Tax planning for high earners
Earning more should not mean keeping less of it
Above £100,000 the tax system stops being progressive and starts being peculiar. Effective rates of 60% or more, allowances that shrink as you earn, and thresholds frozen until 2031.
Where higher earners lose out
On paper the top rate of income tax is 45%. In practice the highest rates are paid lower down, by people who have crossed a threshold and lost something as a result.
- £60,000 to £80,000. Child Benefit is clawed back through the High Income Child Benefit Charge, at 1% of the benefit for every £200 of income above £60,000.
- £100,000 to £125,140. The personal allowance is withdrawn at £1 for every £2 of income, giving an effective income tax rate of 60%, or 62% with National Insurance. Funded childcare hours and Tax-Free Childcare also end when either parent's income passes £100,000.
- Above £200,000. The pension annual allowance can be tapered from £60,000 to as little as £10,000, just as contributions become most valuable.
With thresholds frozen until April 2031, each pay rise pushes more people across these lines.
What can be done about it
The same rules that create these traps also create the way out, because most of the tests are based on income after pension contributions. A contribution that brings adjusted net income back to £100,000 restores the whole personal allowance. Paid through salary sacrifice it saves National Insurance too. Carry forward of unused allowance from the previous three years can make a much larger contribution possible in a good year.
Beyond pensions, the usual tools are ISAs for both partners, holding investments in the name of whoever pays less tax, managing when gains are realised, and for those who have used the mainstream allowances, more specialist investments that carry tax reliefs and higher risk in equal measure.
Bonuses and share awards
Variable pay makes planning harder. Restricted stock units are taxed as income when they vest, often pushing a year's income well beyond salary, and leave you holding a concentrated position in your employer. Bonuses frequently land in the last weeks of the tax year. An adviser works with the year as a whole: what is expected and when, how much allowance is left, and what to do with the shares once they are yours.
What an adviser helps with
Where advice makes the difference
The £100,000 trap
Working out your adjusted net income for the year and the most efficient way of bringing it down.
Pension contributions and the taper
Threshold and adjusted income, carry forward, salary sacrifice, and avoiding an annual allowance charge.
Bonuses, RSUs and options
Timing, tax at vesting and exercise, and a plan for reducing a concentrated shareholding.
Planning as a couple
Using two sets of allowances for ISAs, savings, dividends and gains.
Capital gains
Managing when and how gains are realised, with a £3,000 exemption and rates of 18% and 24%.
Beyond pensions and ISAs
Where further tax-efficient investments may fit once the main allowances are used, and the risks that come with them.
Calculators
Put a number on it first
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Tax
Income tax calculator
Take-home pay, your true marginal rate, and what it costs to escape the £100,000 allowance trap.
Open the calculator -
Tax
Pension annual allowance calculator
Whether the taper reduces your allowance, how much you can still pay in, and any charge on the excess.
Open the calculator -
Pensions
Retirement calculator
See what your pension could pay you, how it compares with the income you want, and what would close any gap.
Open the calculator
Questions
What people ask us
How do I avoid the 60% tax trap?
The trap applies to adjusted net income between £100,000 and £125,140. Pension contributions and Gift Aid donations reduce that figure. Paying enough into a pension to bring it back to £100,000 restores your full personal allowance; in that band a £10,000 contribution by salary sacrifice typically costs about £3,800 of take-home pay.
Is salary sacrifice still worth using?
Yes, for most people. Salary sacrifice saves employee National Insurance as well as income tax, and some employers pass on part of their own saving. From April 2029 the National Insurance advantage is due to be limited to the first £2,000 of sacrificed salary a year, but the income tax relief is unaffected.
What is the tapered annual allowance?
If your threshold income is over £200,000 and your adjusted income is over £260,000, your £60,000 pension annual allowance is reduced by £1 for every £2 above £260,000, to a minimum of £10,000. Employer contributions count towards adjusted income. Our pension annual allowance calculator works it out.
Do I need an accountant or a financial adviser?
Often both, for different things. An accountant prepares your return and advises on tax law. A financial adviser deals with what the money does: pensions, investments, protection and long-term planning. On questions like pension contributions and the taper the two overlap, and good advisers work with your accountant.
This page is general information, not financial advice. WealthWise Connect is an introducer and is not authorised or regulated by the FCA; advice is given by the regulated adviser we introduce. Other areas: Pensions and retirement, Investments and ISAs, Inheritance tax planning, Protecting your family, Business owners, British expats and returners.
The tax year ends on 5 April. Plans made earlier work better.
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