Trick or treat: The “tricks” a financial plan could help you avoid

Taking control of your finances can be frightful. Complex rules that are easy to overlook could mean you fall for a “trick” when making financial decisions this Halloween, but a tailored financial plan could help you avoid falling for them.

Here are five financial “tricks” that you might overlook when managing your money, and what you can do to turn them into a “treat”.

1. Exceeding the Personal Savings Allowance could mean you pay tax on your savings

When you think of what you pay Income Tax on, it’s probably your salary that comes to mind. Yet, one “trick” you might fall for is the other sources of income that could be liable for tax, including the interest your savings earn.

How much you can receive in interest before Income Tax is due depends on the rate of Income Tax you pay:

· Basic-rate taxpayers: £1,000

· Higher-rate taxpayers: £500

· Additional-rate taxpayers: £0

This means you could face an unexpected tax bill if you’re not monitoring how much interest you receive.

If you’re not already using your full ISA allowance, which is £20,000 in 2025/26, moving some of your savings into an ISA could be a simple way to reduce how much tax you pay. There might be other steps that are suitable for you as part of your wider financial plan.

2. The 60% tax trap that could affect high earners

Becoming a high earner offers greater financial freedom. However, it can also make your tax position more complex and even mean you effectively pay Income Tax at a rate of 60%.

While there isn’t an official tax rate of 60% on earnings, your Personal Allowance starts to reduce when you earn more than £100,000. For every £2 you earn above £100,000, you lose £1 of your Personal Allowance. In 2025/26, this means you lose all of the Personal Allowance if you’re earning £125,140 or more.

As a result, you’re effectively taxed at 60% on income between £100,000 and £125,140. According to a December 2024 article in the Financial Times, the number of people affected by this tax trap increased by 45% between 2021/22 and 2023/24.

The good news is there might be ways to turn this “trick” into a “treat”. For example, increasing your pension contributions could reduce your tax liability while boosting your retirement savings.

3. Higher- and additional-rate taxpayers could be missing out on pension tax relief

One of the reasons saving for retirement in a pension is financially savvy is that your contributions receive tax relief. This means the Income Tax you’d have paid on your contribution is added to your pension.

Assuming your contributions don’t exceed the Annual Allowance, you can receive tax relief at the highest rate of Income Tax you pay. However, while tax relief at the basic rate (20%) might be added to your pension automatically, you won’t receive the full amount you’re entitled to if you’re a higher- or additional-rate taxpayer.

Indeed, according to a March 2025 article in CityAM, 46% of high-income individuals who have a personal pension do not claim their full pension tax relief and, collectively, could have missed out on around £1.3 billion of pension contributions between 2016 and 2021.

Turning this “trick” into a “treat” is relatively straightforward. You need to claim the additional amount by completing a Self-Assessment tax form.

4. Accessing your pension could reduce your Annual Allowance

Usually, you can access your money held in your pension from age 55 (rising to 57 in 2027). As a result, some people withdraw a portion of their pension savings before they’re ready to fully retire.

However, if you take a flexible income from your pension, you could reduce how much you can tax-efficiently contribute. In 2025/26, the Annual Allowance is £60,000. This reduces to just £10,000 if you trigger the Money Purchase Annual Allowance (MPAA).

If you’d planned to continue contributing to your pension, the MPAA could mean you need to reduce how much you contribute, which may affect your long-term income.

Making pension withdrawals part of your financial plan could mean you’re well-informed and avoid unexpected complications.

5. Gifted assets could still form part of your estate and affect your Inheritance Tax liability

With a standard rate of 40%, Inheritance Tax (IHT) could significantly reduce what you leave behind for loved ones if the total value of your estate exceeds certain thresholds. So, you might simply think about handing assets to your beneficiaries during your lifetime, but gifts aren’t always immediately outside of your estate for IHT purposes.

Indeed, some gifts to individuals can be included in your estate for up to seven years after they are given, and are known as “potentially exempt transfers”. While the rate of tax applied to these gifts gradually decreases over time, it could still mean your estate faces a larger IHT bill than you or your loved ones might expect.

The good news is there are often ways to reduce your estate’s IHT liability, and ensure your beneficiaries receive a “treat”. An estate plan could help you assess how and when to pass on wealth to your family.

Contact us to talk about avoiding “tricks” in your financial plan

If you’d like to work with us to create a financial plan that helps you avoid “tricks”, 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.

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.

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