| Research suggests 4.8 million more people will be paying higher rate tax by 2031 than in 2022 | An efficient way to reduce your tax take is to increase your pension contributions with salary sacrifice | It is important to get tailored advice to work out the best ways to adjust to your unique circumstances |
While workers were raising a glass to a pay rise, the government’s decision not to raise tax thresholds means more will have become higher rate taxpayers. Research suggests 4.8 million more people will be paying higher rate tax by 2031 than in 2022 when the freeze began. If you’re one of them, what steps can you take to avoid putting the party on ice?
Salary sacrifice (while you can)
One of the most efficient ways to reduce your tax take is to increase your pension contributions. That’s because, with salary sacrifice, contributions will be made from your gross salary. The government plans to change salary sacrifice rules from April 2029, so use it while you can!
Check pension tax relief
When moving into a higher rate, check you are receiving higher rate tax relief because this isn’t always applied automatically. You may need to claim the extra relief through Self-Assessment or by contacting HMRC directly.
Know the PSA limits
Personal Savings Allowance (PSA) limits are lower for higher rate earners: you will only be able to earn £500 interest on savings outside Individual Savings Accounts (ISAs) before paying tax.
Think about Marriage Allowance and Child Benefit
If you or your partner are a higher rate earner, you can no longer benefit from Marriage Allowance. This could mean losing a tax saving worth up to £252 a year. Keep an eye on Child Benefit too, as support is withdrawn through the High Income Child Benefit Charge (HICBC).
Get in touch – we can talk it through.
Tax treatment depends on individual circumstances and may change in future.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
