by stealth.

“In many cases, higher property prices are helping lift the number of households falling within the scope of IHT. While growth has slowed in the housing market, it hasn’t yet seen the drop in prices some were expecting.”

The average UK home has more than tripled in value over the past two decades from £84,620 in 2000 to £288,000 today, fast approaching the frozen IHT nil-rate band of £325,000.

HMRC’s annual bulletin shows that in the financial year 2020/21, some 27,000 estates paid IHT, a 17% increase compared to the previous year.

Laura Hayward, tax partner at Evelyn Partners, says: “Inflationary growth of asset values coupled with frozen allowances means that an ever-increasing number of people are being dragged into paying IHT which can leave the descendants of those who have passed away in a difficult position. Loved ones may need to sell family homes or take on more debt if they need to settle a large IHT bill.”

The latest figures come amid data that shows that a significant number of high net worth individuals are failing to plan ahead, with 28% of those with investable assets of £250,000 not putting measures in place to deal with IHT, according to the latest Saltus Wealth Index Report.

 Inheritance tax bands frozen

 Chancellor Jeremy Hunt confirmed the threshold for inheritance tax (IHT) would be frozen until April 2028 in his Autumn Statement last year, despite double-digit inflation.  

How can you minimise your inheritance tax bill?

“Making gifts to family members can be one of the best places to start in reducing or eliminating an IHT bill. Gifts you make are generally not subject to IHT unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if you do die within seven years,” says Hayward.

“Setting up trusts can be a helpful means of passing on assets, tax efficiently, to the next generation because they help ensure that gifts are used in a responsible way. Trusts can only be accessed at a certain time or for a particular reason,” she adds.

Increasing numbers of families are: around 48% more in the past decade are deliberately using Potentially Exempt Transfers (PETs). These are gifts of unlimited value that become IHT-free if the person lives seven years after giving them. Around 6,610 families gave away money this way to reduce their IHT liability in 2019/20, up from the 4,500 families in 2009/10.

You can read more about how to reduce your IHT bill.

Capital gains tax receipts (CGT) hit a record £16.7 billion in tax year 2021/22 up 15% on the previous record year.

Under the current regime, CGT is payable on the profits made when selling an asset, with the amount received by the Treasury more than doubling in ten years. The number of payers in the latest tax year is also up 20% to 394,000.

New statistics from HMRC show that it is not only the super-wealthy who are footing CGT bills - 214,000 people paid CGT on gains of up to £25,000, marking a shift in who is paying the unpopular levy.

The figures come at a significant time for potential CGT payers, as the free allowance was cut from £12,300 in 2022/23 to £6,000 for this tax year. 

Investors cannot ignore captial gains tax

"If it isn’t already, CGT will soon be on most investors’ radars," says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, as more and more investors become liable for the levy.

“Although almost half (45%) of the total CGT paid is on super gains of £5 million or more, this tax is not just for the super wealthy as 214,000 people paid CGT on gains of up to £25,000.

“Overall, the numbers paying this wealth tax has more than doubled in 10 years and this number is only set to rise,” she says.

Toby Tallon, tax Partner at Evelyn Partners, echoes this sentiment, saying he expects CGT receipts are set to rise even further. 

“From this tax year there is a sharp reduction in the annual exemption to £6,000 and it is due to halve again to £3,000 from 2024/2025 onwards. These changes will drag more individuals into the net for CGT,” he says.

He points to concerns from clients that the tax regime could become “even more restrictive” following the next general election, with many “accelerating the sale of assets before any potential tax changes, such as a possible increase in the rate of CGT.”

He says: “Anyone thinking of selling a property or business should remember it can be a lengthy process - particularly when it comes to disposing of large assets – and so planning ahead would be recommended. However tax is only one aspect to consider when disposing of an asset.

Landlords exodus drives up bill

A significant proportion of the latest CGT taking comes from sales of residential property, with 139,000 taxpayers reporting 151,000 disposals in the 2022/23 tax year, amassing a total liability of £1.8 billion - significantly larger than the tax year prior.

Rachael Griffin, tax and financial planning expert at Quilter says the data “suggests that there is an exodus of landlords from the property market as the tightening of tax laws on Buy to Lets make them a more unattractive investment.” 

Landlords have contented with a turbulent few years, with a number opting to leave the market owing to high mortgage rates, expensive energy efficiency retrofits and rising property values.

Griffin says: Coupled with this the continuing high property values but simultaneous threat of a property price crash is seemingly making more landlords opt to sell up. How this ultimately impacts the market for all prospective buyers and renters is yet to be seen. Currently, property prices are slipping slowly but rent remains sky high as renters compete for a dwindling stock of rental properties.”

How to beat the CGT trap

Make use of your CGT allowance every year, before you lose it

Higher rate taxpayers pay 20% on capital gains on investments and 28% on gains from property. In the current tax year, you can make gains of £6,000 before you pay tax on them.

Offset losses against gains

Don’t forget, you can offset any capital losses you make during the tax year against gains. If your total taxable gain is still over the tax-free allowance, you may be able to deduct any unused losses from previous tax years. If just some of your losses reduce your gain to below the tax-free allowance, you can carry forward the remaining losses to a future tax year

Shelter as much of your portfolio in ISAs as possible.

If you have investments outside an ISA use the Bed and ISA process (also known as Share Exchange) to move these assets into an ISA.

Once in an ISA you won’t pay tax on either gains or income. Because the dividend tax rate is generally paid at a higher rate than the capital gains tax rate, it’s often worth prioritising income producing investments when making decisions about how to use your ISA allowance

Plan as a couple

If you’re married or in a civil partnership you can transfer investments into their name without triggering CGT, so you can both take advantage of your allowances. And if your spouse or partner can realise gains within the basic rate band they will pay 10% on gains (or 18% on residential property)

Consider a Venture Capital Trust

These aren’t right for everyone, because they are very high risk, so should only ever be considered as a small part of a large and diverse portfolio. However, if you use these schemes, they are CGT free and you can get up to 30% income tax relief. 

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A new pensions ‘death tax’, covering the treatment of inherited pensions by HM Revenue & Customs (HMRC), appears to be on the way.

Documents published by the government this week about the abolition of the lifetime allowance include a proposed change which has not previously been discussed publicly by ministers.

It has led to uproar among pensions experts, who have accused the government of trying to sneak the taxation change ‒ which would impact thousands of people ‒ through the ‘back door’ without proper scrutiny or debate.

Inheriting pensions: what is changing?

The issue is around inheriting a pension from a loved one who passes away before they reach the age of 75.

Under the current setup, the beneficiaries are able to inherit pensions paid as an income when the saver dies before 75 without having to pay any income tax or inheritance tax. If the saver dies after reaching 75 then the inherited pension is taxed in the same way as income.

This arrangement appears to be changing though, as part of the government’s move to ditch the lifetime allowance, as announced at the Budget earlier this year.

In the policy documents for the removal of the lifetime allowance, the government also sets out the change to how inherited pensions will be taxed when taken as income rather than as a lump sum.

The document states: “Individuals will still be able to receive the benefits .. but the values will no longer be excluded from marginal rate income tax under [the Income Tax (Earnings and Pensions) Act 2003], with effect from 6 April 2024.”

This would mean that the only way to avoid tax would be to take the inherited pension as a lump sum, leaving the beneficiary to decide how to invest and manage this money over time.

Government must clarify ‘death tax’ plans

The move was described as “creating a new pension ‘death tax’ where someone dies before age 75” by Tom Selby, head of retirement policy at AJ Bell.

He said that doing so makes “little sense” and may push more beneficiaries to take a lump sum, when instead an income from the inherited pension would better suit their needs.

“Or encouraging the member to take their pension benefits earlier than planned to avoid their loved ones paying income tax. It also risks causing a political firestorm for the government and undoes much of the simplification benefits associated with ditching the lifetime allowance,” he continued.

Selby also emphasised that this new ‘death tax’ is not specified in the draft legislation which has been tabled, and called for the government to clarify what is going on urgently.

This was echoed by Steve Webb, the former pensions minister and director of pension consultancy LCP, who argued it would be “totally unacceptable” for such a change to be made ‘“through the back door” rather than announced publicly.

He continued: “For the last eight years, people have known that if a loved one died under the age of 75, they could inherit an untouched pension pot free of all tax. The money could sit in a drawdown account, being invested and growing, and would be a source of tax-free income whenever needed. This tax advantage risks being abolished by next April if these new proposals are implemented.”

Removing disincentives

The government has not commented directly on the proposed change. 

A spokesperson for HMRC told Moneyweek that it wanted to keep “15,000 experienced people in work” and that the lifetime allowance had been “disincentivising them from working”.

They continued: “We look forward to working with stakeholders over the coming weeks to help us craft the legislation which will ensure that our historical pensions tax cut delivers the right results for savers and the economy.”

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HM Revenue and Customs (HMRC) has warned thousands of tax credit customers they have only days to renew their annual claims or risk having the payment stopped.

Renewal packs should have been received in the post by June 15 containing all the details to renew.

Customers who received a renewal pack with a red line across the first page and the words ‘reply now’ must respond to HMRC by 31 July or risk having their payments stopped.

These include details on relationship changes, including marriage or separation, changes to the cost of childcare or if working hours fall below 30 hours a week.

More than 171,350 customers must return their details by the end of the month.

Customers whose packs had a black line across the first page and the words ‘check now’ only need to update HMRC if their details have changed.

‘Reply now’ customers must respond to the request for information even if there have been no changes to their circumstances.

The quickest and easiest way to renew tax credits is online at GOV.UK or via the HMRC app.

Myrtle Lloyd, HMRC’s director general for customer services, said: “We know tax credits offer vital financial support for our customers so it is important that you renew by the deadline on 31 July. It is quick and easy to renew online at GOV.UK or using the HMRC app, just search ‘manage my tax credits’ on GOV.UK.”

HMRC issues tax credit scam warning

HMRC has warned of the latest tactics being employed by criminals as the deadline for tax credits renewals looms.

Around 1.5m tax credits customers are at risk of being targeted, with HMRC sending annual renewal packs to households across the country.

Typical scams include emails or texts falsely claiming someone’s details are not up to date and that the recipient may miss out on payments.

Scam messages may also claim that a payment has not “gone through”, that someone’s national insurance number has been used in fraud or that someone is entitled to bogus tax rebates, grants or support.

Fraudsters may even phone people and threaten them with arrest if they do not immediately pay fake tax debts.

HMRC is also urging people to be alert to misleading websites or adverts asking them to pay for government services which are free, often by charging for a connection to HMRC helplines.

People can renew their tax credits for free via gov.uk or the HMRC app.

HMRC’s Lloyd added: “Never let yourselves be rushed. If someone contacts you saying they’re from HMRC and asks you to give personal information or urgently transfer money, be on your guard. Search ‘HMRC scams’ advice on GOV.UK to find out how to report scams and help us fight these crimes.”

Scam messages can be convincing, and individuals may be pressured into making rushed decisions. HMRC will never ring anyone out of the blue making threats or asking them to transfer money.

According to the National Cyber Security Centre, HMRC was the third most spoofed government body in 2022, behind the NHS and TV Licensing.

In the last year, to April 2023 HMRC has responded to 170,234 referrals of suspicious contact from the public. Of these, 68,437 offered bogus tax rebates. In the same time period the department has also responded to 58,186 reports of phone scams in total and reported 26,922 malicious web pages for takedown.

How can I report a scam?

If you’re unsure about a text claiming to be from HMRC forward it to 60599, or an email to phishing@hmrc.gov.uk. Report a tax scam phone call on GOV.UK.

Contact your bank immediately if you’ve had money stolen, and report it to Action Fraud. In Scotland, contact the police on 101.

By reporting phishing emails, you help stop criminal activity and prevent other people from falling victim.

