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February Questions and Answers
Newsletter issue – February 2026
Q. I'm close to going over the capital gains tax limit. How can I avoid a bill?
A: It is important to remember that capital gains tax (CGT) is only payable when you realise the gain. That is to say, if your asset(s) worth has grown more than the annual allowance of £3,000, you pay CGT on the gain above that only if you sell the asset(s).
If you are planning to sell, you might be able to make a partial sale before the end of the tax year, so that your realised gain is below the CGT threshold. You could then make another partial sale in the next tax year. You could also transfer part of your assets into an investment that doesn't attract CGT, like an ISA.
Please get in touch so that we can review your specific situation.
Q. I'm going to become a higher-rate taxpayer, which means my savings will start to be taxed. How do I pay this to HMRC?
A: Congratulations on your earnings going up. You have highlighted that higher-rate taxpayers get a smaller Personal Savings Allowance (PSA) than lower-rate taxpayers (£500 versus £1,000). It is important to note that it is only the interest on your savings that gets taxed, and not the savings themselves. Your rate will be 40% (rising to 42% from April 2027).
Regarding paying this tax, you don't need to do anything. Banks report how much interest you earn to HMRC every year, then HMRC works out if you need to pay more tax. If you do, it will adjust your tax code in order to collect the extra tax over the next year through your employer's PAYE scheme, or it may ask you to complete a self-assessment tax return.
Q. My income is close to hitting the tax-free personal allowance. Is there any way to increase it?
A: With the personal allowance threshold remaining frozen, more people are finding their income is exceeding it and becoming liable for tax. HMRC does have several rules you should make yourself aware of which allow you to legally increase the amount of tax-free income you can earn. They include:
Marriage Allowance - worth £252 a year if one partner transfers their unused tax-free allowance to the other (who must be a basic-rate taxpayer)
Trading allowance - worth £1,000 a year. You can earn this amount from side-hustles and/or selling unwanted items online
Dividend Allowance - you can receive up to £500 in dividends per year, tax-free
Savings Allowance - if your annual income is £12,570 or less, you can earn up to £5,000 from savings without paying tax on the interest
Rent-a-room relief - you can earn up to £7,500 per year from renting a room in your home (you must also be living there)
