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Managing your tax liability could help reduce your overall tax bill and get more out of your money. If you’re unsure how and when you might pay Dividend Tax, read on to find out.

A dividend is one way a company can distribute profits to shareholders. You might receive dividends if you hold shares in dividend-paying companies or if you’re a business owner.

Changes over the last few years mean more people are paying Dividend Tax.

For example, the amount you can receive in dividends before tax is due, known as the “Dividend Allowance”, gradually fell from £5,000 in the 2017/18 tax year to £500 in 2024/25.

According to a September 2024 FTAdviser article, the number of people paying Dividend Tax for the 2024/25 tax year is expected to double when compared to 2021/22. It’s estimated that almost 3.6 million people will need to pay Dividend Tax for the 2024/25 tax year, leading to the Treasury collecting almost £18 billion.

So, it may be important to understand how current legislation might affect you and some of the ways you could reduce your liability.

The Dividend Tax essentials you need to know

If you receive dividends, understanding when Dividend Tax may be due and the rate you’ll pay is important.

As mentioned above, you won’t pay Dividend Tax if the total amount you’ve received is below the Dividend Allowance. For the 2025/26 tax year, the Dividend Allowance is £500.

Dividends above this threshold will usually be taxable, and the rate will depend on which Income Tax band(s) the dividends fall within once your other income is considered. As a result, when calculating your Dividend Tax liability, you may need to include the income you receive from your salary, savings, and other sources.

For the 2025/26 tax year, Dividend Tax rates are:

• Basic rate: 8.75%
• Higher rate: 33.75%
• Additional rate: 39.35%

Depending on your circumstances, paying Dividend Tax on income could reduce your overall tax liability. For example, if you’re a business owner, choosing to reduce your salary and withdraw some money through dividends might result in you paying a lower rate of tax on a portion of your income.

Understanding tax rules and how they apply to you can be complex, and you might benefit from seeking tailored advice.

3 effective ways to reduce your Dividend Tax bill

1. Use your Dividend Allowance

One of the simplest ways to reduce your Dividend Tax bill is to use your Dividend Allowance.

The allowance resets at the start of each tax year. If you can, spreading dividends across several tax years could reduce how much tax you’re paying.

The Dividend Allowance is also individual. So, if you’re married or in a civil partnership, managing tax liability together could be useful. You may pass some dividend-paying assets to your partner to use both of your Dividend Allowances.

2. Place dividend-paying shares in a tax-efficient wrapper

A Stocks and Shares ISA is a tax-efficient way to invest – you won’t pay tax on dividends from shares held in an ISA, and returns aren’t liable for Capital Gains Tax (CGT) either.

As a result, moving investments to an ISA could be an efficient way to reduce your tax bill.

You should note that the ISA subscription limit caps how much you can place into adult ISAs each tax year. For the 2025/26 tax year, it is £20,000.

In addition, pensions are a tax-efficient way to invest for retirement. Again, dividends you receive from investments held in a pension will not be liable for Dividend Tax, and investment returns won’t be liable for CGT.

The Annual Allowance (the amount you can save into a pension each tax year before tax charges may be applied) is £60,000 in 2025/26. However, your Annual Allowance might be lower if you’re a high earner or have already taken an income from your pension.

Keep in mind that you usually can’t access the money held in your pension until you are 55 (rising to 57 in 2028).

3. Reduce the number of dividend-paying shares you hold

Depending on your investment goals, you might choose to reduce dividend-paying shares if you’re focused on growth rather than income.

However, it’s important to note that this may not be appropriate for everyone and could increase your tax liability in other areas, such as CGT. Your financial planner could help you assess if adjusting your investment portfolio could be right for you.

Get in touch to talk about reducing your tax liability

If you’d like to discuss your tax liability and the steps you might take to reduce it, please get in touch. We’ll work with you to create a tailored plan that suits your circumstances and goals.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate tax planning.

In April 2028, the age you can usually access your pension, known as the “normal minimum pension age” (NMPA), will rise from 55 to 57. So, if you hope to retire at 55, you might need to update your retirement plan.

Even if your planned retirement date seems far away, creating a plan now could help you bridge a potential shortfall so you’re still able to give up work when you’re ready to.

As well as the NMPA, the State Pension Age is set to rise. From 6 May 2026, the age you can claim the State Pension will gradually increase from 66 to 67 in 2028 for both men and women. So, you might also need to factor in creating a larger income from your pension or other assets for an additional year before you can claim the State Pension.

Understanding your potential later-life income could help keep your retirement on track, even when policy changes.

Thousands of retirees could be affected by the change to the normal minimum pension age

According to government figures published in October 2024, the median expected age to retire in the UK is 65. If you’re among those who expect to retire at this age, the change to the NMPA may not affect you.