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Pensioners have recovered millions from HMRC after being taxed too much when making flexible pension withdrawals in the last three months.

Pensioners reclaimed more than £48.5 million in overpaid tax on their pension withdrawals from 1 July to 30 September 2025, new data from HMRC shows.

The total number of retirees putting in a claim for tax repayment was 13,721 in the third quarter of 2025, 11% more than the 12,331 claims processed by HMRC in the same period last year.

The average amount of incorrectly levied tax returned to pensioners was £3,539 per person in the last quarter, down slightly from an average of £3,592 this time last year.

The risk presents itself when you first access your pension pot. HMRC taxes your first withdrawal on a ‘month one’ basis, meaning it assumes you will withdraw the same amount every month for the rest of the tax year. An emergency tax code is applied at this stage.

The problem is not everyone withdraws a regular income from their pension. Some savers decide to make a large one-off withdrawal at the start of retirement, or alternatively tap into their retirement pot as and when they need to.

HMRC will usually set things straight at the end of the tax year without you having to do anything – however there are steps you can take to get your money back more quickly, or to avoid being overcharged by a large amount in the first place.

The latest figures bring the total amount that retirees have claimed back from overtaxation to more than £1.5 billion since 2015, when pension freedoms and flexible pension withdrawals were first introduced.

This huge sum highlights the extent of the overtaxation problem with flexible pension withdrawals.

Jon Greer, head of retirement policy at Quilter, said: “A decade after the introduction of pension freedoms, it remains extraordinary that thousands of people are still being overtaxed every quarter simply for accessing their own savings. The system continues to work against the very flexibility it was designed to promote.

“Although HMRC has made changes to speed up repayments, these figures show the underlying problem persists. The PAYE system was built for regular employment income, not one-off pension withdrawals, and it continues to cause unnecessary complexity for retirees.”

These figures “are likely to only be the tip of the iceberg”, according to Tom Selby, director of public policy at AJ Bell, because the onus is on pensioners to recognise the overtaxation and fill out HMRC’s relevant reclaim forms

“In reality, many will be reliant on HMRC putting their affairs in order at the end of the tax year,” he said.

Why are pensioners overtaxed on withdrawals?

The reason so much tax is incorrectly collected from pensioners is because of the way HMRC calculates tax allowances.

HMRC taxes the first flexible pension withdrawal made in a tax year on a ‘month one’ basis.

“This means HMRC divides your usual tax allowances by 12 and applies them to the withdrawal, landing hard-working savers with shock tax bills often running into thousands of pounds," says Selby at AJ Bell.

“While those who take a regular income or make multiple withdrawals during the tax year should be put right automatically by HMRC, anyone who makes a single withdrawal will likely be left out of pocket.”

This issue has been exacerbated by increases to the state pension – the full new state pension now consumes almost all of the £12,570 personal allowance, which has been frozen since 2022 (a phenomenon known as fiscal drag).

Greer at Quilter says: “With the allowance frozen and the state pension rising each year, many people are being dragged into the tax net. When they make flexible withdrawals to top up their income, a larger portion is now taxable, compounding the frustration when over-deductions occur.”

What to do if you think you are owed money from pension overtaxation

If you are taking a regular stream of income through pension drawdown, you shouldn’t need to do anything. HMRC should adjust your tax code throughout the year to ensure you have paid the correct amount of tax overall.

If you make a one-off, ad hoc withdrawal, and think the taxman has taken more than needed, you can submit a form to reclaim the overpaid tax. You will need to select one of three forms.

The form you will need to fill out will depend on how you accessed your retirement pot:

• If you’ve emptied your pot by flexibly accessing your pension and are still working or receiving benefits, you should fill out form P53Z
• If you’ve emptied your pot by flexibly accessing your pension and aren’t working or receiving benefits, you should fill out form P50Z
• If you’ve only flexibly accessed part of your pension pot, then use form P55

These forms can be found on the government website.

Provided your request is genuine and HMRC works out they incorrectly taxed you, you will get your money back within 30 days.

If you believe you were taxed too much but do not fill out the relevant forms, you will be left relying on HMRC to repay the tax overpayment at the end of the tax year.

Selby at AJ Bell says retirees who take regular flexible pension withdrawals multiple times a year should not need to take any action as HMRC adjusts your tax code to ensure you are taxed correctly over the course of the year.

“However, if you make a single withdrawal then you will either need to fill out one of three forms or rely on HMRC putting you in the correct position at the end of the tax year,” Selby explains.

Will HMRC reforms reduce overtaxation?

HMRC updated its system from April 2025 to move savers onto the correct tax code more quickly.

Despite this, limitations mean the changes will only improve things for those taking a regular income. Those who make a one-off withdrawal will continue to be overtaxed.

Some experts believe the changes do not go far enough.

“We have only just blown out the candles on the cake celebrating 10 years of pension freedoms,” said Tom Selby, director of public policy at investment platform AJ Bell. “It is simply unacceptable that after all this time, the government has still not managed to adapt the tax system to cope with the fact Brits are able to access their pensions flexibly from age 55.”

Thankfully, there are some steps savers can take to reduce the impact of a shock tax deduction. For example, experts often recommend making a small withdrawal first. HMRC should then apply a more appropriate tax code to any subsequent larger withdrawals.

Taxpayers who find themselves submitting a reclaim form for a large amount of money may not have been aware of this tip.

For example, some of the savers highlighted by Royal London reclaimed more than £100,000 in overpaid tax in 2023/24. To generate an emergency bill of this size, they would need to have withdrawn more than £300,000 when first accessing their pension.

Savers do ultimately get this money back from HMRC. Even if they don’t actively claim it, things should get settled up automatically at the end of the tax year. Despite this, delays (or alternatively form filling) can be inconvenient and disrupt your immediate plans.

“Suddenly, that large chunk of money which had been earmarked for something special, like a new kitchen or the holiday of a lifetime, has shrunk considerably, and in some cases these plans may have to be postponed or abandoned altogether,” said Clare Moffat, pension expert at Royal London.

“If these withdrawals are being made to help children or grandchildren get a foot on the housing ladder, then the effect can be to derail a home purchase at the last minute when it’s discovered that the money required to complete the purchase has suddenly been eroded.”

Almost nine in ten Brits (88%) do not know the rate of tax relief they receive on pension contributions, according to new research, with confusion about this valuable perk potentially discouraging people from making the most of their pension annual allowance before the end of the tax year.

Pension tax relief can boost your pension savings by at least 20% and potentially 40% if you’re a higher rate taxpayer or 45% if you’re an additional rate taxpayer. Yet just 12% of those asked knew the exact rate of tax relief they personally receive on their pension contributions, a nationally representative survey of 1,000 UK adults aged 18 to 66, conducted in March 2026 by pension provider PensionBee found.

Overall, three quarters of Brits (75%) asked are in the dark about the tax relief they receive on their pensions. Almost a third (31%) said they were not aware that pension contributions receive tax relief at all, while a similar proportion (34%) said they knew they received tax relief but did not know the rate. A further 10% said they were unsure, while 14% said they do not currently contribute to a pension.

Boost pension contributions

With the end of the tax year fast approaching on 5 April, the findings suggest many savers may be missing a valuable opportunity to boost their retirement savings through additional pension contributions that benefit from tax relief. Every tax year, savers can usually put up to £60,000, or 100% of their earnings, (whichever is lower) into a pension and get tax relief. This is known as the pension annual allowance.

But while around one in five (20%) said they plan to make an additional pension contribution before 5 April, and 9% said they have already topped up their pension this tax year, nearly half of respondents (48%) said they do not currently plan to make an additional contribution, 10% said they do not currently contribute towards a pension and 13% said they were unsure if they would contribute.

When asked where they would be most likely to invest extra money before the tax year ends, people most commonly chose savings accounts (35%) and ISAs (30%). Others said they would pay down their mortgage (12%) and make pension contributions (11%), suggesting that while many people prioritise short-term or flexible savings, a proportion are considering using the tax year end as an opportunity to boost their retirement savings. A further 6% said they would not invest the money and a final 6% said they were not sure.

Lisa Picardo, chief business officer UK at PensionBee, said: “Pension tax relief is one of the most valuable incentives available to UK savers, yet our research shows that most people don’t fully understand how it works – or even that they benefit from it.

“With the end of the tax year approaching, it’s a good moment for savers to review their finances and consider whether they could make an additional pension contribution. Even a small top-up can receive a boost through tax relief, helping retirement savings grow over time. For those with access to salary sacrifice through their workplace, contributing this way can also bring additional tax and National Insurance savings, although the rules are expected to change in the future.

“While savings accounts and ISAs are often the first options people think of, pensions remain one of the most important tax-efficient ways to invest for the long term. Improving awareness of these benefits could help more people make the most of the incentives available to them.”

PensionBee’s Pension Tax Relief Calculator shows how much tax relief savers could get on their pension contributions. For higher and additional rate taxpayers in particular, this can also include claiming extra relief through Self Assessment – something previous research has highlighted many people fail to do, leaving significant sums in unclaimed tax relief each year.

Unclaimed tax relief

People have until 31 January to file their self-assessment returns online and declare any tax they owe for the previous tax year, but it is also an opportunity to claim any relief they’re due.

UK taxpayers saved £32.3 billion overall in 2024/25 through pension tax relief, according to the latest figures from HMRC. It expects this figure to rise to £33.5 billion in 2025/26.

However, hundreds of thousands of higher rate taxpayers could be missing out on an extra £1 billion by not claiming their fair share, according to Freedom of Information (FOI) figures obtained from HMRC.

The figures, shared with Steve Webb, former pensions minister and now consultant at pensions firm LCP, suggest 807,000 higher rate taxpayers failed to claim an average of £1,756 of pension tax relief through relief at source pension plans in 2023/24.

In addition, a further 19,000 additional rate taxpayers on the same type of pension plan failed to claim relief worth £2,195 on average.

It comes with higher numbers of people being dragged into paying more tax as income tax thresholds are frozen and incomes rise.

According to HMRC figures, there was a 42.6% increase in the number of higher rate taxpayers between 2021 and 2024 due to frozen thresholds.

Webb said: “With more and more people being dragged into higher rates of income tax, it is increasingly important that they claim all the tax relief to which they are entitled."

You can backdate claims for pension tax relief by up to four years.

What is pension tax relief?

To encourage people to save for retirement, HMRC gives tax relief on pension contributions. This is applied at your marginal rate – 20%, 40% or 45%.

Everyone can get tax relief when they pay into a pension, even children and people who aren’t working. However, there are limits on how much you can receive (imposed via the £60,000 annual allowance).

“It means that a £1,000 pension contribution for a basic-rate taxpayer only costs them £800,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

“For higher and additional-rate payers, it is even more attractive with the same contribution only costing them £600 and £550 respectively.”

Do I need to claim pension tax relief?

If you are in a “net pay” pension scheme where pension contributions are made before you are taxed, you will automatically receive any tax relief you are owed without having to claim it.

However, if you are in a “relief at source” pension scheme (where contributions are made after tax is deducted), you may need to take action.

Although your pension provider will automatically claim tax relief on your behalf if you are in a “relief at source” scheme, they do this at the basic-rate level. This means you will only receive 20%, despite the fact that higher and additional-rate taxpayers are entitled to 40% and 45%, respectively.

If you are eligible for higher or additional-rate pension tax relief and haven’t claimed it yet, you can do so by filing a self-assessment tax return before the deadline on 31 January.

How to claim pension tax relief

If you are a higher or additional-rate taxpayer, the first thing you should do is check what kind of pension scheme you are paying into.

If your pension contributions are being paid into a net pay scheme, you don’t need to take any action. If you are paying into a “relief at source” scheme, you should file a tax return.

SIPPs and personal pensions generally fall into the “relief at source” category, as well as some workplace pension schemes. If you are unsure, check with your pension provider or employer.

