Tax planning for high earners

At Adam & Company, we understand the importance of sound tax planning, especially for high-income earners and wealthy families. It’s not just a case of fulfilling your obligations to HMRC (the UK’s tax authority). Taking a more strategic approach to your financial future can help protect and grow your wealth while minimising your tax liabilities.

In this comprehensive guide, our independent Wealth Planners set out some of the options and strategies that can help you achieve your goals, from building your retirement income to passing on your wealth more effectively.

How expert tax planning can benefit wealthy individuals

Whether your priority is achieving financial independence, supporting your loved ones, or pursuing another ambition, sound tax planning can play a pivotal role in helping you realise your vision for the future.

The key is to align your tax mitigation strategy with your broader financial goals and aspirations. However, this requires a meticulous assessment of your tax liabilities and all the opportunities available across an intricate and sometimes challenging landscape of rules and allowances.

This requires a nuanced approach. That’s what we, as independent wealth planning experts, can bring to the table. We specialise in helping high earners and wealthy individuals formulate effective tax planning strategies that reflect individual circumstances and objectives.

If you’d like to talk to one of our independent Wealth Planners, please get in touch. In the meantime, here are some routes for you to consider as part of your tax mitigation and estate planning strategy.

1. Pension contributions

Harnessing the power of pension contributions is important in effective tax planning. However, high earners and high-net-worth individuals typically face more pension restrictions (and potential pitfalls) than others.

Making the most of your pension requires a detailed understanding of the rules, so it’s wise to seek specialist advice. Calculating your ‘adjusted income’, for example, can be complicated but your Wealth Planner can do this for you.

You could also be affected by the tapered annual allowance. The tapering of the annual pension contribution allowance poses a significant challenge for high-income earners, as reductions are triggered by specified income thresholds that can be tricky to navigate.

An expert Wealth Planner can guide you through the complex pensions landscape, enabling you to optimise your contributions while minimising the impact of tapering.

2. Individual Savings Accounts (ISAs)

ISAs are now a recognised tax planning pillar for high-income earners.

With a generous annual allowance of £20,000 (£40,000 for a married couple), they provide a tax-free wrapper for investment growth, shielding your earnings from income, capital gains, and dividend tax.

Junior ISAs provide a simple way to pass on your wealth tax efficiently to the next generation while also introducing young people to the benefits of saving.

There are two types of Junior ISA: a cash Junior ISA and a stocks and shares Junior ISA. A child can have one or both types, each with a healthy tax-free savings allowance of £9,000 a year. They can hold both at the same time, however the maximum contribution per year is limited to £9,000 in total. The holder can withdraw the money from their ISA any time after their 18th birthday.

3. Putting investment capital in your partner’s name

If you’re married or in a civil partnership, it makes sense to make the best use of your respective tax allowances by putting some of your investments in your partner’s name. You may want to document these arrangements to ensure you both know where you stand if your relationship were to end in the future.

4. Offshore bonds

An offshore bond is an insurance policy set up in a jurisdiction with favourable tax regulations, such as the Isle of Man or Dublin.

It acts as a tax-efficient ‘wrapper’, meaning any growth in the investments held within the bond is exempt from UK tax. This makes offshore bonds an attractive way to boost your retirement pot and defer tax.

You’re free to withdraw up to 5% of your original investment each year for 20 years, tax-free, and any unused allowance can be carried forward. Any gains may be subject to income tax when you convert the bond into money, however, you can choose when you want to do this.

You could also gift part or all your offshore bond to loved ones. This would ensure any gains will be taxed based on the recipient’s UK tax rate, which could be lower than yours.

5. ‘Incentivised’ investment schemes

Government-backed initiatives like the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer attractive incentives, including income tax relief and capital gains tax exemptions on direct investment into smaller companies in the UK.

Venture Capital Trusts (VCTs), which typically invest in unquoted and/or smaller Alternative Investment Market (AIM)-listed companies, also offer attractive tax reliefs to long-term investors resident in the UK.

With EIS and VCT investments there are specific tax reliefs – provided the investment manager keeps to certain rules. For example, there are limits on how much you can invest and how long for, as the tax relief available is subject to a minimum holding period. As well as being complex, these investments also carry a high level of risk, because they invest in smaller companies whose shares can be harder to exchange or sell.

It's therefore important to speak to a Wealth Planner with sound knowledge and experience in this specific area before diving in.

6. Family investment companies

A Family Investment Company (FIC) is a limited company set up to hold and manage family wealth. Typically funded by a loan made by the founder, an FIC can be a tax-efficient investment option for wealthy individuals.

Corporation tax (currently 25%) is payable on the company’s income and the company’s shareholders, who are family members, only pay tax when they receive income from the company.

Family Investment Companies are another complex area of tax planning our expert Wealth Planners can help you with.

7. Charitable donations

Whether you make a one-off gift, or donate regularly (e.g. via Payroll Giving), donations to charity are a great way to optimise your tax strategy, while also supporting the causes you care about.

The tax advantages are especially compelling for higher and additional-rate taxpayers. As well as unlocking tax relief through Gift Aid, you may also benefit from deductions from your adjusted net income.

8. Pensions for children

It’s never too soon to start building a nest egg for your children, grandchildren, or other young people close to you – and the sooner you start, the more it can compound over time.

Contributions to a child’s pension are not linked to your earnings and you can pay up to £3,600 per tax year into a child’s pension at a net cost of £2,880. That’s because, even though your child is a non-taxpayer, contributions are eligible for basic rate tax relief at 20%.

The holder will be able to access their pension on or after their 55th birthday (this minimum age that pension benefits can be accessed is rising to 57 in 2028.) 

Why high earners choose Adam & Company

• Comprehensive financial advice: our Wealth Planners have the expertise and first-hand experience to consider your overall wealth and tax position
• Independent, impartial advice: our Wealth Planners are free to advise you on any product or service that may be right for you, not just our own
• Long-term relationship: we take a long-term approach to relationships so we can focus on your unique and evolving needs
• Specialist pension expertise: we can navigate you through the maze of complex pensions and tax allowances
• Market knowledge: we combine long-established knowledge with the most up-to-date market insights to guide our decision-making.

To find out what we can do for you, please get in touch to arrange a one-to-one consultation with an independent Wealth Planner.

You may also be interested in:

• Changing government, changing UK markets?
• AIM portfolio service
• Trusts for estate planning: what, when and how?

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity. Investors should make their own investment decisions based upon their own financial objectives and resources and, if in any doubt, should seek specific advice from an investment adviser. The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing. This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only. The information contained herein is based on materials and sources deemed to be reliable; however, Adam & Company makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information. Adam & Company is not liable for the content and accuracy of the opinions and information provided by external contributors. All stated opinions and estimates in this article are subject to change without notice and Adam & Company is under no obligation to update the information.