Maxing your allowances can make a massive difference

You wouldn't be alone if you don't make full use of the tax allowances available to you - many people in the UK don't. This is especially true where allowances need to be actively claimed or reviewed each year.

For lots of people, they're simply easy to miss - not because they're unimportant, but because they can feel complex, unfamiliar or easy to put off.

By understanding what they are, how they work and using them where you can, you can help your money work harder over the long term.

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What are tax allowances?

A tax allowance is the amount of income, savings, or gains you can receive before tax applies. Picture it like a pie. One slice stays free from tax. The rest is taxed as normal.

The government sets these allowances each tax year. The majority reset every year, meaning any unused allowances are usually lost when the new tax year begins. That's why it can help to review them regularly rather than leaving them until the last minute.

Learn more about tax allowances here

Using tax-efficient accounts

One of the simplest ways to use your allowances is through tax-efficient accounts:

• Individual Savings Account (ISA) - a tax-efficient way to invest. You can put up to £20,000 each tax year into one or multiple ISAs and you don't pay income or capital gains tax on your returns. It's easy-to-access, so useful for all sorts of financial goals. Learn more about ISA allowances.
• Self-Invested Personal Pension (SIPP) - comes with tax benefits when you pay in. Gains are tax-free and you can also take 25% of your pension pot tax-free up to the current limit. They're typically designed for people saving for retirement, as you can't normally withdraw from a SIPP until you reach age 55 (57 from 2028). Learn more about pension allowances.

It's possible to save into both types of account. If you have any additional money that you'd like to invest tax-efficiently, you can invest for a child in a Junior ISA and a Junior SIPP. 

Making the most of your allowances

Used properly, maximising tax-efficient allowances can make more of your money work for you. Over long periods, this can make a meaningful difference to how much you build up.

It's worth making the most of your valuable tax-efficient allowances if you can. To show you why, let's look at the difference maxing out your ISA allowance might have on your savings if you were in a position to do so.

Read: Your 2025/2026 tax allowances: the basics

See what a difference maxing out your ISA could make

Take the following example, which is for illustrative purposes only. Let's say you'd been in the lucky position to make full use of the ISA allowance for over 20 years. If you'd invested in the FTSE All-Share (assuming no charges) your total gains - which in this scenario would have been just over £300,000 - would have been tax-free.

Of course, the value of investments can fall as well as rise, so you may get back less than you invest. And past performance is not a reliable indicator of future returns. The return shown here does not take account of charges, which would reduce these amounts.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Please be aware that past performance is not a reliable indicator of future returns. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.