“Many people assume the process of claiming higher or additional-rate pension tax relief is complicated, but in fact, it’s pretty straightforward,” says Rob Morgan, chief analyst at wealth management firm Charles Stanley.

He adds: “You can claim the tax relief on your self-assessment tax return by stating the gross amount of your total pension contributions for the tax year, including the 20% basic-rate relief already added.

“If you use the online service, HMRC calculates how much tax you have overpaid and then offsets any additional tax you owe against it.

“At the end of the process your net tax position for the year is adjusted. If you have overpaid, the balance can be refunded to your bank account as a tax rebate, or you can choose to pay less tax each month in the next financial year through a new tax code.”

You should consider paying the rebate into your pension (rather than keeping it in your bank account) to boost your retirement fund.

Backdated claims for pension tax relief

If you are panicking that you have never benefited from this extra tax relief on pension contributions, the good news is you can claim it for previous years. You can claim relief dating back four years, either through amending a previous tax return or contacting HMRC directly.

PensionBee has created a Pension Tax Relief Calculator to show savers how much tax relief could be added to their pension pot. If they’re not already receiving the full amount from their pension provider, it shows the portion they could claim back from the government.

How those in the £100k tax trap can get 60% pension tax relief

People with incomes over £100,000 can claim 60% pension tax relief on the amount up to £125,140, due to the fact the personal allowance is reduced by £1 for every £2 earned above £100,000.

Claiming pension tax relief on earnings in between this bracket, where people are hit by the “60% tax trap”, can also reduce someone’s income to below £100,000, making them eligible for free childcare hours or tax-free childcare.

Research by wealth management group Rathbones suggests tax relief claimed at 60% and then invested back into your pension can significantly boost your retirement pot.

It found someone making a £10,000 contribution to their pension, taken from earnings between £100,000 and £125,140, would get £5,000 in pension tax relief in one tax year.

Married couples and civil partners can save up to £252 a year through a useful tax break – yet over two million people could be missing out.

Marriage Allowance lets husbands, wives and civil partners transfer part of their tax-free personal allowance to their higher-earning partner, but HMRC says two million people do not take advantage of this tax-saving opportunity.

The tax break is worth up to £252 per tax year and you can backdate it by up to four years, meaning you could claw back over £1,000.

HMRC says many people are unaware they are eligible for the tax perk, particularly couples where one partner has retired, has given up work to take on caring responsibilities, is doing a part-time or low-paid job, or is unable to work due to a long-term health condition.

Newly-married couples or those who have become civil partners recently may also not be aware that they could potentially qualify for the tax break.

What is the Marriage Allowance?

The Marriage Allowance was introduced by the then Conservative government in 2013, taking effect in April 2015.

It applies to couples where one partner does not pay income tax – or their income is below the £12,570 personal allowance – and the other partner pays basic-rate income tax.

This means the higher earner's income must be between £12,571 and £50,270 (£43,662 in Scotland).

This tax break is not available for those who are higher-rate or additional-rate taxpayers.

The couple must be married or in a civil partnership. Cohabiting does not count.

The Marriage Allowance works by transferring up to £1,260 (10%) of the lower-earning partner’s personal allowance to their spouse or civil partner who earns more. New tax codes are issued reflecting this.

It doesn’t matter if you are currently receiving a pension, or you live abroad - as long as you get a tax-free personal allowance, you can apply.

Both partners must have been born on or after 6 April 1935. If not, you can apply for the married couple’s allowance instead, which is worth between £453 and £1,170 for the 2026/27 tax year.

How much can I save?

The marriage allowance for the 2026/27 tax year is worth up to £252 a year. The exact amount depends on how much both partners earn. You can check how much you could save by using the government’s Marriage Allowance calculator.

When part of the personal allowance is transferred, one person may have to pay more tax while the other pays less tax – but the couple will still pay less tax overall.

For example, if your income was £11,500 and your personal allowance £12,570, this would mean you don’t pay income tax. If your partner’s income was £20,000 and their personal allowance was £12,570, they would pay tax on £7,430. This means as a couple you would be paying income tax on £7,430.

By claiming Marriage Allowance and transferring £1,260 of your personal allowance to your partner, your personal allowance would become £11,310 and your partner would see their taxable income reduced by £1,260.

It would see you paying tax on £190 but your partner would only pay tax on £6,170. This would lower your overall tax bill as a couple as you would be paying income tax on £6,360 instead of £7,430, saving you £214 in tax.

If you're eligible and apply successfully, you'll automatically get a Marriage Allowance each year in future, so you don’t need to keep reapplying.

The government will also check to see if you’re owed tax relief for previous years, going back to 6 April 2022 (the 2022/2023 tax year). The maximum amounts for each year are:

• 2025/26 - £252
• 2024/25 - £252
• 2023/24- £252
• 2022/23 – £252

So, if you receive the maximum amount for the past four years, you'll receive a lump-sum payment worth £1,008.

Added together with the £252 tax bill saving for the current tax year and couples could save up to a total of £1,260.

How do I apply?

It’s quick and easy to apply. The non-taxpayer needs to apply, which can be done on the HMRC website. You’ll get an email confirming your application within 24 hours, and a new tax code within a few days if the application is successful.

If there's a problem doing the online application, you can apply via self-assessment (if you’re already registered and send tax returns) or by writing to HMRC. You can also call 0300 200 3300 with any questions.

Make sure you apply for the marriage allowance on the official site, and don’t be tempted to use a third party. Beware searching for “marriage allowance” online, as some firms may charge you for applying.

The fees can be as high as 48% of the value of the tax relief, meaning you could lose almost half of the tax benefit.

Remember that it is free to apply on the government site.

Also watch out for scams. If you’re unsure about a text claiming to be from HMRC forward it to 60599, or if it's an email, send it on to phishing@hmrc.gov.uk.

If your circumstances change and you’re no longer entitled to marriage allowance, you can cancel online or by calling HMRC.

Watch out for an unexpected tax bill if you receive the full state pension and your income exceeds your shrunken personal allowance (as a result of the marriage allowance).

Self-assessment taxpayers who need to make their second payment on account for the 2024/25 tax year have less than two weeks to do so or face hefty interest charges and penalties.

Workers who make payments on account must do so by midnight on 31 January and 31 July every year.

The deadline applies to all those who are self-employed unless they owe £1,000 or less (as this can be made in a single payment on the first tax return), or they have already paid more than 80% of the tax they owe.

Claire Trott, head of advice at St. James’s Place, says: “With there now less than two weeks remaining until HMRC’s second self-assessment payment deadline on 31 July, it’s vital that taxpayers check what they owe and ensure payment is made on time to avoid facing penalties.”

What is payment on account?

Many self-employed people are required to make two payments on account each year. HMRC works out an estimate for what your tax bill is likely to be, based on previous tax years, and splits this into two payments on account.

So on 31 January, not only will you have to pay your tax bill for the 2023/24 tax year, you also have to pay your first payment on account for the 2024/25 tax year. The second payment on account then needs to be paid by 31 July.

You can request for your payments on account to be lowered if you believe your income will fall and you will therefore be liable for a smaller tax bill.

The tax can be paid online using a debit or corporate credit card; or via bank transfer, direct debit or a cheque in the post – however, plan this in advance to avoid any transfers being received after the deadline.

For those who still receive paper statements from HMRC, it’s also possible to make the payment at your bank or building society.

Penalty interest rate rises

The amount of interest HMRC charges on income tax not paid on time was recently upped, making it more vital than ever to pay your outstanding tax by 31 July.

From April 2025, the government increased the late payment interest rates to 4% plus base rate, which saw the rate initially jump to 8.5%, the highest level since August 2007. The rate fell to 8.25% at the end of May to take into account the latest Bank of England interest rate cut, and remains at that level.

The interest on late payments was previously set at 2.5% over base rate.

The tax authority saw receipts for interest on overdue payments jump from £147 million in 2021-2022 to £252 million in 2022/23, according to a Freedom of Information request submitted by financial advisory firm NFU Mutual.

Sean McCann, chartered financial planner at NFU Mutual, comments: “The change in April saw the interest on late tax payments rise to 8.5%. Even with the recent reduction in the base rate, an interest rate of 8.25% is a heavy charge on taxpayers who pay late.

“Late payment interest accrues daily from the date the payment is due, so this increase makes it even more crucial to pay your tax on time.”

Trott adds: “Given the potential cost of delay, it’s essential that individuals check their self-assessment account now and act ahead of the 31 July deadline. While long-standing self-employed individuals are likely to be familiar with these deadlines, they can easily catch out those newly self-employed who’ve submitted their first return this year.”

'Do I have to file a self-assessment tax return?'

About 12 million people are expected to file a self-assessment tax return each year. While it is predominantly seen as something that self-employed workers have to do, there are many people in regular employment who are also required to file a tax return.

It largely comes down to whether you receive some form of income that is not taxed at the source. As a result, alongside the self-employed, those who receive an income from renting out property or who make large amounts of money from investments (which aren’t held in an ISA) will also have to file a return.

So too will those who need to pay capital gains tax after profiting from the sale of an asset, or who earn an income from abroad.

Other examples include people that earn more than £60,000 and need to repay some of the child benefit they have received, and higher or additional-rate taxpayers who want to claim extra tax relief on their pension contributions.

About 97% of people filing a tax return choose to do so online, while 4% submit a paper return.

Registering to file a self-assessment tax return

You need to register with HMRC in order to file a self-assessment tax return. This must be done by 5 October for the following tax year.

You can do this online through the Gov.uk website, after which you will be sent a unique taxpayer reference through the post. Activation details for the government’s Gateway platform will also be posted to you; the Gateway is used for filing an online tax return.

This process can take up to three weeks, so it’s a good idea to start the registration process as early as possible.

Filing your self-assessment tax return and paying your tax bill

You have until 31 January to file your self-assessment tax return and pay your tax bill, if you’re doing it online.

This deadline is for the previous tax year. So you have until 31 January 2026 to file your tax return and pay your bill for the 2024/25 tax year.

Those who file their tax return by paper have to send it in by 31 October – although the deadline to pay any tax due is still 31 January.

Once you have completed your tax return, and HMRC has told you how much tax you owe, you have a few different payment options for clearing your tax bill.

Many taxpayers opt to pay the bill in full through a single lump sum payment, but there are various ways in which you can do that. A single payment could be made using a debit card, for example, while you can also use a corporate debit or credit card, though this will incur a fee.

You can make the payment through your online banking service to the HMRC bank account. You can also make a payment from your bank or building society’s local branch, or by posting a cheque to HMRC.

These payments can take a few days to go through, so it’s good advice to make the payment in advance of that deadline.

It’s not possible to pay at the Post Office anymore.

The penalties for late tax returns

A £100 penalty fine will be levied if you are late in filing your tax return and paying your bill - with more fines after that if you fail to pay.

This penalty is increased if you are more than three months late. You will also have to pay interest on the money owed.

McCann notes: “A penalty of 5% of the tax due is normally charged 30 days after the due date.

“An additional 5% penalty is charged on sums outstanding after six months with a further 5% penalty on any tax outstanding twelve months after the due date.”

However, HMRC has said it will not slap you with a penalty for 'honest' mistakes. It will accept certain excuses if you want to appeal against a penalty for a late tax return, including the death of a close relative, a spell in hospital, or if your computer fails.

If you are unable to pay, contact HMRC as soon as possible to see if a repayment plan can be put in place.

'What should I do if I make a mistake filing my tax return?'

If you have made a mistake with your tax return, you can correct it yourself within 72 hours. This can be done through the Gateway platform if you file your return online, while those who do their return through the post can download a new form to fill in. The word “amendment” needs to be written on every page.

After this date, you’ll need to write to HMRC to outline any errors made. You must make clear why you think the wrong amount of tax has been paid and how much you either owe or should be refunded.

You are able to claim refunds up to four years after a tax year ends.

