10 Effective Ways to Reduce Your Tax Bill as a High Earner
Haggards Crowther Chartered Accountants
We help businesses fulfil their growth potential and individuals maximise the value of their income
Tax planning is an important aspect of financial management, allowing you to use all available tax reliefs and deductions to minimise your overall tax burden while protecting and growing your wealth. The UK tax year ends on April 5th, resetting tax allowances and forfeiting any unused amounts.
This transition provides a valuable opportunity to fine-tune your financial strategies. Given the complexity of the UK tax system, staying informed about the latest tax rules and allowances is important. Read on to discover ten effective strategies for reducing your tax bill as a high earner in the UK.
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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 the amount you contribute is subtracted from your taxable income.
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2. Tax-Efficient Investments
Certain investment schemes offer tax reliefs that can significantly reduce your taxable income. These include:
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3. Salary Sacrifice Schemes
Salary sacrifice schemes allow you to exchange part of your salary for non-cash benefits, such as:
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.
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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.
For example, a ￡1,000 donation costs a 40% taxpayer just ￡750 after reclaiming the higher rate tax relief. By using Gift Aid, high earners can significantly reduce their tax bill while supporting charitable causes, making it a win-win strategy for both your finances and the community.
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5. Transfer Income to a Spouse or Civil Partner
If your spouse or civil partner pays a lower tax 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.
Additionally, married couples can transfer ￡1,260 of their allowance if one partner earns below the threshold. This approach allows couples to take advantage of the tax bands and allowances available to them, leading to better tax planning and substantial savings.
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6. Claim Available Allowances and Reliefs
High earners should take advantage of available tax allowances to reduce taxable income and minimise tax liability. Two key allowances are the Personal Tax Allowance and the Dividend Allowance:
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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:
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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, which is ￡6,000 for the 2023/24 tax year. 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. This allows each person to use their own ￡6,000 exemption, effectively shielding more of the total gains from tax. This strategy is particularly useful for couples with different income or asset values.
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9. Review Your Tax Code and Expenses
Checking whether your tax code is correct is important to avoid overpaying your taxes. If your tax code is wrong, you could be paying more than you need to as it determines how much tax-free income you’re entitled to.
If you believe your tax code is incorrect, contact HMRC to rectify it promptly. Additionally, if you incur work-related expenses, be sure to claim them. This can include professional subscriptions, travel costs, work-related equipment, or even home office expenses.
These deductions 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.
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10. Seek Professional Advice from Haggards Crowther
High earners often have complex financial situations. Consult with our tax advisors at Haggards Crowther to strengthen your tax position while remaining compliant with UK tax laws.
At Haggards Crowther, we help our clients develop robust, legitimate tax strategies. Strategies which allow them to offset gains and losses and invest in the most tax-efficient manner. Our advice is always delivered in a confident manner and within the legislative framework set down by the UK Government.