However, with around 10% expecting to retire before the age of 60, thousands of workers could find they need to delay their retirement if they can’t access their pension when they expect.

So, if you hope to retire at 55 or even earlier, here are four important steps that might allow you to do so.

4 steps you could take to prepare for the pension change

1. Check the details of your pension

While the NMPA applies to most pensions, there are some exceptions.

If you have an older workplace or personal pension, it may have a “protected pension age”, which might give you the right to access your savings earlier. So, it’s worth checking the details of your pensions before you make changes to your retirement plan.

2. Calculate your retirement income needs

The retirement lifestyle you want will affect how much income you need, and at what point you can afford to retire.

Thinking about your desired retirement lifestyle now could help you assess how you might retire at 55 if you cannot create an income from your pension straight away.

You might also want to consider how you’ll retire. More people are choosing to phase into retirement by gradually reducing working hours or moving to a role with greater flexibility.

According to a September 2024 article published by Global Recruiter, almost half of workers aged over 50 start to phase into retirement. Most of these workers plan to phase into retirement over a long period, such as 10 years.

A phased retirement might mean you’re able to move away from your current role sooner, so you have more time to focus on what’s important to you.

3. Consider all your assets when making a retirement plan

Often, when you think about creating a retirement income, your focus is on your pension. However, other assets, such as savings, investments held outside of a pension, and property, may be useful, especially if you want to retire before the NMPA.

As your financial planner, we could work with you to create a long-term financial plan that brings together different assets to support you in reaching your retirement goals.

4. Schedule regular reviews

There are two key reasons why regular retirement plan reviews are important.

First, your circumstances and goals might change. Second, further changes in government policy could affect your retirement plans in the future.

Regular reviews provide an opportunity to ensure your plan is still appropriate and reflects your wishes and pension policy.

A retirement plan could keep your finances on track

Changes to the NMPA don’t automatically mean you need to update your retirement plan. However, being informed could offer peace of mind as you move towards the exciting milestone.

Working with a financial planner could help you assess how you’ll create an income once you step back from work and identify potential gaps. Please contact us to talk to one of our team about your retirement.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only and is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

A career break could be fantastic for your life plans. It may allow you to take time away from work to raise children, pursue education, travel the world, or follow other dreams. Yet, it could also harm your security in retirement, so a long-term plan might be important.

A May 2025 article published by Protection Reporter suggests career breaks could become more popular. In fact, around 29% of 18- to 24-year-olds plan to take extended leave at some point in their career. In contrast, just 9% of 45- to 54-year-olds plan to do the same.

While career breaks might not be the norm for older generations, there could be benefits to taking one. However, there are downsides to consider, including the effect it might have on your retirement.

A May 2025 report in PensionsAge noted that if everyone took an unpaid two-year career break, it would collectively lead to a £230.69 billion shortfall in pensions nationwide.

On an individual level, having less in your pension might limit your options when you’re ready to retire. It could mean you need to delay giving up work, or your income is lower than expected throughout retirement.

However, that doesn’t automatically mean you have to put plans for a career break on hold if you’ve been thinking about it. There may be effective ways to keep your retirement on track, such as these seven practical steps.

1. Set out what a career break means for you

Understanding the full effect of taking a career break often starts with setting out a clear plan – how long do you intend to take off work?

A six-month career break to explore South America would have a very different effect on your pension than taking five years out of work to look after young children. While your plans might change in the future, deciding exactly what your career break will look like is usually an essential first step to keeping your retirement on track.

You might also want to consider if your career break would lead to work and financial changes in the future. For example, could you face challenges re-entering the workplace at your current level if you took an extended period off? Or do you hope your career break will lead to a new path entirely?

2. Forecast how the value of your pension will change

While retirement might seem like a long way off, forecasting the value of your pension and the income it might provide could be useful.

Working with a financial adviser could help you understand how the decisions you make about your career now may affect your long-term financial security. You might find you’d still be in a position to retire comfortably even if you halt pension contributions, but you could also discover a shortfall.

By projecting the effect of a career break now, you can make an informed decision about what to do and potentially bridge gaps.

3. Assess how you’ll use other assets

When you’re taking a career break, consider how you’ll fund your expenses. In many cases, people will use assets, like savings and investments, to create an income. So, it may be important to consider how depleting these assets could affect your retirement and financial security.

4. Continue to make pension contributions

If your pension could face a shortfall due to a career break and you’re in a position to do so, you may want to continue making pension contributions.

While you might not receive employer contributions, your contributions might still benefit from tax relief and be invested with the aim of delivering long-term growth.

One thing to note is that if you’re no longer earning an income, the amount you can place into a pension while retaining tax relief could be significantly lower. In 2025/26, if you’re a non-taxpayer, up to £3,600 may be added to your pension without incurring a charge if you’re part of a relief at source pension scheme.

