How to write about tax efficiency in R06
Tax efficiency is the single most reliably tested theme in the R06 exam. It appears in virtually every sitting, often across multiple questions, and it's where the gap between well-prepared and underprepared candidates is most visible.
The problem isn't that candidates don't know tax is important. It's that they don't go deep enough. Writing "they should use their ISA allowance" might feel like a valid point, but without explaining why it matters for this particular client, it won't score well. Here's how to approach tax efficiency in R06 with the precision the examiners expect.
Pension contributions: the most tested tax efficiency tool
Pension funding appears in almost every R06 paper. The examiners aren't just testing whether you know pensions exist. They want to see that you understand the mechanics and can apply them to the client.
What the examiner expects you to cover:
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Tax relief at the client's marginal rate. If the client earns £55,000, they're a higher-rate taxpayer. Additional pension contributions attract 40% tax relief. State that explicitly. Don't just say "tax relief", say "40% tax relief given their current marginal rate."
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The annual allowance. The standard annual allowance is £60,000 for the 2026/27 tax year. If the client hasn't used their full allowance, say so. If they've triggered the Money Purchase Annual Allowance (MPAA) by flexibly accessing pension benefits, their allowance drops to £10,000, and failing to mention this when relevant is a common mark-loser.
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Carry forward. If the client has unused annual allowance from the previous three tax years, they can carry it forward. This is particularly relevant for clients who receive a bonus, inheritance, or other lump sum. You need to mention that carry forward is available and explain why it benefits this client.
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Employer contributions. These are paid gross and are typically an allowable business expense for corporation tax purposes. If the client's employer offers matching, recommend maximising it. It's effectively free money and examiners expect you to flag it.
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Salary sacrifice. If the case study mentions an employer who offers salary sacrifice, you should explain the NIC savings for both the employee and the employer. This is a high-value point that many candidates miss entirely.
The MPAA trap
The MPAA is one of the most frequently misunderstood rules in R06. It's triggered when a client flexibly accesses their defined contribution pension, for example, by taking income via flexi-access drawdown (beyond the tax-free lump sum) or taking an uncrystallised funds pension lump sum.
Once triggered, the client's annual allowance for money purchase contributions drops from £60,000 to £10,000. Importantly, carry forward is not available for money purchase contributions once the MPAA applies.
Examiners consistently note that candidates either don't recognise when the MPAA has been triggered or don't explain its implications properly. If the case study mentions a client who has started drawing pension income, check whether the MPAA applies and state the consequences clearly.
ISAs: more than just "use the allowance"
The annual ISA allowance is £20,000. Almost every R06 candidate knows this. But writing "they should use their ISA allowance" without context scores poorly.
What scores well:
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Tax-free growth and income. Explain that investments within an ISA are free from income tax on dividends and interest, and free from capital gains tax. This matters most for higher-rate and additional-rate taxpayers.
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Flexibility for withdrawals. Unlike pensions, ISA funds can be accessed at any age without tax. For clients who may need funds before retirement age, this is a genuine advantage worth explaining.
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Bed and ISA. If the client holds investments in a general investment account (GIA) that could be transferred into an ISA wrapper, recommend a bed-and-ISA strategy. This involves selling holdings in the GIA and repurchasing within the ISA. Mention that the sale may trigger a CGT event, but that any gains within the annual exempt amount would be tax-free.
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ISA vs pension. Be ready to compare the two. Pensions offer upfront tax relief but are taxed on withdrawal. ISAs use post-tax money but are tax-free on withdrawal. The right choice depends on the client's tax position now versus in retirement. Show the examiner you can make that comparison.
Capital gains tax: precision wins marks
CGT questions in R06 typically involve a client selling property, shares, or other assets. The examiner is looking for specific, accurate responses.
Key points to cover:
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The annual exempt amount. For the 2026/27 tax year, this is £3,000. Every individual has their own allowance. If the client is married, both spouses have separate allowances, mention interspousal transfers as a planning tool.
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Base cost and calculation. If you're asked about the gain, show the calculation: proceeds minus base cost minus allowable costs. Don't guess, use the figures from the case study.
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CGT rates. For 2026/27, all gains, residential property and other chargeable assets alike, are taxed at 18% (basic rate) or 24% (higher/additional rate), following the alignment of rates announced at the Autumn Budget 2024. State the correct rate based on where the client's taxable income and gains sit relative to the basic rate band.
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Business Asset Disposal Relief (BADR). If the case study involves a business disposal, flag BADR. The rate is 18% for 2026/27 disposals (up from 14% in 2025/26), with a £1 million lifetime limit. Eligibility requires a qualifying disposal (sole trader business, partnership interest, or at least a 5% shareholding in a personal trading company) with conditions met for at least two years before disposal.
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Timing of disposals. If the client can defer a sale to the next tax year, they get a fresh annual exempt amount. This is a simple planning point that's easy to miss but scores well.
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Interspousal transfer. Transfers between spouses (or civil partners) are treated as no gain, no loss. No CGT arises on the transfer itself, and the receiving spouse inherits the original base cost. If one spouse has unused annual exempt amount or is a lower-rate taxpayer, transferring the asset before sale can reduce the overall CGT liability. This is one of the most commonly tested CGT planning points in R06.
Dividend tax: the detail candidates miss
Many R06 case studies feature clients with investment portfolios that generate dividend income. The examiner wants to see that you understand the current dividend tax framework.
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The dividend allowance is £500 for 2026/27. Dividends within this allowance are tax-free regardless of the taxpayer's marginal rate.
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Rates above the allowance: 8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate.
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Planning point: If the client holds dividend-paying investments in a GIA, moving them into an ISA eliminates dividend tax entirely. If they hold corporate bond funds (which pay interest rather than dividends), the tax treatment differs, and the examiner will expect you to know the distinction.
The golden rule for tax efficiency in R06
Every tax efficiency point you make should follow this structure:
- State the recommendation, what should the client do?
- Quantify the benefit, what tax rate, allowance, or threshold applies?
- Link to the client, why does this matter for their specific situation?
Generic answers like "this would be more tax efficient" score poorly. Specific answers like "moving the £15,000 currently held in the GIA into Sarah's ISA would shelter future growth and income from tax, which is particularly beneficial given she is a higher-rate taxpayer paying 33.75% on dividends above the £500 allowance" score well.
Tax efficiency isn't complicated, but it does require precision. The candidates who score highest on these questions aren't necessarily the ones with the deepest technical knowledge, they're the ones who state the right numbers, name the right allowances, and link everything back to the client. That's what the examiner is looking for, and that's where your marks are.