Tax planning is an important part of financial management, particularly if you earn over £50,270 a year, as it helps to reduce your taxable income as a high earner in the UK.
As a high earner, there are plenty of tax reliefs and deductions that can minimise your tax burden while protecting and growing your wealth. Given the complexity of the UK tax system, staying on top of the latest rules helps you find the best options for you.
In this blog, we’ll go over 11 ways to reduce your taxable income as a high earner in the UK and the key tax thresholds you need to be aware of.
Key Tax Thresholds for High Earners to Know
As a high earner, you don’t just pay more tax as you earn more; you also lose benefits, allowances and childcare help once you reach a certain threshold.
Being aware of these thresholds is the best place to start to avoid being taxed unnecessarily or losing potentially useful benefits. Most of these thresholds are based on adjusted net income, which is your total taxable income minus things such as pension contributions and Gift Aid donations. They include the following:
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Key Tax Thresholds |
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Threshold |
What Changes |
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£50,270 |
At this point, you’ll start paying the 40% higher tax rate, instead of the 20% rate. |
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£60,000 – £80,000 |
Once you earn £60,000, you’ll start paying the High Income Child Benefit Charge. By £80,000, the charge equals the full amount of Child Benefit you’ve received. |
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£100,000 |
There are two lost benefits once you reach £100,000. Your Personal Allowance reduces by £1 for every £2 over £100,000, creating an effective 60% tax rate on income between £100,000 and £125,140, and you lose Tax-Free Childcare. |
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£125,140 |
By this point, you’ll have no Personal Allowance. Everything above this is taxed at 45%. |
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£260,000 |
If your adjusted income is over £260,000 and your threshold income is over £200,000, your £60,000 annual allowance reduces by £1 for every £2 over £260,000, down to a minimum of £10,000. |
Scottish taxpayers have different income tax bands, but the Child Benefit, childcare, Personal Allowance and pension thresholds all apply across the UK.
Keep in mind, these figures apply to the current tax year and are subject to change following each Budget.
How to Reduce Taxable Income: 11 Tax Planning Strategies for High Earners
There are plenty of ways to decrease your taxable income; knowing what they are helps you take full advantage and protect your earnings.
1.Maximise Pension Contributions
Contributing to a pension is one of the most effective ways to reduce taxable income. Payments into a pension scheme are tax-deductible, meaning you get tax relief on what you pay in.
- Annual Allowance: The standard annual allowance is £60,000. Contributions beyond this limit may incur tax charges unless unused allowances from the previous three years are carried forward.
- Higher Earnings Caveat: If your adjusted income exceeds £260,000 and your threshold income is over £200,000, your annual allowance is gradually reduced to a minimum of £10,000.
- Tax Relief: Private pension contributions get 20% basic-rate tax relief, added to your pension as a 25% top-up on what you pay in. Higher and additional-rate taxpayers can claim extra relief through a Self Assessment tax return. Relief applies to contributions up to 100% of your annual earnings.
- Adjusted Net Income: Pension contributions also reduce your adjusted net income. If you earn over £100,000, this could help you avoid the 60% tax trap and restore some or all of your Personal Allowance.
For example, if you earn £130,000 and make a gross pension contribution of £30,000, your adjusted net income falls to £100,000, and you get your full Personal Allowance back. That saves around £17,270 in income tax, so the contribution costs you roughly £12,730.
Employer contributions to your pension are not taxed, making this a cost-effective strategy. Whether you contribute through a workplace or private scheme, the tax advantages remain one of the best tools available to high earners.
2.Use Tax-Efficient Investments
Certain investment schemes offer tax reliefs that can reduce your tax bill. These include:
- Seed Enterprise Investment Scheme (SEIS): Offers 50% income tax relief on investments of up to £200,000 a year.
- Enterprise Investment Scheme (EIS): Offers 30% income tax relief on investments of up to £1 million annually, or up to £2 million provided anything over £1 million is invested in knowledge-intensive companies (smaller businesses focused on research and innovation, such as tech or life sciences start-ups).
- Venture Capital Trusts (VCTs): Offer 20% income tax relief on investments up to £200,000.
If you hold EIS or SEIS shares for at least three years, any gains are free from Capital Gains Tax. VCT shares must be held for at least five years to keep the income tax relief, and any gains on them are tax-free.
EIS, SEIS and VCT investments are high risk, meaning you could lose some or all of your money when you invest. As such, it’s always best to seek advice before investing.
3.Use Salary Sacrifice Schemes
Salary sacrifice schemes allow you to exchange part of your salary for non-cash benefits, such as:
- Pension contributions
- Cycle to Work schemes
- Electric vehicle leasing
As of October 2018, Childcare Vouchers closed to new applicants. However, you can still access salary sacrifice childcare through a Workplace Nursery Scheme.
Participating in salary sacrifice schemes can not only lower your taxable income but can also reduce your National Insurance Contributions (NICs), leading to further savings.
However, keep in mind that from April 6 2029, only the first £2,000 a year of your salary-sacrificed pension contributions will be exempt from NICs.
4.Use Gift Aid and Charitable Donations
Donations to registered charities under the Gift Aid scheme are tax-efficient. High earners paying 40% or 45% tax can claim additional relief on their Self Assessment tax return.
