A clearer way to think about tax and your income strategy

There’s a lot of noise about tax at the moment  income tax, inheritance tax, thresholds, freezes, and everything in between. Much of it is important, but most of it sits firmly outside your control. Where you do have meaningful influence is in how you draw your income, when you stop working. That’s where good planning pays for itself. Ultimately, you can’t redesign the tax system, but you CAN design how you interact with it.

Start with the basics you can control

If you are no longer working, the first step is simple:

• Make full use of your personal allowance (£12,570), currently each year.
• Aim, where possible, to keep your taxable income within the basic‑rate band (20%).

This alone creates a more efficient foundation for the rest of your planning.

Capital Gains Tax: Where the real flexibility sits

Once you’ve used your personal allowance and basic‑rate band, the next question is: How do you access additional funds without unnecessarily pushing yourself into higher‑rate tax? This is where Capital Gains Tax (CGT) becomes useful. For most investments that are subject to CGT, the current rates are:

• 18% for basic‑rate taxpayers
• 24% for higher‑rate taxpayers

These rates are lower than income tax, which means that realising gains from investments can be a more tax‑efficient way to supplement your income. (Residential property is taxed differently: 18% and 24% respectively.)

Why it matters

Once your income moves beyond the basic‑rate band, you’re into:

• 40% higher‑rate tax
• 45% additional‑rate tax

At that point, every extra pound of income becomes significantly more expensive. Using CGT strategically helps you avoid drifting into those higher bands unnecessarily.

The Takeaway

Focus less on the parts you can’t influence, and more on the levers that genuinely move the needle:

• How you draw income
• Which tax bands you use
• How you balance income and gains
• How your investments are structured

That’s where the real efficiency, and peace of mind, lives. And as I always say, good financial planning starts with a financial plan.