Expenses if you are self-employed

You may be able to claim certain expenses when filing your self-assessment tax return, which will lower the size of your tax bill.

These could include office costs, such as for stationery or computer equipment, or travel costs, such as train fares.

Crucially, these need to be expenses that are the result of you carrying out your job ‒ you can’t claim for a laptop which you are actually using for leisure purposes, for example.

You may also be able to claim towards a portion of certain household expenses, should you work from home, such as your energy bill. You cannot deduct the entire bill ‒ instead you will be required to work out what portion of your energy use is the result of your work.

An easier option is the simplified expenses scheme, which allows self-employed people to claim a flat rate. This is determined by the number of hours they work from home each month and ranges from £10 to £26 a month. You will need to work at least 25 hours a month from home.

High Income Child Benefit Charge

One reason for some people needing to file a self-assessment tax return is so they can pay the High Income Child Benefit Charge.

The charge is levied against people who earn more than £60,000 a year, and acts as a taper, gradually claiming back the child benefit paid to such high earners.

The benefit is effectively withdrawn at a rate of 1% for each £200 earned over £60,000 a year by the higher-income partner. Therefore, child benefit is fully withdrawn where the adjusted net income of the higher-income partner reaches £80,000 a year.

The partner who earns the highest amount is responsible for paying the High Income Child Benefit Charge, even if they are not the one that receives the child benefit payments.

'I'm struggling to pay my tax bill. What are my options?'

According to Trott at St. James’s Place, if you find yourself unable to pay what you owe, it’s important to contact HMRC as soon as possible.

She comments: “While it may be tempting to delay or ignore the issue, HMRC does consider reasonable excuses, and reaching out early gives you the best chance of avoiding escalating penalties.

“For anyone simply caught off guard by this month’s deadline [on 31 July for payments on account], now is also a good time to think about how to be more prepared going forward, whether that’s setting aside funds on a regular basis or setting up a Budget Payment Plan with HMRC.”

Some taxpayers who are unable to pay the bill off in full can look to set up a ‘Time to Pay’ arrangement. For some this can be done online, but in other cases you may need to discuss your needs with HMRC staff directly. As the name suggests, Time to Pay allows you to pay the bill off over a longer period, in instalments.

HMRC will look into your financial arrangements to work out how much money you have left each month after the essentials, such as food and utility bills, have been paid. It can then calculate what you can afford to pay towards the bill.

For some taxpayers, the bill can be paid through their tax code. This is not an option for everyone ‒ you can only do this if you owe less than £3,000 and already pay tax through pay as you earn (PAYE), for example because you are employed in some capacity rather than entirely self-employed. You will also have to have submitted either a paper tax return by 31 October or an online tax return by 30 December.

Finally, as Trott mentioned, it’s possible to make regular payments towards the next year’s tax bill by putting a Budget Payment Plan in place. With such a plan, you make payments on either a weekly or monthly basis, which are directed towards your next bill.

It means that when you actually file your tax return, you can then either claim a refund or top up the payments to clear the amount you owe.

With all of your self-assessment tax return payment methods, it’s important to note down your UTR. You will need to include this as a reference, for example when making an online payment, or by writing it on the back of the cheque. This means that HMRC is able to easily work out which tax bill the money is meant to go towards.

If you’re completing your 2021/22 self-assessment tax return over the next few days, don’t forget to declare your pension contributions to help reduce your overall tax bill. The deadline to complete the self-assessment tax return by the end of January is fast-approaching, yet according to HMRC, 5.7 million people are yet to file theirs.

Taxpayers routinely omit vital pensions data from their tax returns, forfeiting valuable tax relief or underpaying tax.

Higher-rate taxpayers are most at risk of missing out. If you make regular contributions to a private pension, such as a stakeholder or personal plan, your provider will automatically claim basic-rate income-tax relief on your behalf, reducing the cost of contributing by 20%. But higher-rate and additional-rate taxpayers are entitled to a further 20% and 25% respectively; this relief can only be claimed by declaring your contributions on your annual tax return, so if you don’t provide this information – or you don’t make a return – you won’t get it. Around 250,000 taxpayers make this mistake.

The other side of the coin is that anyone exceeding their annual pension contribution allowance must declare this on their tax return. For most people, the annual allowance is £40,000, though it maybe higher or lower depending on your circumstances. for example, if you are a high earner with an income of £240,000, you annul allowance could be just £4,000 per tax year.

If you’ve gone over your allowance – which by the way is your responsibility to check – you must tell HMRC. You’ll then pay a tax charge. Failing to declare this information means you’ll be paying too little tax, so interest and penalty charges could become payable when the error comes to light.

Already completed your tax return? Don't worry, you still have until 31 January 2023 and can still go in and make changes.

You can add pension details to your tax return under the ‘tax reliefs’ section.

An ongoing freeze to tax bands and allowances is putting savers at greater risk of being taxed on their savings, and further challenges lie ahead for savers.

In the 2025 Autumn Budget, chancellor Rachel Reeves extended a freeze on income tax thresholds to 2030/31, which will mean more people are dragged into higher tax brackets as incomes rise. Furthermore, from April 2027, the tax rates on savings income will be hiked, and under 65s will be capped at putting £12,000 a year into cash ISAs (rather than up to £20,000).

Some 2.64 million people are expected to pay tax on their savings in the 2025/26 tax year, according to HMRC data obtained by AJ Bell through a Freedom of Information request in August 2025. Just 647,000 were affected in 2021/22.

This includes a projected 1.15 million basic-rate taxpayers and 897,000 higher-rate taxpayers.

It means around one in 25 basic-rate taxpayers and one in eight higher-rate taxpayers face paying tax on their savings this tax year, AJ Bell said.

Why are more savers facing tax on savings interest?

Savings accounts became much more attractive in recent years, following 14 consecutive base rate hikes between December 2021 and August 2023 and lower levels of inflation. Interest rates are now on a downward trend, but the average easy access savings account at the end of January 2026 still paid 2.44% – 1.85 percentage points higher than the 0.59% average rate paid at the start of January 2020.

Higher interest rates, combined with frozen tax allowances, leaves more and more savers at risk of being taxed on their savings interest.

While you can earn some interest in traditional savings accounts without being taxed, cash ISAs are a tax-free savings vehicle, meaning they are a useful way to protect interest on savings from the taxman.

These tax-free wrappers had fallen out of favour in recent years as paltry interest rates across all types of accounts meant many savers found themselves well within the personal savings allowance threshold.

Laura Suter, director of personal finance at AJ Bell, told MoneyWeek: “For years, most savers didn’t give a second thought to paying tax on their interest – rates were low and the personal savings allowance offered a generous cushion. But the landscape has changed rapidly.

“A combination of rising interest rates, frozen tax thresholds, more people being pushed into higher tax bands, and years of cash ISAs being overlooked means many are now being pulled into the tax net for the first time.”

Tax on savings: allowances

Taxpayers can use their personal allowance (typically £12,570) to earn interest tax-free if it hasn't been used up on other forms of income, such as wages or a pension. If your adjusted net income is more than £100,000, your personal allowance reduces by £1 for every £2 above this threshold, so you’d lose it entirely if your income is £125,140 or more.

Some people can also earn up to £5,000 of interest tax-free, known as the starting rate for savings. This allowance reduces by £1 for every £1 of other income above the personal allowance. People with income of £17,570 or more will not be able to get this allowance.

The personal savings allowance protects some savings interest from the taxman.

Basic-rate taxpayers (taxable income of £12,571 to £50,270) can earn £1,000 in interest tax-free via this allowance, while higher-rate taxpayers (taxable income of £50,271 to £125,140) have a personal savings allowance of £500. Additional-rate taxpayers (taxable income over £125,140) are not eligible for any personal savings allowance, meaning every penny they earn in interest is taxable.

Some £516 billion held in 5.2 million non-ISA adult savings accounts would generate enough interest to breach the basic-rate taxpayer’s personal savings allowance (PSA), according to analysis of CACI data by Paragon Bank in November 2025.

Cash ISA vs traditional savings accounts: Which pays more?

The interest rates offered on the best savings accounts are substantially higher than the rates seen five years ago, with the top rate for a one-year fixed savings account now standing at 4.4% AER/gross. The highest-paying easy access account (including bonus) pays 4.5% AER/4.41% gross. Rates are according to Moneyfactscompare.co.uk and correct at the time of writing.

The best cash ISA rates also pay above 4% – the highest-paying one-year fixed ISA offers a rate of 4.15% AER/gross while the top variable cash ISA pays 4.39% AER/4.3% gross.

The number of savings accounts available (excluding cash ISAs) stood at 1,661 in January 2026 – up from 1,542 the year before. Meanwhile, the number of cash ISAs on the market was 657, compared to 574 in January 2025, according to the Moneyfacts UK Savings Trends Treasury Report.

The average easy access savings account (excluding ISAs) paid 2.48% this January, down from 2.89% in the same period last year. The average easy access cash ISA rate has also slipped year-on-year – it’s now 2.69%, down from 3.03%.

We look at what savers need to consider when deciding between a traditional savings account and an ISA.

Benefits of a traditional savings account

You can earn interest on cash held in a traditional savings account, and while this isn’t tax-free, there are allowances available, so you can earn some interest without paying tax on it.

Sometimes, the rates on the best savings accounts are higher than those paid by tax-free cash ISAs, making them seem more attractive.

Unlike ISAs, traditional savings accounts do not tend to have a cap on how much you can save in them.

You can usually put in as much as you like within the account, although the Financial Services Compensation Scheme only protects the first £120,000 saved in each financial institution in the event that it goes bust. You can check if your savings – whether they’re in a traditional account or a cash ISA – are protected by the FSCS using their bank and savings protection checker.

Downsides of traditional savings accounts

Once you start to build a larger savings pot ‒ particularly if you are a higher-rate taxpayer ‒ you’re far more likely to have to hand over some of the earnings to the taxman.

MoneyWeek has calculated that higher-rate taxpayers would start paying income tax on their interest once they hold just over £11,100 in the current top easy access account, assuming it paid 4.5% for the year. Basic rate taxpayers could save just over £22,200 in an account with this rate before their savings interest becomes subject to tax.

If interest rates were to rise, more savers with traditional savings accounts would find their returns are taxed as they would earn above the personal savings allowance.

Suter, from AJ Bell, warned many won’t realise they’re breaching the tax-free limit.

“Self-assessment filers will need to declare any interest earned, but for those on PAYE, HMRC will collect the data directly from their payslip by adjusting their tax code,” she said.

“That can lead to a nasty surprise when people see their take-home pay suddenly fall.”

Benefits of an ISA

ISAs let you save or invest, entirely tax-free.

There is an annual ISA allowance though ‒ currently set at £20,000 for the 2025/26 financial year.

There are various types of ISA available, but the annual ISA allowance spans deposits into all of these options per tax year.

Cash ISAs

If you’re a saver who wants some low-risk certainty then you can put your money into a cash ISA, which works exactly like a traditional savings account except the interest is guaranteed to be tax-free.

Stocks and shares ISAs

If you’re happy to accept a little more risk, in return for the chance of higher returns, then you could opt for a stocks and shares ISA.

The types of investment that can be held within a stocks and shares ISA varies based on the provider, but it allows savers to enjoy every penny of the returns generated from individual stocks, funds, bonds and the like in their ISA without being subject to dividend tax or capital gains tax.

Lifetime ISAs

The Lifetime ISA (LISA) is another type of ISA, which is aimed at two distinct types of saver: those looking to build up a deposit to use when purchasing a house, or those who want to save for retirement.

Eligible savers can deposit up to £4,000 per tax year into a LISA – this limit counts towards the £20,000 annual ISA allowance.

The money you save in a Lifetime ISA is eligible for a 25% bonus from the government each year, with the bonus capped at £1,000. You must be under 40 to open a Lifetime ISA and if you’re using a Lifetime ISA to save for retirement you won’t be able to access the cash until age 60 without incurring a penalty.