How It Works: For every £1 you donate, the charity receives £1.25. As a higher-rate taxpayer, you can claim back the difference – meaning a £1,000 donation effectively costs you just £750.
Adjusted Net Income: Like pension contributions, Gift Aid donations reduce your adjusted net income, which may help you keep your Personal Allowance.
No Limit: There is no cap on the amount of Gift Aid donations you can make. Keep detailed records to ensure you can claim all applicable reliefs.
5.Transfer Income to a Spouse or Civil Partner
If your spouse or civil partner pays tax at a lower rate, transferring income-generating assets can lower your overall tax bill. This strategy works especially well for assets that generate rental income or dividends from investments.
By shifting ownership of such assets to the lower-earning partner, the income generated will be taxed at their lower rate, potentially saving a substantial amount in taxes.
This approach allows couples to make the most of both partners’ tax bands and allowances. Any transfer must be a genuine, outright gift for the income to be taxed as your partner’s.
As tax on savings income, and on rental income in England and Northern Ireland, rises to 24%, 44% and 49% depending on your tax band, transferring income to a spouse or partner will become even more valuable from April 2027.
6.Claim Available Allowances and Reliefs
Make the most of your tax-free allowances to reduce the tax you pay. Two key allowances are the Personal Savings Allowance and the Dividend Allowance:
Personal Savings Allowance: Higher-rate taxpayers can earn up to £500 in interest income tax-free from savings accounts, bonds, and other interest-generating assets. This helps lower the tax paid on savings interest. Additional-rate taxpayers don’t get a Personal Savings Allowance.
Dividend Allowance: The current Dividend Allowance allows you to receive up to £500 in dividend income without paying tax. This is particularly useful for investors with stocks, shares, or dividend-paying funds.
7.Consider Incorporation for Business Owners
If you’re self-employed or run a business, incorporation could reduce your tax liability. As a company director, you can:
- Pay yourself through a mix of salary and dividends. Dividends don’t attract National Insurance, which can make this more efficient than taking all your income as salary.
- Pay corporation tax on profits instead of higher personal income tax rates. For 2026/27, this is 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief in between.
Dividend tax rates rose in April 2026, so the savings are smaller than they used to be. Incorporation also brings extra costs and admin, so it’s worth getting advice before making the switch.
8.Manage Capital Gains Tax (CGT)
Planning the disposal of assets over multiple tax years allows you to fully use the annual Capital Gains Tax (CGT) exemption. By spreading sales across different years, you can reduce your taxable gains each year and lower your CGT liability.
Additionally, spouses or civil partners can combine their exemptions by transferring assets to each other before disposal. Transferring assets this way allows each person to use their own exemption, effectively shielding more of the total gains from tax. This strategy is particularly useful for couples with different income or asset values.
9.Review Your Tax Code and Expenses
Checking whether your tax code is correct is a simple step you can take to help make sure you’re not overpaying tax.
As your tax code determines how much tax-free income you’re entitled to, if you’re on the wrong tax code, you might be paying more than you need to.
If you believe your tax code is incorrect, contact HMRC so they can update it and put you on the correct one.
Additionally, if you have necessary work-related expenses, make sure to claim these, too. This can include professional subscriptions, business travel (not your regular commute) and work-related equipment.
Deductions such as expenses can reduce your taxable income, potentially lowering your overall tax liability. Keeping records of these expenses and submitting them through your Self Assessment or to your employer can lead to significant savings.
10.Time Your Income Across Tax Years
When you receive income can matter just as much as the amount you receive.
As the UK tax year runs from 6 April to 5 April, moving income from one year to the next can keep you below key thresholds and prevent you from needing to pay more than necessary.
For example, if you’re a sole trader or partner, you may be able to time the purchase of necessary business equipment to spread the profits more evenly across the tax years.
11.Explore Employee Share Schemes
If your employer offers a share scheme, it can be a tax-efficient way to build wealth alongside your salary. The main options include:
- Share Incentive Plans (SIPs): Buy shares from your pre-tax salary, which reduces your taxable income. You can use up to £1,800 a year or 10% of your salary — whichever is lower. When you hold these for five years, you won’t pay Income Tax or National Insurance on them.
- Save As You Earn (SAYE): If you save up to £500 a month for three or five years, you can buy company shares at up to a 20% discount, with no Income Tax or National Insurance on the discount.
- Enterprise Management Incentives (EMI): These let you buy shares at a fixed price in the future. If the price is set at market value when the option is granted, you’ll only pay Capital Gains Tax on any profit when you sell.
When exploring share schemes, keep in mind that the value can go down as well as up. As such, we recommend you get some advice before investing this way.
Haggards Crowther Helps You Make the Most of Your Finances
Here at Haggards Crowther, we provide professional, personalised tax advice for high earners across the UK.
As chartered accountants, we’re on hand to support you with tailored guidance on your finances. We help you decrease your taxable income, ensuring you pay only what you owe. With over 20 years of experience, we offer advice you can trust.
Get in touch with us today to see how we can help. You can reach us by phone on 020 7384 0920 for the Parsons Green office or 020 7384 4898 for our Putney team. Alternatively, send an email to enquiries@haggards.co.uk.
