Tax Planning Strategies for High Income Earners

Posted 13.11.2023

When you’re a high income earner in the UK, tax obligations can eat up a sizable portion of your pay, and without proactive planning, you may pay far more taxes than necessary. The good news is there are many legitimate ways to minimise your tax burden through several tax planning strategies.

Building tax planning strategies into your lifelong financial plan pays off well into the future. This article will show you how it can help make you better off in the short-term, as well as giving you peace of mind for the future.

Maximise Personal Allowances and Reliefs

Contribute the full annual allowance to any tax-advantaged investments or savings available to you, such as Individual Savings Accounts (ISAs). The 2023/2024 ISA allowance is £20,000 each for cash and stocks/shares ISAs.

Maximise your personal allowance for pension contributions, which is £60,000 per tax year or up to 100% of your annual earnings if this is lower than £60,000. Take advantage of unused relief from earlier years, if available – which will reduce your 2023/24 tax liabilities and boost your pension pot. Higher rate taxpayers receive 40% or more in tax relief on pension contributions. Please note that the 20% tax relief is provided on eligible contributions at the time of the contribution, the further 20% must be reclaimed via the individual’s self assessment tax return. Fund these accounts early in the tax year to maximise tax-deferred growth.

Extract value from your business

If you are a business owner, there are a number of ways to extract profit from your business such as paying into a pension through your company and dividend payments. This provides access to more deductible business expenses, potential corporate tax savings, and beneficial owner-employee salary/dividend structures that are tax-efficient.

Strategically time dividend payments to make full use of the £1,000 tax-free dividend allowance each tax year. Compare your dividend and salary tax rates to determine the optimal mix.

Leverage Your Capital Gains Tax Allowance

Higher and additional-rate taxpayers will pay CGT at 20% on gains that exceed the exemption, rising to 28% if the gains are from residential property.

Make use of your annual CGT exemption, which enables you to make tax-free gains of up to £6,000 in the 2023/24 tax year. It is not possible to carry this forward into the upcoming tax year. Despite the allowance being less generous than in previous years, making full use of it this year can help mitigate the potential for a substantial Capital Gains Tax (CGT) liability down the road.

Mitigate the effects of Inheritance Tax

One of the most straightforward and gratifying ways to reduce your Inheritance Tax (IHT) liability is by decreasing the value of your estate through gifting. Not only can this result in tax savings, but it also allows you to see your loved ones benefiting from your wealth during your lifetime. For instance, you could help your grandchild buy their first car or support them through university or in purchasing their first home.

Every year, you have a gifting allowance that permits you to give up to £3,000 without incurring any tax. Additionally, you can make numerous small gifts of up to £250 per person, as long as you haven’t already used another allowance for the same individual.

You could gift up to £11,000 to your children for their wedding if you combined the £5,000 wedding gift and added this year’s £3,000 annual allowance plus last years unused £3,000 annual allowance.

Planning ahead now will protect your estate and ensure you leave as much as possible to your loved ones.


Seek Professional Tax Planning Advice

As you can see, there are a myriad of tax reliefs available to help you make the most of your wealth, and to avoid paying more money to HMRC than you need to. Working with a financial adviser will give you proper guidance and financial support, to ensure you make smart financial decisions and avoid paying the price in tax.

The key is being proactive and strategic in your tax planning approach. By making savvy use of all available allowances, reliefs and deductions, high income individuals can reduce their tax bills and maximise wealth.

Contact our Wealth Managers today to discuss your situation and find out we can help.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.


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