5. Increase your pension contributions when you return to work

Alternatively, when facing a potential pension shortfall, you might plan to make higher contributions when you return to work.

A financial plan could help you understand how much you might need to increase contributions by and whether they would fit into your day-to-day budget.

6. Check your State Pension forecast

If taking a career break means you won’t be making National Insurance (NI) contributions, it’s worth checking if it could affect your State Pension entitlement.

While the State Pension alone often isn’t enough to retire on, it provides a reliable income throughout your later years. Usually, you’ll need 35 years on your NI record to receive the full State Pension. You can use the State Pension forecast tool to check how many years you already have and calculate if a career break might mean you fall short.

If you could face a shortfall, you can normally pay voluntary contributions for the past six years to fill in the gaps.

In addition, you might be able to claim NI credits. For instance, you can do so if you’re taking a career break to care for a child and are registered for Child Benefit.

7. Keep your financial plan up to date

During your career break, your plans or financial circumstances might change. So, keeping your financial plan up to date to reflect your current situation could be essential. It might allow you to spot potential risks or opportunities.

If you’d like to understand if you could take a career break and keep your retirement on track, please get in touch.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Facing challenges later in life that might mean you need to rely on care can be difficult to think about. Yet, planning for care may be an important part of your overall financial plan and provide security should you need support in the future.

Read on to find out how care services could affect your finances.

Improving life expectancy is likely to mean more people need care

Life expectancy in the UK has increased over the last few decades.

Indeed, in June 2025, data from the Office for National Statistics (ONS) show a 65-year-old man has an average life expectancy of 85, and a 1 in 10 chance of reaching 96. For a 65-year-old woman, the average life expectancy is 88, with a 1 in 10 chance of reaching 98.

Living for longer doesn’t automatically mean you’ll need to rely on care services. However, as health needs often become more complex later in life, it’s important to think about them.

According to ONS data, there were more than 372,000 care home residents in the UK at the end of February 2023. This was an increase of 3.1% when compared to a year earlier.

Notably, 37% of residents were funding their care themselves. So, making potential care costs part of your financial plan could be essential for your long-term financial security.

Other forms of care, such as carers coming to your home, may also need to be self-funded.

You’ll usually need to self-fund care if you have more than £23,250 in savings

Whether you need to pay for care yourself depends on your financial circumstances and where you reside in the UK.

In England and Northern Ireland, you usually won’t be entitled to help from your local council if you have savings of more than £23,250, which is known as the “upper capital limit”. If you’ll be moving into a care home, you typically won’t be eligible for local council support if you own property.

As a result, many people find they’re responsible for funding their care costs, and it could place pressure on your finances if it’s not something you’ve considered.

Please note, the threshold for paying for care is different in Scotland and Wales.

So, how much should you expect to pay if you need care later in life?

The cost of care can vary significantly depending on the level of support you need and where you live. According to the NHS, on average, you can expect to pay:

• £20 an hour for a carer to come to your home
• £700 a week for a residential care home, rising to more than £850 a week if you require a nursing home
• £800 a week for a carer who lives at your home, though this could rise to as much as £1,600 if your needs are complex.

Even if you expect to rely on family, there might be some costs to consider. For example, if your child is regularly visiting your home to lend support, you may choose to cover travel expenses. Or your child might need to reduce their working hours, so you may help them financially.

Overlooking potential care costs could affect your long-term finances

Even over a single year, the cost of care can add up to a significant expense. If it’s not something you’ve thought about, you could be overlooking an outgoing that may have a huge effect on your long-term finances and the wealth you expect to leave for loved ones when you pass away.

As a result, making it part of your financial plan from the outset could offer you peace of mind and avoid potential delays should you need support. You might:

• Speak to your loved ones about your wishes and name a Lasting Power of Attorney
• Calculate how much care could cost in your area, depending on your wishes
• Assess how care may reduce the value of your estate over the long term
• Set aside a portion of your wealth now to cover potential care costs.

You might not need any support later in life, but being proactive could make potentially difficult decisions around care easier.

Contact us to talk about your care plan

If you have any questions about your current care plan or would like to discuss how we could help you create one, please contact us.

Next month, read about how you might create a care fund that could give you confidence and financial security if you need support later in life.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or Lasting Powers of Attorney.

It’s been 40 years since Back to the Future delighted cinema-goers with its time-travelling adventure. Teenager Marty McFly discovers the power of the “ripple effect”, and it’s something that could be valuable when you’re creating a financial plan as well. 

 

One of the plot devices in Back to the Future is the ripple effect – the spreading impact of an initial event. Even a seemingly small change to the timeline has the potential to have far-reaching implications. 

The ripple effect can change the course of your life, too. Small decisions or events outside of your control could have a far larger effect on your future than you might expect. 

