Pensions and tax planning for high earners

The rising tax burden on income

If you are a high-earner and feel you are paying more and more tax, you are not alone. More than one in seven income tax payers are taxed at the higher, additional or top rate and they pay about two thirds of all income tax.

Increasing the tax burden for higher earners has been a deliberate policy of successive governments. For instance, the thresholds for phasing out the personal allowance and the start of the additional rate tax threshold have both been unchanged since they came into force in April 2010.

Although the point at which you start to pay 40% income tax will rise to £46,350 for 2018/19 (except in Scotland, where proposed changes could affect income tax rates and thresholds), it has increased at about half the rate of inflation over the past ten years. You may also be feeling the impact of the tax on child benefit, which applies to those with income over a £50,000 threshold (frozen since January 2013), or you may be subject to the increased marginal rates of tax on dividends, introduced in 2016/17.

The message is clear: if you want to reduce the amount of tax that you pay, then the solution is in your own hands. Planning could help you to lessen the rising tax burden – and we’re here to help.

This guide explores a key tax planning opportunity: making pension contributions. Pension contributions qualify for tax relief at your highest rate, which may be 40% or 45% (41% or 46% in Scotland under the proposed new rates). The effective rate of relief could be up to 60% (61.5% in Scotland under the proposed new rates), or even higher, if your pension contributions help you to avoid the withdrawal of child benefit or your personal allowance.

The guide also explains how a self-invested personal pension (SIPP) could help you to take control of your pension, and even to develop your business.