UK Tax Planning for high income earners

After years of frozen thresholds, reduced personal allowances and fiscal drag, tax planning for high earners has become increasingly important. The Autumn Budget 2025 and Spring Statement 2026 added further pressure, particularly for those with larger pension pots, higher value homes, investment income or estates already close to inheritance tax allowances.

A ‘high earner’ in terms of tax used to be reserved only for someone earning a very large salary, but now someone earning over £50,270 can fall into higher rate tax bands, while those earning more than £100,000 can lose their personal allowance entirely. The £12,570 tax-free Personal Allowance reduces (tapers) by £1 for every £2 you earn over £100,000. By the time your adjusted net income reaches £125,140, your allowance drops to zero.  

For people with significant assets, the challenge is wider than income tax alone. Pensions, property, investments and inheritance tax all need to be considered together. 

Arrange your free initial consultation

Tax can have a big impact on your ability to preserve and grow your savings and investments in retirement. As such, one of the main focuses when advising clients, is creating a plan that helps them achieve their objectives in the most tax-efficient manner. There are several ways to reduce the tax you pay on your annual income, especially if you’re in the higher or additional rate tax bracket.

What are the main taxes?

Income tax

Income tax is a tax imposed directly on your personal income. In simple terms, it is paid at rates between 0% and 45% dependent on which of the income tax brackets you fall into.

Once your earnings exceed your personal allowance, you are required to pay tax on the following sources of income:

• Income from employment
• Income from pension
• *Interest on savings
• Property rental income
• Employment benefits
• Income from a trust

*Interest would only be taxable above the personal allowance, the starting rate and personal savings allowance.

As of the 2026/27 tax year:

• The personal allowance remains at £12,570
• Basic rate tax (20%) applies to income from £12,571 to £50,270
• Higher rate tax (40%) applies from £50,271 to £125,140
• Additional rate tax (45%) applies from £125,141+

These thresholds are now frozen until 5 April 2031, further extending the impact of fiscal drag.

Dividend Tax

The dividend allowance remains £500, but dividends above this are taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. From April 2027, tax on savings interest and property income is also due to rise by two percentage points.

If you are a Scottish taxpayer, income tax bands differ from the rest of the UK, so regional rules should be factored into your planning. 

Capital Gains Tax

Capital Gains Tax (CGT) is paid on the profit made when you dispose of certain assets, such as shares, second homes, or other investments held outside of a tax-efficient wrapper.

For 2026/27, the CGT annual exemption remains £3,000, much lower than £12,300 in 2022/23. Gains above the allowance are generally taxed at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, depending on how the gain falls across your tax bands. 

Inheritance Tax

Inheritance Tax (IHT) is a tax on the value of an estate upon death or on certain gifts made during your lifetime.

• The nil-rate band remains at £325,000
• *The residence nil-rate band offers an additional £175,000 if passing a home to direct descendants
• The standard rate of IHT is 40%, or 36% if at least 10% of the net estate is left to charity

*To qualify for the Residence Nil Rate Band (RNRB), an estate must pass a residential property (or equivalent assets if downsized) to direct descendants. The deceased must have lived in the home at some point, and the net value of their total estate must be under £2 million.

From 6 April 2027, most unused pension funds and pension death benefits will be brought into a person’s estate for IHT purposes. This is one of the biggest upcoming changes for high earners, as pensions have often been used as an efficient way to pass wealth to the next generation.  

Options to consider may include reviewing beneficiary nominations, drawing pension income differently, lifetime gifting, life insurance cover, charitable giving, trust planning where suitable, and using other assets before pensions. The right approach will depend on income needs, tax position, health, age, family circumstances and estate value.

High value property is also becoming a bigger issue. The proposed mansion tax, formally expected to be a High Value Council Tax Surcharge, is due to apply from April 2028 to homes in England valued above £2 million. For high earners with substantial property wealth, this could add an annual cost and may influence gifting decisions, estate planning and whether it remains practical to retain a family home. 

How to reduce taxable income as a high earner

Reducing your taxable income can be one of the most effective ways to lower your overall tax bill. For high earners, this might mean utilising pension contributions, salary sacrifice, or charitable giving to stay within lower tax bands or reclaim lost allowances.

Reducing adjusted net income below £100,000 can help restore some or all of the personal allowance. Keeping income below £80,000 may reduce or remove the High Income Child Benefit Charge, while keeping income below £50,270 may help avoid higher rate tax. 

Why is tax planning important?

Tax planning involves minimising tax liabilities by utilising allowances,  exemptions, and tax reducers to lower the tax you pay, so it should be an essential part of an individual’s financial plan.

For high earners, planning is particularly important because several thresholds interact. These include the personal allowance taper above £100,000, the High Income Child Benefit Charge above £60,000, the tapered pension annual allowance for the highest earners, the £2 million IHT residence nil rate band taper and the future inclusion of pensions in estates from April 2027.

What is higher rate tax?

For 2026/27, higher rate tax begins with earnings between £50,271 and £125,140, which are taxed at 40%. Those earning above £125,140 are taxed at 45%. Because thresholds are frozen until 2031, more people are likely to pay 40% or 45% tax even if their real spending power has not improved.  

Those earning less than £50,270 and more than £12,571 will pay the basic rate of tax at 20%. Most people do not pay income tax on the first £12,570 they earn because this falls within the personal allowance. Income above this is then taxed in bands. 

High earners cutting pay: Should you consider it?

