- The higher rate tax threshold has been frozen since April 2021 – and this will last until April 2028.
- The Office for Budget Responsibility says it’ll create another 2.1 million higher-rate taxpayers – that’s 47% more.
- The threshold at which you start to lose your personal allowance is £100,000. This hasn’t moved since it was introduced in April 2010.
- Your personal allowance is cut by £1 for every £2 that your net adjusted income is above £100,000 – until your allowance is zero once you earn £125,140. This is an effective tax rate of 60%.
Sarah Coles, Head of Personal Finance, Hargreaves Lansdown gives‘ 10 Strategies for Higher Rate Taxpayers to Cut Their Tax Bill’:
- Pay into a pension: Benefit from tax relief at your highest marginal rate and potentially push yourself out of paying higher rate tax altogether.
- Escape the high-income child benefit tax charge: Reduce your net adjusted income by paying into a pension to lower your high-income child benefit tax charge.
- Use pensions to deal with the £100,000 threshold: Paying into a pension to reduce adjusted net income helps regain some personal allowance and potentially maintain eligibility for tax-free childcare.
- Make use of your CGT allowance before you lose it: Utilise your capital gains tax (CGT) allowance and offset any capital losses against gains.
- Shelter income-paying assets in ISAs: Use the Bed and ISA process to shelter income-producing assets in an ISA to avoid paying tax on dividends.
- Consider your cash ISA: Take advantage of a cash ISA to avoid paying tax on interest for higher rate taxpayers with savings of over £11,000.
- Plan as a couple: Transfer income-producing assets to a partner who pays a lower tax rate to take advantage of both your allowances.
- Consider your tax position next year: Factor in the falling CGT and dividend tax allowances when deciding whether to delay receiving income or capital gains.
- Make a charitable donation: Cut your tax bill by making a donation to a charity and claim back 20% through your tax return.
- Consider a Venture Capital Trust: Get up to 30% income tax relief on investments in a Venture Capital Trust to reduce your overall tax bill, but remember this is high risk and should only be a small part of a diverse portfolio.