Tax Planning for High Earners: 5 Strategies to Use in the New Tax Year

As income rises, so does exposure to higher tax rates. In the UK, individuals earning more than £100,000 face additional tax challenges, including the gradual loss of their personal allowance. This creates what is commonly known as the 60% tax trap, where some income can effectively be taxed at a marginal rate of 60%.

For many professionals, business owners and senior executives, this means that thoughtful tax planning for high earners is essential.

The start of the new tax year is an ideal time to review your strategy. Done properly, tax planning strategies for high-income earners can reduce tax legally, improve investment outcomes and help you structure wealth more efficiently over the long term.

After all, one of the core principles of good financial planning is simple: if tax relief exists, you should make the most of it.

So the key question is: are you making full use of the allowances available to you this year?

Why tax planning matters for high earners

Once income moves into six figures, the tax landscape becomes even more complex. Higher earners typically face:

• Higher-rate (40%) and additional-rate (45%) income tax
• The loss of the personal allowance above £100,000
• Tax on dividends and capital gains
• Pension tapering rules that can reduce pension allowances

Individually, each of these is manageable. Combined, they can significantly increase a household’s overall tax exposure.

“Many high earners focus purely on income tax,” explains one First Wealth financial planner. “But effective tax planning for high earners looks at the whole picture – income, investments, pensions and capital gains.”

This is where the best tax strategies for high-income earners go beyond simple tax returns. They involve structuring income, investments and savings in a more tax-efficient way.

The 60% tax trap explained

One of the biggest tax surprises for high earners occurs once income exceeds £100,000. At this point, the personal allowance (£12,570 in the 2025/26 tax year) begins to reduce. For every £2 earned above £100,000, £1 of personal allowance is lost. By the time income reaches £125,140, the allowance disappears entirely.

This creates an effective 60% marginal tax rate on income between £100,000 and £125,140.

A simple example

Imagine a professional earning £110,000. Their additional £10,000 income:

• is taxed at 40%
• and also causes £5,000 of personal allowance to disappear

That lost allowance means an additional £2,000 of tax. So the total tax on that £10,000? £6,000.

That’s a 60% effective tax rate. It’s one of the main reasons tax advice for high earners can have such a significant impact. Have you checked whether part of your income is falling into this band?

5 tax planning strategies for high earners in the new tax year

1. Increase pension contributions

Pensions remain one of the most powerful tax planning strategies for high-income earners.

Key benefits include:

• Income tax relief on contributions
• Reduction of taxable income
• Potential avoidance of the 60% tax trap

For example, if someone earning £110,000 contributes £10,000 to their pension, their taxable income falls back below £100,000, restoring their personal allowance.

The annual pension allowance is currently £60,000 or 100% of earnings (whichever is lower), although this may be reduced for very high earners under tapering rules. However, unused allowance from the previous three tax years can potentially be carried forward.

Salary sacrifice can also be an effective way to increase pension contributions in a tax-efficient way. With salary sacrifice, an employee agrees to give up part of their salary in exchange for an equivalent pension contribution from their employer. Because the contribution is made before tax and National Insurance are applied, it can reduce both income tax and National Insurance liabilities.

This can be particularly valuable for individuals close to key income thresholds, such as £100,000, where taxable income reductions can help preserve the personal allowance. Salary sacrifice arrangements are typically set up through an employer and may also generate National Insurance savings for the employer, which some organisations pass on to employees through higher pension contributions.

It’s worth noting that pension and tax rules can change over time. Current limits and allowances are expected to remain in place until April 2029, but future governments may review them, making regular tax planning reviews important.

2. Maximise ISA allowances

ISAs remain one of the simplest tools for long-term tax planning for high earners. Each individual has an annual ISA allowance of £20,000.

Within an ISA:

• investment growth is tax free
• dividends are not taxed
• capital gains are not taxed

Over time, this can make a significant difference. A couple investing the full allowance each year could shelter £40,000 annually from tax. But for many clients in general, in a couple or not, ISAs form a core part of the best tax strategies for high-income earners, helping build a tax-efficient investment portfolio alongside pensions. However, it’s important to remember that capital values in Stocks and Shares ISAs can fall as well as rise.

3. Manage capital gains strategically

Capital Gains Tax (CGT) has become a bigger issue for investors as allowances have reduced dramatically in the last few years. The annual CGT allowance is now £3,000. While smaller than in previous years, it still offers planning opportunities. Some common strategies include:

• using the annual allowance each year
• spreading gains across tax years
• transferring assets between spouses, allowing both allowances to be used

For example, a couple selling investments could potentially double the tax-free amount available. Strategic CGT management is an important part of tax planning strategies for high-income earners, particularly for investors with larger portfolios.

4. Use tax-efficient investment structures

Some higher-risk investments provide significant tax incentives. Two examples include:

• Venture Capital Trusts (VCTs)
• Enterprise Investment Schemes (EIS)

These can offer:

• 20-30% income tax relief
• tax-free dividends (VCTs)
• potential capital gains deferral (EIS)

However, these investments are higher risk and often involve investing in smaller companies, so seeking financial advice first is key. As one First Wealth adviser explains: “VCTs and EIS can play a role in tax advice for high earners, but they should always sit within a diversified investment strategy.”

5. Review income structure

High earners often have multiple sources of income. This may include:

• salary
• bonuses
• dividends
• investment income

How this income is structured can significantly affect tax outcomes. For example, business owners may choose to balance salary and dividends, while employees might redirect bonuses into pensions. A simple restructuring exercise can often improve tax efficiency without changing overall earnings and is why reviewing income forms a key part of the best tax strategies for high-income earners.

Why early tax-year planning gives high earners more flexibility

Starting early in the tax year provides more opportunities to optimise your strategy. Benefits include:

• More time to adjust income
• The ability to spread pension or ISA contributions across the year
• Better planning around investments and capital gains

In contrast, leaving planning until March often limits the available options.

Common tax planning mistakes high earners make

Even experienced professionals can miss opportunities. Common mistakes include:

• Ignoring pension taper rules
• Not using allowances early in the tax year
• Focusing only on income tax rather than total tax exposure
• Leaving investments outside tax-efficient wrappers

Many of these issues arise simply because tax planning is treated as an annual exercise rather than part of a broader financial plan.

How financial planning can support high earners

Effective tax planning for high earners works best when it’s integrated with a wider financial strategy. Professional financial planning can help align:

• investment strategy
• tax planning
• retirement planning
• estate and inheritance planning

Rather than treating tax as a standalone problem, the goal is to structure wealth in a way that supports long-term financial goals. In many cases, the biggest opportunities come from combining multiple tax planning strategies for high-income earners within a single plan.

Seeking professional advice

For high earners, tax planning isn’t just about reducing tax this year. It’s about structuring income, investments and savings in the most efficient way over the long term. Starting at the beginning of the tax year gives you the greatest flexibility to use allowances, adjust income and implement the best tax strategies for high-income earners.

If you’d like personalised tax advice for high earners, our financial planners can help you review your current strategy and identify opportunities to improve tax efficiency. Get in touch today to discuss how we can help you make the most of the new tax year and build a smarter long-term financial plan.

This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice.

This document is provided for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial product. The Financial Conduct Authority does not regulate estate planning or tax planning. 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 guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.