The chancellor announced the government will publish a consultation in “early 2026” on the implementation of a new, simpler ISA product to help first-time buyers purchase a home. This would be offered in place of the Lifetime ISA.

Innovative finance ISAs

Another form of investment ISA available is the Innovative Finance ISA, which can be used to invest in alternative assets like peer-to-peer loans (or crypto ETNs from April).

Junior ISAs

A Junior ISA (JISA) is a tax-free savings account specifically for children.

Parents can put money aside for their children in a Junior ISA, but the money belongs to the child. The child can take control of the account when they turn 16 but can’t withdraw from it until their 18th birthday.

There is a different limit for Junior ISAs – up to £9,000 can be deposited in Junior ISAs per tax year.

There are two types: a cash Junior ISA and a stocks and shares Junior ISA. A child can have one or both of these types.

How much can you put in a cash ISA?

You can deposit up to £20,000 into ISAs each tax year, but you can also transfer ISA savings. You could benefit from moving ISA savings from previous years to ISAs with a higher interest rate, if the account allows transfers. By transferring the ISA savings, you are preserving the tax-free status.

Any unused ISA allowance cannot be carried over to future years. So, if you put less than £20,000 in any tax year into ISAs, that unused allowance is gone forever. This could be frustrating if you suddenly come into a windfall – for example, a large bonus or an inheritance.

From 6 April, 2027, under 65s will only be able to put £12,000 into cash ISAs annually. This is included within the overall £20,000 ISA limit. The annual subscription limit for Lifetime ISAs will remain at £4,000.

If you are 65 or older, you can continue to put up to £20,000 into a cash ISA each tax year, if you wish to.

Previously, you could only open one of each main type of ISA in any one tax year, but this rule changed as of April 6, 2024.

Now, savers can open and pay into multiple of the same type of ISA, for example open more than one cash ISA, within a tax year.

Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said cash ISAs are hugely popular among savers, and they are “one of the best options for those wanting to avoid an unexpected tax bill”.

“The upcoming 2026/27 tax year marks the final period for savers under 65 to maximise their £20,000 cash ISA allowance, which could lead to a very competitive ISA season, but the ‘rate war’ peak isn’t typically until around March and April,” she said.

“This may encourage some savers to adopt a ‘wait-and-see’ approach, however with savings rates anticipated to fade this year, trying to time the market could leave them worse off in real terms. To avoid missing out, savers should regularly review their rates over the coming months to ensure they’re getting a fair deal.”

Downsides of an ISA

While the returns from ISAs are free of tax, that doesn’t necessarily mean that you will be better off by using them. As with general investment accounts, if you opt for an investment ISA (the stocks and shares ISA or the innovative finance ISA), there is the risk that the assets you invest in could lose value. As a result, you may end up with less than you started with.

Moving money between ISAs can also be challenging. Not all ISAs accept inward transfers. This means that you cannot move money that’s already held in an ISA into them. This can mean limited choice when it comes to finding a new home for your savings. What’s more, the money must be transferred directly from one ISA to another, in order to retain its tax-free status.

If you withdraw the savings from an ISA, even if it’s to subsequently deposit it into another ISA, it will count towards the £20,000 annual ISA allowance. ISA transfers do not count.

Traditional savings accounts and ISAs

There is nothing to stop savers from using both ISAs and traditional savings accounts. In fact, for some savers, this will make sense.

For example, if you have used the entirety of your £20,000 annual ISA allowance, then that does not have to be the limit to your savings. Once you hit that threshold you can continue to save money in a traditional savings account for the rest of the tax year.

“Traditional savings accounts tend to offer better rates, which can be crucial when savers are trying to grow their cash faster than inflation,” Eastell said.

“These may be a more suitable option for those that are unlikely to find themselves breaching their personal savings allowance. Ultimately, savers should have a clear understanding of their tax implications to help decide which account may suit their needs.”

It also might make sense to divide the money you’re saving ‒ based on whether you need to access it in the short or long term, and the interest rates available on different accounts.

Customers wishing to file a paper tax return must ensure that HM Revenue & Customs (HMRC) receives it by midnight on Monday 31 October – or risk being fined.

Almost half a million people choose to fill in and post a tax return each year, rather than submitting their self-assessment return online.

This year, those posting a tax return are being urged to do so as quickly as possible due to ongoing postal strike action, which could lead to delivery delays.

If you miss the Halloween deadline for paper tax returns, it’s possible to do an online tax return instead – in which case, the tax return deadline is 31 January.

However, anyone who files a paper tax return after the 31 October deadline risks being fined by HMRC. You’ll pay a late filing penalty of £100 if your tax return is up to three months late. If it’s later than this, you could face penalties totalling more than £1,000.

Regardless of whether you submit a paper or online return, the deadline to pay any tax due is 31 January.

Who must send a tax return?

About 12.2 million people submit a tax return each year, with the vast majority (around 95%) completing the process online rather than sending in a paper return. This year, 452,629 paper returns have been filed so far, according to HMRC.

Self-employed people, those with untaxed income (such as from investments), landlords with untaxed rental income, and parents who need to pay the high income child benefit charge are just some of the people who should file a tax return.

You don’t usually need to send a return if your only income is from your wages or pension, or if you’re newly self-employed but your earnings don’t exceed £1,000.

The tax return that needs to be submitted currently relates to the 2021-22 tax year, which ran from 6 April 2021 to 5 April 2022.

If you‘re not sure whether you need to complete a tax return or not, use this free online self-assessment tool on gov.uk.

How to submit a paper tax return

The quickest way to submit a tax return is online, plus the deadline is longer as you have until 31 January to do it.

However, if you prefer to file a paper return, you’ll need to print out and fill in form SA100.

There is a guide on the gov.uk website on how to fill it out and supplementary pages – which you may need for certain types of income. Don’t forget to sign and date the form yourself. If you don’t, it will be sent back to you.

HMRC must receive the completed tax return by midnight on 31 October, make sure you post it well before the final deadline.

If you live in the UK, send it to: Self Assessment, HM Revenue & Customs, BX9 1AS.

If you live outside the UK, send it to: HM Revenue & Customs, Benton Park View, Newcastle Upon Tyne, NE98 1ZZ, UK.

What happens if I miss the 31 October deadline?

If you're worried you'll miss this deadline you can avoid a fine by submitting your tax return online instead. Just make sure it’s done by 31 January.

If you submit a paper return past the 31 October cut-off, you'll be charged a £100 penalty – even if there's no tax to pay.

If you still haven’t filed your return after three months, further penalties of £10 a day are applied, up to a maximum of £900. After six months, HMRC will fine you 5% of the tax owed or £300 (whichever is greater), which is repeated at 12 months.

Beware of HMRC scams

Self-assessment customers should beware of HMRC scams, as tax return season is a popular time for scammers to target victims.

In the 12 months to August 2022, HMRC responded to more than 180,000 referrals of suspicious contact from the public, of which almost 81,000 were scams offering fake tax rebates.

Criminals claiming to be from HMRC may target individuals by email, text and phone. They may offer bogus tax rebates or threaten arrest for tax evasion.

There is a risk some people doing their tax return may think the communications are genuine and from HMRC.

Myrtle Lloyd, HMRC’s director general for customer services, said: “Never let yourself be rushed. If someone contacts you saying they’re from HMRC, wanting you to urgently transfer money or give personal information, be on your guard. HMRC will never ring up threatening arrest. Only criminals do that.”

You can report any suspicious activity to HMRC by forwarding texts claiming to be from HMRC to 60599 and emails to phishing@hmrc.gov.uk. Any tax scam phone calls can be reported using the online form on gov.uk.

A relatively minor change put forward by Kwasi Kwarteng in his now-defunct mini-Budget was a proposed adjustment to the IR35 tax rule.

HMRC bought in the IR35 tax rule in 1999 aiming to clamp down on individuals – mainly contractors and freelancers – who work in a similar manner to an employee, but under the structure of a limited company.

By working through a limited company it’s possible for individuals to lower their tax burden as they don’t have to pay national insurance (NI) or income tax. Initially, the burden fell on the employee to assess whether they fell under the IR35 tax rule.

However, that changed in 2017 when the government made public sector employers responsible for determining contractors’ IR35 status. In 2021, this was extended to employers in the private sector.

IR35 tax rule changes are being scrapped

Kwarteng wanted to reduce the burden on employers as part of his growth plan. He wanted to go back to the old system where employees were responsible for managing their own tax positions.

Jeremy Hunt has decided to reverse this decision. The changes brought in last year will remain in place and bring in an extra £2bn a year in tax revenue, according to Treasury projections.

The decision to retain this piece of burdensome regulation has been criticised by those who are affected.

Dave Chaplin, CEO of tax compliance firm IR35 Shield, said: "Repealing off-payroll would have returned an essential level of certainty to contract transactions in the market economy, leading to economic growth. Instead, off-payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.”

Rule change will lead to more tax collection

The IR35 tax rule is one of the most contentious pieces of regulation the government has introduced in recent years.

Put simply, the rules define contractors’ employment status based on a set of principles such as working for a single employer or having little discretion about when and where they work.

Employees that are deemed to fall within the scope of IR35 (and thus qualify as being employed) have to pay employment taxes – income tax and national insurance – through PAYE like all other employees.

Campaigners argue that companies have reacted by pushing all contractors into the scope of the rules – lumping them with higher taxes – rather than risk falling foul of HMRC.

And companies are right to be worried: HMRC has become quite aggressive when policing the IR35 tax rule. That could be because some estimates suggest less than 10% of contractors pay the right amount of tax.

Now Hunt has scrapped Kwarteng’s proposed changes, it looks as if the fight between contractors and HMRC will continue.

The inheritance-tax (IHT) grab continues to intensify. The combination of frozen tax thresholds and soaring property prices saw HM Revenue & Customs (HMRC) take £5.5bn in IHT between April 2021 and February 2022 – around £700m more than in the same period last year. With the basic IHT threshold set to remain at £325,000 until at least 2026, tens of thousands more families face being dragged into the net in the coming years.

This makes it even more important that you organise your savings and investments in the most tax-efficient way. The first principle to grasp is that private pension saving almost always falls outside of your estate for IHT purposes. That means it can be passed on to heirs without an IHT bill to pay.

How that works in practice will depend on your age when you die and what type of pension you have. Broadly speaking, any cash left in a defined contribution pension fund can be passed on to your heirs. They’ll pay income tax on the money only if you were 75 or over at the time of your death. There are a few exceptions to this: for example, money from a pension put into drawdown before 6 April 2015 will be subject to income tax even if you are under 75 when you die.

Spend taxable savings first

Since IHT is not payable on pension cash left to heirs, it makes sense to run down other savings later in life before tapping into your pension cash. If you reach retirement with, say, cash in both individual savings accounts (Isas) and private pensions, it’s a good idea, all other things being equal, to use the former first. Isa savings count towards IHT calculations, so running these down before you turn to your pensions reduces your heirs’ potential liability to tax.

What if this is not an option because you’ve chosen to build up savings for old age through non-pension vehicles and don’t have much in pensions to leave? One option is to rethink how these savings are invested.

In particular, most shares listed on Aim, the UK’s small-cap index, do not count towards your estate for IHT purposes because the government is keen to encourage people to invest in less mature businesses. Accordingly, by shifting some of your retirement savings into a portfolio of Aim stocks, you’ll be taking this money out of the IHT net. You can do that inside or outside an Isa, but if your Aim holdings are inside a tax shelter, there will be no other taxes to worry about either.

In practice, the performance of Aim shares tends to be more volatile, so you wouldn’t want all your retirement savings invested in this way. However, this can be a good way to mitigate some IHT risk. There are a number of specialist firms that run Aim portfolio management services targeted at families planning for IHT.