Some high earners are now deliberately cutting their pay or exchanging salary for pension contributions or other benefits as a strategic way to reduce tax liability. This is often done through salary sacrifice or personal pension contributions, which can lower your taxable income, increase pension savings, and in some cases reclaim lost allowances such as the personal allowance or avoid additional tax charges like the High-Income Child Benefit Charge.

Salary sacrifice is especially valuable for high earners because it can provide both income tax and National Insurance savings. It may also allow an employer to pass on some or all of its own National Insurance saving into the pension. For those affected by the personal allowance taper, it can be particularly powerful because reducing adjusted net income can improve the effective rate of relief.

However, this benefit is changing. From April 2029, the National Insurance exemption for employee pension contributions made through salary sacrifice will be capped at £2,000 a year. Contributions above that level can still be made, but the National Insurance advantage will be reduced. This is likely to affect high earners most because they are more likely to sacrifice larger sums into pensions.

Ways to reduce your income tax bill

There are a few ways in which you can reduce your income tax bill. Broadly, they are as follows:

Contribute to your pension

Pension contributions remain one of the most effective tax planning tools for high earners. Contributions usually receive basic rate relief automatically, with higher and additional rate relief claimed through self assessment where appropriate.

The pension annual allowance remains £60,000 for 2026/27, although it can be tapered for the highest earners. ‘Carry forward’ may allow unused annual allowance from the previous three tax years to be used, provided the rules are met and the individual has enough relevant UK earnings.

For those earning between £100,000 and £125,140, pension contributions can be especially valuable. This is because the personal allowance is reduced by £1 for every £2 of income above £100,000, creating an effective marginal tax rate of up to 60%. A pension contribution can reduce adjusted net income and potentially restore some or all of that allowance. 

Contribute to your pension via salary sacrifice

You can ask your employer to enter into a salary sacrifice contribution arrangement to your pension, which will reduce the amount of money subjected to the highest rate of income tax (or various rates depending on the tax bands the income falls into after the sacrifice), along with also providing valuable National Insurance savings. This can become quite complicated, and more details can be found on the government website.

A notable additional benefit of salary sacrifice arrangements is that depending on your employer, they may pay the National Insurance Contributions savings they make from the forgone salary into your pension.

Do take care though as the government is planning to make changes to how salary sacrifice for pension contributions work from April 2029 by capping the National Insurance (NI) exemption to £2,000 per year.

Make full use of your ISA annual allowance

ISAs remain a valuable way to shelter income and growth from tax. The overall ISA allowance remains £20,000 for 2026/27. From April 2027, the Cash ISA limit for those under 65 is due to fall to £12,000, although the overall ISA allowance is expected to remain £20,000. 

Up to 60% tax relief available when you invest in a pension

Investing in your pension pot is an attractive option to increase your savings in a tax efficient way. We actively encourage clients, when suitable, to contribute regular amounts to their pension to not only build up their pension pot but also to benefit from tax efficiencies.

For those earning between £100,000 and £125,140 you could be in the 60% tax trap. But this also presents an opportunity when it comes to saving for retirement. If you have taxable income in this range, you can effectively receive income tax relief of 60% on your pension contributions as this is the marginal rate of tax paid on earnings within this band. This is due to the impact of your personal tax allowance of £12,570 being reduced by £1 for every £2 you earn over £100,000 meaning the allowance is reduced to zero when your income reaches £125,140. A pension contribution within this band of earnings effectively reclaims part, or all, of your personal allowance thus increasing the rate of tax relief to 60%.

How to avoid the High Income Child Benefit Charge

For 2026/27, the High Income Child Benefit Charge applies where the higher earning partner has adjusted net income above £60,000. The charge removes 1% of Child Benefit for every £200 of income above that level, with the full amount effectively lost once income reaches £80,000. Pension contributions and Gift Aid donations can reduce adjusted net income, which may reduce or remove the charge. 

The benefits of charitable giving

Giving to charity can reduce income tax and, in some cases, inheritance tax. Through Gift Aid, a charity can claim an extra 25p for every £1 donated by a UK taxpayer. Higher and additional rate taxpayers can then claim further relief through self assessment.

Charitable giving can also reduce IHT if at least 10% of the net estate is left to charity, as this can reduce the IHT rate from 40% to 36%. 

Tax relief schemes and other allowances

Venture Capital Trusts (VCT), Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) investments can offer valuable income tax relief, although they carry higher risk and are not suitable for everyone. For 2026/27, EIS relief remains 30% and SEIS relief remains 50%, while VCT income tax relief has reduced from 30% to 20% from 6 April 2026. 

These investments can appeal to high earners who have already used pensions and ISAs, but they should only be considered as part of a diversified plan and with appropriate advice.

Don’t invest unless you are prepared to lose all the money you invest. This is a high risk investment and you are unlikely to be protected if something goes wrong. 

But, as higher risk investments they are not suitable for all investors. There is a chance that all of your capital could be at risk and you should not invest into these types of plans without seeking expert advice from a reputable firm of independent advisers such as The Private Office.

Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.  Take 2 minutes to learn more.

How we can help

If you would like to find out more about how The Private Office can help with personalised tax efficient financial planning, please enquire for a free initial consultation with one of our Independent Financial Advisers.

Arrange your free initial consultation

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The content in this article is for information only and does not constitute individual financial advice.

The value of your investments can go down as well as up, so you could get back less than you invested.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.

VCTs are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital.