Smart Tax Planning for High Earners: How to Invest More Efficiently

If you're earning over £100,000, you're likely paying more tax than you need to.
Written by
Wealth of Advice
Published on
01 Jul 2025

If you're earning over £100,000, you're likely paying more tax than you need to. In this episode of Retire Well, Matthew and Joe explore how high earners can use smart tax planning to reduce their liabilities and grow their wealth more efficiently.

1. The £100,000 Tax Trap

Once your income exceeds £100,000, your personal allowance begins to taper — effectively creating a 60% marginal tax rate between £100,000 and £125,140. Many high earners are unaware of this trap, but with the right pension contributions, you can reduce your taxable income and reclaim your allowance.

Key Tip: Use salary sacrifice to reduce your income and boost your pension — saving on both income tax and national insurance.

2. Pension Contributions & Carry Forward

The annual pension contribution limit is £60,000 (or 100% of your earnings, whichever is lower). But if you haven’t used your full allowance in the past three years, you can carry it forward — potentially contributing up to £220,000 in a single tax year.

Watch Out: If your adjusted income exceeds £260,000, your annual allowance may taper down to as little as £10,000.

3. Investment Bonds: Tax-Deferred Growth

Investment bonds offer a way to grow your money without immediate tax consequences. You can withdraw up to 5% of your original investment each year tax-deferred, making them ideal for supplementing income in retirement or bridging the gap before pension access.

Bonus: Offshore bonds may offer even more tax efficiency, especially if you expect to be in a lower tax bracket in the future.

4. VCTs, EIS & SEIS: High Risk, High Relief

For those comfortable with higher risk, government-backed schemes like Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS), and Seed EIS (SEIS) offer generous tax reliefs:

  • VCTs: 30% income tax relief on a maximum investment of £200,000, tax-free dividends, and no CGT on sale — but must be held for 5 years.
  • EIS: 30% income tax relief on a maximum investment of £1,000,000, CGT deferral available, and potential IHT relief — but must be held for 3-years.
  • SEIS: 50% income tax relief on a maximum investment of £200,000 and CGT reinvestment relief — but must be held for 3 years.

These are only appropriate for those with a high attitude to risk, but they can be powerful tools for the right investor.

5. Family Planning & Spousal Contributions

If you've maxed out your own pension or ISA, consider contributing to your spouse’s accounts, especially if they have unused allowances. Junior ISAs are also a great way to invest for your children’s future, with up to £9,000 per child per year.

Final Thoughts

Tax planning for high earners isn’t just about saving money — it’s about making informed, strategic decisions that align with your lifestyle, goals, and risk tolerance. Whether you're navigating pension rules, exploring investment bonds, or considering VCTs, the key is to plan proactively and seek advice when needed.

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