Consider all reliefs

The technical name for the exemption of Aim shares from IHT is Business Property Relief (BPR). Full relief is often available on your own business, and 50% BPR relief on land, buildings or machinery used by a business that you were a partner in or controlled. Take advice on how this might affect your heirs’ liability to IHT.

Finally, if you’re struggling to reduce your family’s IHT liability through investment planning, don’t forget other mainstream IHT strategies. In particular, by giving assets away, you’ll reduce the size of your final estate. There are a wide variety of options for making both small and large gifts of this size.

With just over a week left until the end of January, many of us are thinking about our tax returns. But this year you have a bit more time to sort out your taxes because HMRC has extended the deadline.

In normal years you have until 31 January to file your tax return, but this year the taxman has pushed the date back to 28 February. However, that doesn’t mean you should wait. Not filing until February could still cost you money.

The new deadline for submitting your tax return

In recent weeks, HMRC has come under increasing pressure to extend the deadline for submitting 2020-2021 tax returns, because the Covid-19 pandemic has left many people struggling to complete their accounts. Accountancy firms have reported “widespread staff shortages caused by the spread of Omicron”, says Harry Brennan in The Daily Telegraph. “They said this was making it impossible for professionals to meet the cut off date, meaning taxpayers faced being unfairly punished for their accountants being off sick.”

Missing the 31 January deadline usually results in an instant £100 fine, plus additional penalties that can leave you owing thousands more. However, HMRC has announced that you won’t face a late filing penalty this year if you submit your tax return online by 28 February.

The end of January also usually marks the deadline for paying any tax due, but this is being extended as well. You won’t face a late-payment penalty provided you pay your bill or set up a “time to pay” arrangement by 1 April. The latter is a new system HMRC brought in to recognise that people could struggle to pay their bills if the pandemic lockdowns affected their income. Under the “time to pay” rules anyone owing up to £30,000 can arrange to pay what they owe in instalments.

You own't be fined, but you’ll still pay interest

However, HMRC isn’t giving you a completely free ride. You won’t pay any penalties if you miss the 31 January deadline for paying your tax bill, but HMRC will start charging interest on anything you owe at a rate of 2.75% from 1 February. So if you can get your tax return filed and your bill paid by the usual end of January deadline, you should make sure you do so.

If you miss the new 28 February deadline, you will immediately be fined £100. After that, £10 a day is added up to a maximum of 90 days. Anyone who is more than six months late in filing will pay the higher of either £300 or 5% of the tax due. If you are a year late filing your tax return HMRC could fine you 100% of the bill.

Still, while you should try to file this month, the benefit of having until 28 February to file without fines is that you don’t need to panic if you’re struggling. Taking the time to get things right could mean you avoid a hefty unexpected bill. HMRC will fine you up to 30% of your bill for careless mistakes, rising to 100% if it thinks the error is deliberate.

Don’t forget Covid-19 loans

It’s particularly important to make sure you understand the rules surrounding any coronavirus-related government handouts you may have received. This is the first year that taxpayers will need to include any Covid-19 support, such as money from the self-employment income support scheme or business support grants. Any payments received through these schemes are subject to income tax, so you need to declare them on your tax return.

“The fact that the Covid-19 support payments are taxable has come as a shock to many and has resulted in unexpected tax bills,” says Michelle Denny-West, a tax partner at the accountancy firm Moore Kingston Smith in The Times.

There are new sections on the tax return where you will need to give details of any Covid-19 loans, grants or payments you received. The money received through these grants will be added to your overall income and taxed accordingly.

What has been announced?

The government is introducing a new tax to fund more spending on the National Health Service (NHS) and social care. From April 2022, national insurance contributions (NICs) will go up by 1.25 percentage points both for workers and employers, taking the standard rate to 13.25% for employees and 15.05% for employers. Self-employed people will pay 10.25%, compared to 9% now (on Class 4). From April 2023, the NI increase will be replaced with a separate “health and social care levy” that has the same effect, but will also be paid by pensioners still in employment (who don’t pay NICs). Of course, NICs are not an insurance scheme, despite the name. They are simply another form of income tax (with some different thresholds and exemptions, for added complexity), and a job tax paid by employers. This tax increase affects about 29 million workers, and means that people earning £30,000 a year – close to the average wage – pay £255 more per annum. For those earning £50,000, the bill is £505.

What about dividends?

In addition to NICs, there was also an unexpected 1.25-point rise in dividend tax rates, affecting investors in stocks and small business owners who pay themselves via companies. Basic-rate taxpayers will now pay 8.75% tax on dividends, higher-rate payers will pay 33.75%, and top-rate payers will pay 39.35% (on all dividends exceeding the £2,000 dividend tax-free allowance that sits on top of the £12,570 personal allowance). Many accountants see the dividend move as part of HMRC’s crackdown on “disguised employment” aimed at avoiding tax. For investors with extensive portfolios, the rise increases the incentive to hold dividend-paying stocks in individual savings accounts (Isas) or self-invested personal pensions (Sipps), which will not be affected.

How much will the government raise?

This “Johnson tax rise” amounts to £12bn per year (about 0.5% of GDP) for three years, says Liam Halligan in The Daily Telegraph. To that we can add the additional £25bn from the upcoming increase in corporation tax (from 19% to 25% in 2023) and freeze on tax thresholds. Together, these tax rises are the biggest in a single year since the 1970s, and will take the UK’s tax burden – meaning tax revenues as a share of GDP – to 35.5%, the highest since the 1940s. Nor should we rule out more rises in next month’s Budget (due on 27 October). “With public spending surging, and now at 42.4% of GDP, that can hardly be ruled out”, says Halligan. Even without more rises, it’s a strange time to be increasing taxes on business and workers – we are still emerging from a pandemic and evidence is mounting that the bounceback is already stalling.

Will it improve social care?

No one knows, since no social care reforms have been announced. A white paper is due within weeks. However, in the first instance the extra money is going to tackle the backlog in the NHS caused by the pandemic. There’s a risk that the NHS will permanently “swallow up” the whole £12bn, says the Institute for Fiscal Studies, leaving nothing to fund social care plans.

Are the rises fair?

They don’t look it, say many critics. NICs kick in at around £9,500, meaning that even some people too poor to pay income tax are caught in the net. Graduates repaying student loans will be taxed at 50% on any increase in salary above £27,288. This means “increasing taxes on the working poor to safeguard the assets of the stonkingly rich”, says Fraser Nelson in The Spectator. It only serves to protect the new “assetocracy” of home-owning millionaires. A quarter of those aged 65 or over (three million people) live in households with net wealth of more than £1m, compared to 7% in 2008. Another three million are worth more than £500,000. Boris Johnson has privately admitted this to his MPs – and it’s a sorry definition of conservatism: “a protection racket, where the tools of the state are used to extract money from minimum-wage workers and pass it on to the better off,” says Nelson.

What would have been fairer?

The straightforward alternative to raising £12bn a year via this “dog’s dinner” would be a two percentage-point rise in income tax, says David Smith in The Sunday Times. The government hopes to bamboozle voters by using the “more mysterious and widely misunderstood” NICs instead. The result is something that “has further complicated our ludicrously complex tax system and introduced a bigger discrepancy into the tax treatment of the employed and self-employed”. What’s more, income tax is going up next year anyway. This supposedly low-tax government is stealthily freezing the personal allowance and higher-rate threshold for four years – creating 1.3 million new taxpayers and one million more on the higher rate, as well as bigger bills for all income-tax payers than if those allowances had risen with inflation.

Why not remove existing exemptions?

One of the reasons NICs are seen as an unfair tax is that pensioners – even wealthy ones with high incomes – don’t pay it. Nor is it paid on investment or property income. What’s more, the employee contribution falls from (currently) 12% of income to 2% on earnings over £50,270 a year, meaning that high-earners pay a lower proportion of their earnings in NICs than low earners. Removing all existing exemptions and earnings limits could raise considerably more than £12bn a year, making room for a cut rather than an increase in the overall NIC rate, according to a report by researchers at the London School of Economics and Warwick University, says Smith. But what’s really needed is a root-and-branch simplification of the tax system that merges income tax and NICs; equalises the rate of capital gains tax and dividends; and completely overhauls property taxes, says The Times. That would be fairer, simpler, and give taxpayers a clearer view of our ever-increasing tax burden.

Hundreds of thousands of Britons are self-isolating after being pinged by the NHS Covid-19 app. One silver lining is that those who are working from home (WFH) could be in line to claim up to £140 of tax relief.

Employees have always been allowed to claim back a tax rebate for costs such as higher heating and telephone bills if they are required by their employer to work from home. Claiming used to be a slightly fiddly process that required a P87 form. But stop-start lockdowns have forced the government to simplify the procedure to forestall administrative headaches.

Last October, HMRC launched a specialised microservice that enables taxpayers to claim relief in minutes without submitting evidence of higher bills. It can be accessed via www.gov.uk/tax-relief-for-employees/working-at-home. You will need a government gateway ID to use the service. The portal updates your PAYE tax code so that your employer deducts less tax from your salary each month.

The relief you can claim on without providing evidence of your extra costs is £6 a week. A few companies have already paid it as a tax-free allowance to employees to cover WFH expenses, but as times are hard most have opted not to. If the latter applies to you then you can claim relief on the extra costs you have incurred. Standard-rate taxpayers are eligible for a rebate of £1.20 per week (20% of £6), making £62.40 per year. For higher-rate payers the annual relief is worth £124.80 per year, while additional-rate payers get £140.40. Over two years that means it is possible to receive as much as £280 in relief.

For the 2020-2021 and 2021-2022 tax years it is possible to claim relief for the whole year even if you did not work from home every week. Those who work from home for part of the week are also eligible.

You must have been required to work from home; you are not eligible if you chose to do so. You must also declare that your costs have increased as a result (they almost certainly will have owing to higher energy and water consumption). This is an individual benefit, so couples and flatmates can each make a claim provided they meet the criteria.

Remember to claim again

If you do self-assessment then you are still eligible for the full-year rebate, but cannot claim via the portal: instead you must make the claim when you next fill in your return. Self-employed people are not affected as they already claim for work-related expenses when they do self-assessment. It is possible to backdate a claim by up to four years if you haven’t already made one (note that the weekly flat rate before April 6 2020 was £4). HMRC has already received more than three million claims for the 2020/2021 tax year. If you have already claimed for last year, remember to do so again for the current tax year (which began on 6 April) if you qualify.

Data from the Office for National Statistics shows that 38% of working adults were working from home at least part of the time in late April 2021, but only about 800,000 people have so far claimed for the current year.

If you have incurred significantly more than £6 a week in extra costs it is worth claiming for those too, but you will have to go through the more burdensome process of filling in a P87 form and providing receipts to prove it. Note that if you are an employee then only variable costs are counted; you cannot include a contribution towards rent or mortgage payments.

Inheritance tax is very likely the most hated tax in Britain. And yet, it’s not actually paid by that many people. Roughly 4% of deaths in the UK result in an inheritance tax bill. Just over 24,000 families paid the tax in the 2017-2018 financial year, the last year for which official government statistics are available.

The number may even have fallen a little since then: in 2019-2020, inheritance tax receipts totalled £5.2bn, says HM Revenue & Customs, a 4% drop on the previous year.

Why, then, do so many people feel so strongly about inheritance tax? And why do you need to understand how it works, even although relatively few estates pay it?

More and more estates will be dragged into the inheritance tax net

Clearly, inheritance tax (often abbreviated to IHT) is an emotive subject. IHT is often described as a “death tax” – dealing with HMRC is the last thing anyone needs following a bereavement.

Many people also feel deeply unhappy about the idea of handing over a slice of the wealth they have built up over a lifetime to the tax office rather than to their families, particularly as they are likely to have already paid significant amounts of other taxes on this wealth.