The good news is financial planning could give you a glimpse into the future too. While cashflow modelling doesn’t involve hopping into a DeLorean with your financial planner and reaching 88mph, it could offer you insights into your future that are just as valuable. This guide explains why.

There are other useful lessons you could pick up from Back to the Future as well, including:

• Balance your short- and long-term goals.
• Prioritise what makes you happy.
• Focus on following your own path.
• Be prepared for the unexpected.
• Recognise when you could benefit from working with a professional.

Download your copy here: “What the Back to the Future ripple effect could teach you about financial planning” to discover more about these lessons hidden in the cult classic.

If you want to talk to us about how cashflow modelling could inform your decisions, or any other aspect of your financial plan, please get in touch. 

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning, tax planning, or estate planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

You’ve likely spent years preparing for retirement and envisioning the lifestyle you’d like to enjoy once work is officially behind you.

You might have even accumulated a significant pension pot through careful planning to help support this dream lifestyle.

As you explore some of the different ways to draw an income from your retirement fund, one option you might have overlooked is an annuity.

This allows you to convert some, or all, of your pension savings into a regular and guaranteed income, and recent figures show that the amount you receive could be favourable.

Indeed, MoneyWeek reports that annuity rates reached a 16-year high in March 2025.

While this might tempt you to purchase an annuity, you shouldn’t rush into the decision, as it is typically irreversible.

This is why it’s so important to shop around to find the annuity that is best suited to your needs. Despite this, it seems that many don’t. Research from Canada Life found that 31% of retirees bought their annuity from their existing pension provider without comparing options, potentially missing out on a higher income.

Continue reading to find out how annuities work, when they might be the right fit, and why reviewing your options could boost your retirement income.

When you purchase an annuity, you receive a guaranteed income for a set period of time

Simply put, an annuity is a type of insurance product you can purchase using part or all of your pension fund.

In return, you receive a guaranteed income, usually paid monthly or annually, for a specific period.

There are several different types of annuity available, each with features that affect how much income you’ll receive.

For instance, you can choose a “lifetime annuity” which pays a regular income for the rest of your life, or a “fixed-term annuity”, which provides an income for a set number of years.

The amount you receive then typically depends on several factors, such as:

• The size of your pension pot
• Your age and life expectancy
• Your health and lifestyle
• The annuity rates available at the time of purchase.

You may receive a higher income if you’re older or in poorer health, since the provider expects to pay out for a shorter period. There are even annuities – known as “enhanced annuities” – that are specifically designed for people with health conditions or lifestyle choices that may reduce their life expectancy.

You can also choose between a “single annuity”, which stops when you pass away, or a “joint annuity”, which continues to pay a proportion of your income to your partner or spouse after your death.

Additionally, some annuities offer a guarantee period, meaning that income is paid for a minimum number of years even if you pass away sooner. Alternatively, value protection can ensure that any unused value from your original pension fund is returned to your beneficiaries.

An annuity might suit you if you’re looking for financial security in retirement

If you’re looking for security in retirement and would prefer not to worry about stock market performance, an annuity could offer some much-needed peace of mind.

This is because once you purchase your annuity, you receive a guaranteed income that doesn’t fluctuate with the markets.

This reliability also makes it easier to plan your retirement spending. You’ll know exactly how much income to expect each year, potentially helping you to budget more confidently and avoid overspending.

There’s also the potential to receive more over your lifetime than you initially paid in. If you live longer than expected, the income from the annuity could exceed the total value of the pension savings you used to purchase it.

While this won’t always apply, it is one of the reasons some choose to purchase a lifetime annuity, especially when rates are favourable.

Due to their inflexibility, it’s vital to shop around before you commit to an annuity

Despite their many advantages, annuities do come with a vital drawback: they tend to be incredibly inflexible.

Once you purchase an annuity, you typically can’t alter the terms, access the capital, or transfer to a new provider. This lack of flexibility is partly why shopping around before you commit is so important.

Yet, many people seemingly don’t do this. According to the Canada Life research above, 1 in 8 retirees planning to purchase an annuity wouldn’t consider switching providers, even if that meant receiving more income.

This could be a significant missed opportunity, particularly given how much rates can vary between providers.

Which? shows that, as of 6 May 2025, a healthy 65-year-old with a £100,000 pension could receive anything from around £4,799 to £7,939 a year, depending on the annuity. This is a difference of more than £3,000 each year, potentially accumulating to tens of thousands over a typical retirement.

It’s also vital to review the terms and features on offer. Features such as inflation protection, fees and charges, and the financial security of your next of kin could all affect your wellbeing in retirement.

By comparing providers, you could give yourself the best chance of securing an annuity that offers the right balance of income and personalisation.

Get in touch

If you’re still unsure whether an annuity is right for you or can’t decide which product would best suit your needs, then we can help.

Make sure to get in touch today to find out how we can support you with your retirement planning.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate estate planning.