As a high earner in the UK, managing your tax liability becomes increasingly important as your income crosses key thresholds like £100,000. Whether you’re paying 40% or 45% tax, there are several strategies you can use to reduce your taxable income and keep more of your hard-earned money. In this guide, Ultra Tax Ltd provides expert tax tips for income over £100k and actionable advice to help you save on taxes.
What is a High Earner in the UK?
In the UK, a high earner is generally considered anyone earning over £50,270, as this income falls into the higher-rate tax bracket of 40%. Additionally, those earning over £150,000 are taxed at 45%, the additional-rate bracket. If your income exceeds £100,000, you also face the 60% tax trap as you lose your personal allowance, which can significantly increase your tax bill.
How to Reduce Taxable Income for High Earners in the UK
Reducing your taxable income is essential for high earners looking to minimise their tax liabilities. Here are some key strategies to consider:
1. Increase Pension Contributions
One of the most effective ways to reduce your taxable income is by making larger pension contributions. By contributing more to your pension, you can lower your overall taxable income and potentially stay within the lower tax brackets. This is particularly useful if your income is close to £100,000, as it helps you retain your personal allowance and avoid the 60% tax trap.
Pension Contribution Limit: You can contribute up to £40,000 per year into your pension, and contributions are tax-free. This reduces your taxable income and helps you save for retirement.
2. Use Salary Sacrifice Schemes
Salary sacrifice schemes allow you to trade part of your salary for non-cash benefits, such as a company car, childcare vouchers, or private healthcare. This lowers your gross salary and reduces your tax liability. Salary sacrifice is an excellent option for
high earners in the UK who want to stay under key tax thresholds.
Tip: If you're about to receive a pay rise that would push you into the 45% tax bracket, consider using salary sacrifice to reduce your taxable income.
3. Make Charitable Donations
Donating to charity under the Gift Aid scheme not only benefits causes you care about, but it can also reduce your tax bill. Charitable donations are taken off your taxable income, and you can claim additional tax relief if you're a higher or additional rate taxpayer.
Example: A £1,000 donation through Gift Aid will count as a £1,250 donation for tax purposes, reducing your taxable income by that amount.
Tax Tips for Income Over £100k UK
For those earning over £100,000, tax planning becomes critical. Once your income exceeds this threshold, you lose £1 of your personal allowance for every £2 earned, effectively creating a 60% marginal tax rate on income between £100,000 and £125,140. Here’s how to protect your income:
4. Keep Income Below £100,000
If possible, keep your income below £100,000 to avoid losing your personal allowance. You can do this by deferring income, increasing pension contributions, or utilising salary sacrifice schemes.
Pension Contributions: Increasing your pension contributions is one of the most straightforward ways to keep your income under this threshold.
5. Use ISAs for Tax-Free Investments
Utilising Individual Savings Accounts (ISAs) allows you to save or invest up to £20,000 per year tax-free. Any returns, whether from interest, dividends, or capital gains, are free from income tax and capital gains tax. This makes ISAs a great way to grow your wealth without increasing your taxable income.
Tip: High earners can also explore stocks and shares ISAs to benefit from potential capital growth without the tax burden.
6. Optimise Capital Gains Tax (CGT)
If you’re a high earner with investments or properties, understanding how to use your Capital Gains Tax (CGT) allowance is crucial. For the 2023/24 tax year, the CGT allowance is £6,000, meaning you can make gains up to this amount without paying tax. By managing when you sell assets, you can avoid unnecessary CGT charges.
How Ultra Tax Ltd Can Help High Earners in the UK
At Ultra Tax Ltd, we specialise in helping high earners manage their tax liabilities and retain more of their income. Whether you’re paying 40% or 45% tax, our expert team can provide tailored advice on how to reduce taxable income and ensure you’re taking advantage of all available tax-saving opportunities.
Unlimited Free Consultations: Our tax experts offer unlimited free consultations to help you develop a tax-saving strategy that works for you.
Personalised Tax Planning: We provide bespoke tax planning services for high earners, ensuring you’re fully utilising pensions, investments, and allowances to minimise your tax bill.
Get Expert Tax Advice for High Earners Today
If you're looking for ways to reduce your taxable income and save on your 40% or 45% tax bill, contact Ultra Tax Ltd today. We offer personalised tax strategies for high-income earners in the UK, ensuring you keep more of your income and stay compliant with HMRC. Book your free consultation now and start saving!
Frequently Asked Questions (FAQs)
1. What is considered a high earner in the UK?
A high earner in the UK is generally defined as someone earning over £50,270 (40% tax rate) or £150,000 (45% tax rate).
2. How can I reduce my taxable income if I earn over £100k?
You can reduce your taxable income by increasing pension contributions, using salary sacrifice schemes, and making charitable donations to stay below the £100,000 threshold.
3. How does the 60% tax trap work?
When your income exceeds £100,000, you lose £1 of your personal allowance for every £2 earned, effectively creating a 60% marginal tax rate on income between £100,000 and £125,140.
4. What tax relief is available for high earners?
High earners can benefit from pension contributions, Gift Aid donations, ISAs, and capital gains tax allowances to reduce their taxable income.
5. Can Ultra Tax Ltd help me save on taxes?
Yes! Ultra Tax Ltd offers tailored tax advice and planning strategies for high earners to ensure you make the most of your income and reduce your tax bill.
Comments