And while few families pay it, for those who do, the bill is often sizeable. In 2017-2018, the average liability was around £197,000. Many families struggle to pay such large bills out of their more liquid assets, and are therefore forced to make some difficult decisions – such as selling a family home they had hoped to keep, for example.

But perhaps a more important factor for those who aren’t sure whether IHT is something they need to consider or not is this: while IHT receipts have been falling in recent years due to changes that have allowed people to pass on more property wealth to their heirs, this trend looks set to reverse.

The Office for Budget Responsibility predicted in December that the Covid-19 pandemic might lead to a 20% increase in the number of families facing IHT bills, since many deaths during the crisis were unexpected, and therefore unplanned for. And in the longer term, rising property prices look set to drag more families into the IHT net.

Even before chancellor Rishi Sunak’s 2021 spring Budget, the number of people expected to pay IHT over the next five years was expected to rise, with official projections that the tax would raise £6.3bn by 2023-2024, up roughly 20% on five years previously.

The chancellor’s announcement of a freeze in the IHT threshold at current levels until at least 2025-2026 will only increase this number. The Treasury’s own figures show that Sunak expects to raise £1bn in extra IHT over the next five years thanks to this move. So while it’s true that IHT will remain a levy that the majority of people never have to pay, the proportion of estates that incur it will just keep growing.

The good news is that even those families who do face a potential liability, can take perfectly legal steps to reduce the final bill, or even avoid it altogether. The key is to ensure you understand how the tax works, and to plan ahead.

Inheritance tax: the basics

The basic rule is that IHT is due on estates (basically, everything you own, with a few exceptions) worth more than a set amount.

The first slice of your estate is covered by the “nil-rate band” – currently £325,000 – and is completely tax-free; this is the threshold that the chancellor froze in the budget (indeed, it hasn’t been increased since 2009). Your heirs are then required to pay tax out of the estate on its value above this threshold, currently at a rate of 40%.

However, there are some important exceptions to the rule. First, your spouse or civil partner never has to pay IHT when inheriting your estate. Couples are instead allowed to pool their nil rate bands. This effectively enables them to leave £650,000 of assets to heirs with no tax to worry about.

Also, your home is treated slightly differently for IHT purposes. You get an additional “main residence band” covering your home. This effectively raises the total nil-rate band for many people to £500,000 – and so to £1m for couples.

The main residence band was phased in between 2017 and 2020. This is why IHT receipts have – unusually – been falling during that period (and why they’re likely to start rising again from now on, now that the change has fully bedded in).

To establish whether your family might have potential IHT liabilities to plan for, you need to value your estate. Broadly speaking, this consists of everything you own (with a few exceptions), less everything you owe. What you own includes the value of your home, assuming you own it; all your personal possessions; your savings and investments, including those which are free of other taxes such as individual savings accounts (Isas); and any money owed to you, such as pay not yet received for work done or pensions paid in arrears.

For anything you own, or own jointly, you just count your share – if you are married or in a civil partnership, this is assumed to be 50%. A few types of wealth are not usually part of your estate, including life insurance policies and pension savings (more on that later on).

Once you have a total value for your wealth, subtract any debts outstanding, such as mortgage borrowing still to be paid off, outstanding credit card balances and personal loans. Bills also count, as does any income tax you owe.

At the end of this process, you should have a reasonably accurate estimate of the current value of your estate – and whether it exceeds the £325,000 nil rate band, or the £500,000 threshold if you own your home (and it meets a few other conditions – we’ll cover those in the next section). Couples need to test against the £650,000 or £1m combined thresholds.

However, do not forget that the value of your assets – particularly your home, savings and investments – is likely to rise in the years to come, and your debts should fall. As a result, IHT may become an issue even if it is not a concern today. But armed with the figures, you can think about any steps you need to take to head off future problems.

This is the first part in a series on inheritance tax. For the full report and more, subscribe to MoneyWeek magazine and get your first six issues free – sign up here today.

For most people worrying about inheritance tax (IHT), property is the single biggest issue.

The value of the average home in the UK has risen by 53% since April 2009 according to Nationwide Building Society – and by more than 90% in some parts of the country. That date is significant because it’s the last time that the nil-rate band for inheritance tax was increased.

In short, during a period when the value of the average property has risen from £152,000 to £231,000, the nil-rate band, which governs the value of estates that can be passed on free of tax, has remained stuck at £325,000.

So people who a decade ago would never have come close to hitting the threshold may well now find themselves squarely within it – particularly those who live in regions of the UK where house prices are particularly high.

And this is only likely to affect more people as prices keep rising while the threshold stays right where it is.

The good news – there’s a special allowance for the family home

One problem with property is that not only is it likely to account for a large chunk of your wealth, it can be hard to do anything about. While you may be able to reduce the value of your estate by giving away more liquid assets, your home poses more challenges.

As well as a house being illiquid (in other words, it takes time to sell), many people naturally have a strong emotional connection to their family home. They may be reluctant to sell up while they are still alive, even if this makes sense for inheritance tax planning purposes. Their heirs may not wish to sell up either, but end up with no choice if a large tax bill looms.

However, it’s not all bad news. While the nil-rate band (after which inheritance tax is due at 40% – see my previous article on this) will stay at £325,000 until at least the 2025-26 tax year, the David Cameron government introduced an additional inheritance tax allowance for the family home, which was implemented in stages between 2017 and 2020.

This “main residence nil-rate band” kicks in if you are passing your home to a direct descendent. It gives you an extra £175,000 inheritance tax-free allowance. In practice, this means that the inheritance tax threshold for most people is now £500,000, as long as at least £175,000 of the value of their estate comes from their family home.

Couples get a joint allowance. As a result, they can leave estates worth up to £1m to their heirs with no inheritance tax liability, as long as £350,000 of that value comes from their home.

There are some important caveats to bear in mind. First, you only get the main residence allowance if you are leaving your home to your children or grandchildren (including stepchildren, adopted children and foster children). Nieces and nephews, for example, do not qualify as direct descendants; nor do friends.

Also, special rules apply on estates worth more than £2m. For each £2 that your estate is worth above this threshold, you lose £1 of the main residence nil rate band. So if your estate is worth more than £2.35m, your heirs won’t benefit from any of this extra allowance.

The main residence nil-rate band applies to only one home. It must be included in your estate – not held in a trust - and you need to have lived in it at some stage in your life. But it does not have to be the property you were living in at the time of your death, or to have been owned for a minimum period. And if you own more than one home that qualifies for the allowance, the executor of your estate can nominate which one should be used.

Other minimisation methods to consider

When George Osborne, the chancellor at the time, announced the main residence nil rate band in the summer of 2015, he said it would “take the family home out of inheritance tax for all but the wealthiest”. And the change has certainly had a discernible effect: the number of estates on which inheritance tax is payable and the Treasury’s receipts from the tax both began to fall as the allowance was phased in.

However, the trend is likely to be temporary. With house prices continuing to rise – and no plans for increased inheritance tax thresholds before 2026-2027 at the earliest – more estates will inevitably breach the nil-rate bands even after taking the additional property allowance into account. In more expensive parts of the country for housing, many properties are already caught.

Families worried about this issue may need to take specialist advice on how to mitigate a future inheritance tax bill. There are several options, but the inflexibility of property can pose challenges. You can give your home away, for example, but if you continue living in it and do not pay a commercial rent, you will be deemed to have retained ownership for inheritance tax purposes.

Trusts can be useful ways to manage property more tax efficiently, but these are expensive and come with upfront inheritance tax levies. STEP, the trade body for specialists in estate planning, including lawyers and accountants, can put you in touch with advisers in your area.

Other options include equity release plans, which allow you to borrow against the value of your home without having to make repayments during your lifetime – thus reducing the size of your estate by the outstanding debt. But take professional advice before making such an arrangement.

This is the second part of our series on inheritance tax. For the full report and more, subscribe to MoneyWeek magazine and get your first six issues free – sign up here today.

In earlier articles, we’ve discussed how to calculate the value of your estate, including the value of your property. You may now have a better idea of what your estate is worth and whether you are likely to face an inheritance tax (inheritance tax) bill or not.

Either way, the good news is that there are all sorts of straightforward and perfectly legal ways to plan ahead in order to minimise an inheritance tax bill, or to wipe it out altogether.

What can you give away now?

The simplest of these is to start giving away assets in order to reduce the size of your estate. For inheritance tax purposes, such gifts effectively fall into two categories: those that are tax-free straight away, and those that only officially drop out of your estate after a period of time, typically seven years.

The first category gives you plenty of headroom. Each year, you can make as many gifts worth £250 or less as you want. You can also make larger gifts, up to a total of £3,000 in any one tax year; any of this allowance not used can be carried forward into the following tax year.

All donations to charities and political parties also count as tax-free gifts. In addition, parents can give children getting married gifts worth up to £5,000 without affecting their other allowances; grandparents and others get smaller allowances of this type, worth £2,500 and £1,000 respectively.

Another option here is to give away your surplus income. If you can show you have more money coming in than you need to sustain your lifestyle, and you are prepared to commit to regular gifts as part of your normal spending, you can pass on as much of this surplus as you like with no inheritance tax implications.

The seven-year rule

Gifts that do not fall within any of these allowances and exemptions are known as “potentially exempt transfers” (PETs). They will still fall out of your estate for inheritance tax purposes, but only if you live for at least seven years after making them.

If you die sooner than that, the value of PETs still outstanding will be added back on to your estate according to a tapered scale. Gifts made less than three years previously are counted in full; those made between three and four years ago are discounted by 20%; rising to 40% for gifts made four to five years ago; and so on over each two-year period until you get to 100% after seven years.

Keep careful records

If you are in any doubt about how gifts might affect the inheritance tax position of your heirs, you should take professional advice, particularly as the small print can get quite technical.

Even if you do not get such help, make sure to keep meticulous records of the gifts you have made. These will ensure that whoever is responsible for sorting out your affairs after your death is able to do so easily – and that your heirs get the full benefit of your planning.

One important issue to watch out for is that if you continue to enjoy a benefit from an asset you have gifted, the gift will not count for inheritance tax purposes. One obvious example is your home. If you give it away in order to get its value out of your estate but continue to live in it without paying rent to the new owner, the property will still be counted as part of your estate.

Be careful with trusts

Also take care with trusts. One popular inheritance tax planning strategy is to gift your assets into a trust; these assets are then owned and controlled by your nominated trustees who have a legal opportunity to manage the assets on behalf of your chosen beneficiaries.

However, while assets in trust do not count for inheritance tax purposes after your death, you may have to pay a 20% charge when you first make the gift – and further levies of 6% every ten years thereafter. Always take professional legal advice on trust structures.

Finally, even if you can’t beat an inheritance tax bill in full, you can insure against it, with a life insurance policy that pays out to the value of the expected bill for your heirs. Providing the policy is written into trust – insurers can usually help with this – there will be no inheritance tax to pay on this money.

The premiums paid to the insurance policy count as a gift if you pay them yourself, but these can usually be covered by one of your tax-free exemptions. Just be aware that life insurance can be expensive if you are older or in poor health.

This is the third in our series on inheritance tax. For the full report and more, subscribe to MoneyWeek magazine and get your first six issues free – sign up here today.

Business Property Relief (BPR) was an important survivor of chancellor Rishi Sunak’s spring Budget in early March. The tax break can be a valuable tool in planning for inheritance tax, but had been tipped for the chop.

Yet as it turned out, the chancellor made no mention of BPR, leaving people free to continue using it, at least for now.

The basic idea of BPR is that if you leave business assets to your heirs – such as a business you have started, or its assets – these should be treated differently from an inheritance tax perspective to the rest of your estate. In practice, the rules relating to businesses and inheritance tax can get quite complicated, but one aspect of BPR is valuable to a potentially wide audience, including people who have never started a business in their lives.

