The UK tax system is supposedly “progressive” (the more you earn, the more you pay). Yet, the system is notoriously complex, with a code running over 23,000 pages. No wonder many people needlessly overpay.
The challenge of tax planning can be particularly hard for high earners, who might have multiple income streams (e.g. dividends and interest payments) and complex asset bases.
With cost-of-living pressures biting many households in 2025, it is even more pressing to get organised. Below, our Grantham financial planners offer six ideas for reducing needless tax.
High earners typically face a “cliff edge” when their income approaches a higher income tax band. In 2025-26, the basic rate is 20% on earnings between £12,570 and £50,270. However, once you cross over that threshold, your income tax rate doubles to 40%.
The knock-on effects can be considerable. For instance, once you cross over from paying the basic rate to the higher rate, your Personal Savings Allowance (for tax-free interest) falls from £1,000 per year to £500.
As such, it often makes sense to stay in as low a tax band as possible. There are many options to achieve this, including:
If you are saving or investing, it is vital to keep as many gains and interest as possible.
The ISA is a great option - offering tax-free interest, capital gains and dividends earned within the “wrapper”. In 2025-26, you can contribute up to £20,000 to your ISAs each tax year.
It’s important to use your ISAs strategically, however. For instance, if the interest from your cash savings is under your Personal Savings Allowance for the tax year (e.g. £1,000), then you might want to set aside your ISA Allowance for investing (for tax-free dividends and/or capital gains).
If you are saving for retirement or for a mortgage deposit on a first property purchase, consider the Lifetime ISA. Here, the UK government will “top up” your contributions by 25% (up to a max of £1,000 each tax year).
If you have money left over from your earnings, why not put the money you would have paid to the government towards your retirement instead?
This is, in essence, how pension “tax relief” works. Your relief is equivalent to your highest rate of income tax. So, a basic rate taxpayer gets 20% tax relief (i.e. it “costs” them 80p to make a £1 pension contribution). For the higher rate taxpayer, 40% tax relief can be claimed.
Pensions are powerful for high earners. Not only do they help boost your future retirement lifestyle, but your contributions can result in paying less income tax in the year you contribute.
One great feature of the UK tax system is that it is possible to lower your tax bill whilst donating to the causes that matter.
Gift Aid, for instance, allows charities to reclaim the basic rate of tax (20%) on your donation. If you are a higher rate taxpayer, you can also claim the difference between the basic rate and your higher rate (i.e. 20%).
What this can look like in practice: a £800 donation could cost you as little as £550 after relief is claimed, also leading to the charity claiming £1,000.
For higher earners, the concern is not merely mitigating taxes on income (e.g. salary). It is also about addressing wealth-related taxes.
This is especially pressing when it comes to estate planning. You want to leave a legacy to your loved ones when you pass away, but inheritance tax (IHT) threatens to undermine it.
In 2025-26, the standard IHT rate is 40% on the value of an estate once it exceeds £325,000. Fortunately, there are mechanisms you can use to preserve as much of your wealth as possible.
Two examples are the 7-Year Rule (allowing you to exempt a gift from IHT if you survive another 7 years after making it), and the Annual Exemption - which lets you give away up to £3,000 each tax year without it being added to your estate.
These are just a handful of possible strategies that high earners can use to mitigate high taxes in 2025-26. Other tools may be at your disposal, too.
A financial adviser can lay out a more complete picture during an in-person meeting. If you’d like to make sure you’re taking the right steps to maximise your income and returns, please get in touch for a free, no-obligation consultation.
Your capital is at risk. Investments can go down as well as up, and you may not get back the amount you originally invested. Past performance is not indicative of future results. Diversification does not guarantee profits or fully protect against losses. Tax treatment depends on individual circumstances and may change in the future. This content is for information only and does not constitute personal financial advice. Readers should seek independent financial advice before making any investment decisions.
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