This is because unquoted shares in a company fall within the remit of BPR. Crucially, “unquoted” has a broad definition – it includes companies listed on the Aim market, the junior market of the London Stock Exchange.

As a result, in the right circumstances, Aim shares will not count as part of your estate for inheritance tax purposes; no tax is thus due on these assets, even if your estate exceeds the threshold at which your heirs would normally have to pay 40% tax.

Don’t buy Aim stocks just for the tax breaks

The first important point to make here is that not allowing “the tax tail to wag the investment dog” is a golden rule of financial planning. In other words, it never makes sense to invest simply for tax reasons. Aim shares, after all, carry their own risks – there is not much point in investing in the hope of securing a 40% tax saving if you lose 100% of your capital.

This caveat aside, however, where you own Aim shares as part of an investment portfolio carefully structured according to your attitude to risk and your financial goals, they can be a useful way to plan for inheritance tax. Aim shares are usually also eligible for individual savings accounts (Isas), within which income and capital gains are tax-free too.

Just make sure you understand the rules. First, BPR comes with a two-year qualifying period – you must have held qualifying Aim shares for two years before your death for the assets to fall out of your estate for inheritance tax purposes.

There is a wrinkle here: they do not need to be the same Aim shares. If you owned shares in one qualifying company for 18 months before selling up and reinvesting the proceeds in another qualifying company, the latter would get BPR after six months.

Second, not all Aim shares qualify for BPR. Certain sectors of the market, including financial services and property, typically don’t. HMRC publishes a guide to what qualifies and what doesn’t, but you’ll need to check each share to be certain, or take professional advice. Roughly two-thirds of Aim shares currently qualify, but the list changes all the time as companies come and go, or change their activities.

How to build an Aim portfolio

How you make use of the Aim BPR tax break in practice depends on your personal circumstances and how hands-on you want to be. It is certainly possible to build your own portfolio of Aim stocks, but you will need to be confident in your ability to choose investments wisely and to stay on top of the tax rules.

The alternative is to pay a stockbroker or financial adviser to do the job on your behalf, or to work with a firm that specialises in building tax-efficient investment portfolios. Firms such as Octopus, Unicorn and Wealth Club, for example, offer specialist inheritance-tax portfolio services.

Either way, the normal rules apply when seeking professional advice. Only work with fully regulated firms – those authorised by the Financial Conduct Authority. And do your due diligence – look into firms’ specialist qualifications, compare their charges (they can be steep, even by financial industry standards, for this particular service), and make sure you feel comfortable with them before handing over your money.

Remember that the government could change the rules at any point

More broadly, you should also be mindful of the potential for tax reforms in the future that torpedo any strategy you devise today. The fact that the chancellor let BPR off the hook in March does not mean he will not change the rules in the future. Given that the Office for Tax Simplification has recommended reform of inheritance tax, BPR remains a likely candidate for an overhaul.

One final point to make is that BPR is not the only inheritance tax relief available on investments. The Enterprise Investment Scheme (EIS) also comes with an inheritance tax advantage: investments in the EIS of up to £2m a year achieve exemption from the tax after two years.

However, the EIS is an initiative designed to boost investment in small, early-stage companies; the tax benefits on offer reflect the elevated risk profile of these businesses, so you must be prepared for the possibility of losses.

As with Aim shares, never invest in companies with EIS status just to get a tax break – and if you do decide the EIS is for you, think about how to build a portfolio of qualifying companies.

Today, we come to one of the most potentially useful inheritance tax planning tools – the humble pension.

Most people know that private pensions are highly tax efficient. But their inheritance tax advantages are less widely recognised. This is a shame – the fact that your pension savings fall outside your estate for inheritance tax purposes means they can be a great way to pass money on to heirs, and even to mitigate a potential tax bill.

The bottom line is that pension pots are not subject to inheritance tax when you die – they do not count as part of your estate. That said, not all pension savings can be passed on to heirs.

If you have a defined benefit or final salary pension, where your employer guarantees a set amount of pension in retirement, you will not have a fund of savings to bequeath; your heirs may receive benefits such as dependants’ benefits, but they will not inherit any of the savings you have made.

By contrast, defined contribution or money purchase pension savings can be passed on in certain circumstances. These include savings you have made through a workplace defined contribution pension scheme and savings in individual plans such as self-invested personal pensions (Sipps) or stakeholder pensions.

How a pension can help you to plan your legacy

In a defined contribution plan, once you reach retirement and want to start drawing an income, you have a choice to make. You can use the pension fund you have saved to buy an annuity – guaranteeing a set amount of pension for life – or you can opt for an income drawdown arrangement, where you leave your fund invested and take income directly from it. (Or you can do a bit of both).

Money spent on an annuity is gone for good (though you can arrange for a contract with dependants’ benefits). However, unused savings in an income drawdown arrangement can be passed on to heirs. So too can your defined contribution pension fund if you have yet to choose between an annuity and drawdown.

Either way, if you die before age 75, whoever inherits your savings pays no inheritance tax and can also draw on the money with no income tax to pay. If you die after 75, your heirs still pay no inheritance tax, but there will be income tax charges on withdrawals.

The exemption of pensions from inheritance tax gives rise to several types of planning opportunity. Most obviously, if your non-pension assets (such as the cash in your Isas) are likely to leave your heirs facing an inheritance tax bill, it may make sense to prioritise pension plans for your future savings. You may even be able to move existing savings and investments into your pension plan to take them out of the inheritance tax net.

Equally, if you reach retirement with significant savings and investments outside of your pension plan, it may make sense to draw on these before you cash in your pension fund. That way, you will be reducing the size of your estate for inheritance tax purposes before you start using up savings that fall outside of your estate.

Be aware of the risks

However, it is important to consider inheritance tax in the context of your broader needs and circumstances. Contributing too much to a pension, for example, can leave you with a tax headache, since there are strict limits on how much you may invest tax-efficiently in pensions both each year and over a lifetime (the so-called lifetime allowance – another tax threshold that seems unlikely to rise much in the next few years).

Similarly, while income drawdown plans make it easy to leave savings to heirs, you need to manage them carefully to ensure you have enough income to live on and that your money lasts for as long as you need it.

For the majority of people, it therefore makes sense to take professional advice on how to plan your retirement savings from every angle, including potential inheritance tax liabilities.

This definitely applies if you are considering transferring money out of a defined benefit pension scheme. Some people are so keen to pass pension savings on to an heir that they are prepared to give up a guaranteed pension in a defined benefit scheme – even if this means receiving less pension income themselves from a defined contribution arrangement.

This is not a step to take lightly. Financial regulators advise against such transfers in most circumstances and there is a legal requirement to take professional advice on transfers of funds worth more than £30,000.

In most cases, individuals will be far better off sticking with the defined benefit scheme.

One final point. Since your pension is not legally part of your estate, it is not covered by your will. You therefore have to make separate arrangements with your pension provider to specify who you want to inherit pension savings. You will typically need to complete a form – this may be described an “expression of wish” form or a “nomination of beneficiaries” form, or something similar.

Make sure you keep paperwork up to date as your circumstances change – and that you have made arrangements for each of your pension pots if you have a number of different plans.

The government is preparing to announce a three month extension to the stamp duty holiday, originally meant to end on 31 March, as Rishi Sunak attempts to keep the property market growing.

Sunak will use his Budget next week to announce the change of the deadline to the end of June, says a report in The Times. If the rumours are true, an additional 300,000 property transactions could get through in England, based on previous HMRC data, says property website Rightmove. That would save buyers around £1.75bn in total. Around 80% of the 628,000 sales agreed but still currently in the legal process would pay no stamp duty.

The chancellor was under pressure by the industry to extend the stamp duty holiday, with the Building Societies Association (BSA) calling on him to taper the end of the reduction in the tax to allow those who were already in the process of buying to benefit from it. The third lockdown and an “unprecedented increase” in the number of transactions had led to increased delays in the buying process, says the BSA: “These transactions are at risk of falling through and chains collapsing, leading to disruption in the housing market and causing economic uncertainty at the time when we hope the wider economy will begin to pick up.”

The Office for Budget Responsibility predicted the housing market could face a cliff edge if the holiday came to an end on 31 March, adding house prices could drop by over 8% this year.

The extension could cost the Treasury about £1bn, says Capital Economics. And while It would prevent sales from tumbling after April, it doesn’t necessarily encourage new activity as “conveyancing delays” wouldn’t allow new transactions to take place. There’s currently a four-month gap between an offer being accepted and exchanging.

The extension could be a good thing for those who bought a house in December and were concerned they wouldn’t be able to exchange before the end of March. But, as we’ve said before, the stamp duty holiday is not necessarily saving buyers any money. And as Paul Johnson, head of the Institute of Fiscal Studies, pointed out to The Times, by extending the stamp duty holiday the government is increasing the likelihood of people expecting it to become permanent. “Whenever it’s withdrawn you risk a period of stagnation and overblown house prices as you get towards the end.”

The tax-return deadline of 31 January is looming, but millions of us still haven’t filed our self-assessment forms for the financial year between 6 April 2019 and 5 April 2020. And this year, thanks to the fallout from Covid-19, the process could prove particularly protracted.

“Each year about 11 million people have to complete a self-assessment tax return,” says Rupert Jones in The Guardian. “There were still 5.4 million taxpayers who hadn’t filed by 31 December 2019 and 5.5 million who were yet to file by 31 December 2018.”

So, if you’ve yet to sit down and work out what you owe the taxman, you are not alone. However, this year, for once, the tax authorities are being understanding. HMRC says it will aim to be lenient with those affected by the pandemic.

The Covid-19 excuse

“The taxman is developing a simplified ‘Covid-19 excuse’ form that will allow the self-employed and landlords to miss the January 31 deadline for filing and paying their returns,” says David Byers in The Sunday Times.

“It will allow those who say they have a reason for late filing due to the pandemic to avoid stiff penalties.” One valid reason for a delay could be “pressures of home schooling”, says Rob Davies in The Guardian. “People who can show that either they or their accountant have recently been ill with the virus are also likely to be shown clemency.”

File on time

Usually, if you miss the deadline you face escalating fines that start at £100 for being three months late. After that you are liable for an additional £10 a day up to a maximum of £900. It continues with fines of a further £300 or more if you are more than six months late. This year these fines are being waived if you are late owing to Covid-19, but you will have to pay interest on unpaid tax at 2.6%.

If you do file your tax return before 31 January, then you may not need to pay your bill by that date. “Once an individual has done their 2019-2020 return, and knows their tax calculation, they can set up a payment plan, provided they owe less than £30,000,” says Jones in The Guardian.

“They can then choose how much to pay straight away and how much to pay each month by direct debit, and it can all be done online. Needless to say, you’ll have to pay interest.”

“We want to encourage as many people as possible to file on time even if they can’t pay their tax straight away,” HMRC has said. If the pandemic prevents someone from doing so, “we will accept they have a reasonable excuse and cancel penalties, provided they manage to file as soon as possible after that”.

Tax relief for working from home

While the bulk of Covid-19’s effect won’t be felt with this round of tax returns – they cover the year to 5 April 2020 – you do need to think about how your work was affected in the early days.

The first national lockdown began on 23 March 2020, but many people weren’t in the office before then. If your employer had told you to work from home in the 2019-2020 tax year, then you can claim tax relief for each week.

“If you go for the easy, no-receipts-required route, your claim will be based on the assumption that you have incurred costs of £6 a week, and you will get back the tax you would have paid on that,” says Jones. That’s £1.20 a week for basic-rate taxpayers and £2.40 for higher-rate taxpayers.

Anyone who thinks working from home has cost you more than £6 a week can put in a claim for more. However, you have to provide evidence of the cost increases and explain why they were directly related to your work from home.

Those that don’t fill in a tax return can claim the relief via a specific “working from home” form on Gov.uk. Otherwise, you’ll need to claim it as an expense on your self-assessment form.