• The upper rate of income tax applies to those with a taxable income in excess of £150,000. It is 45% for 2013/14 onwards and was 50% for 2012/13.
  • The personal allowance is also reduced by £1 for every £2 of income over £100,000, see Tax rates and allowances. This produces a marginal tax rate of 60% for someone whose income falls into the band £100,000 to £116,000.
  • Tax relief on pension contributions is also restricted for higher earners, see Pensions tax planning.
  • From April 2013 there is a restriction on the amount of income tax relief that may be claimed on certain tax reliefs, see Cap on unrestricted tax relief.

How to avoid paying tax at 45% (60% in some cases)

The basics

  • Rearrange your income producing assets to use up lower tax rate band of spouse, partner or family, see Shifting your income to save tax.
  • Review your investments and deposits to accelerate income and interest where possible, and change income producing products into those which will see capital growth instead.
  • Read through our guide Private Client: tax planning for the 2017/18 year-end contains many tips for the current year.

The Entrepreneur

The Employer

  • Smaller employers should consider setting up an Enterprise Management Incentive (EMI) share option scheme in order to reward and incentivise key staff when trading results restrict bonuses (and the company share value is depressed).
  • Employers might also consider awarding shares under the new Employee Shareholder Status rules, prior to 1 December 2016 these provided that in return for giving up certain employment rights an employee may be awarded up to £2,000 of shares tax free and shares may be disposed of free of Capital Gains Tax. Whilst the tax benefits have been withdrawn for arrangements entered into after December 2016 they remain for those already in place.
  • An unapproved share scheme may also have its advantages as a method of rewarding employees by allowing them to participate in dividends. The employer will generally receive tax relief on any share award, see Share scheme basics for small companies. 
  • Consider making discretionary bonus awards to employees of non-taxable benefits or considering salary sacrifice arrangements; the latter have had fewer advantages since April 2017.
  • You also need to look at the various options (salary or dividend?) which are considered in the section Tax planning for directors; and note the summary in Will I pay less tax if I trade via a partnership?

 The Schemer

  • Tax Avoidance Schemes is a guide that consider some of the current generation of tax avoidance schemes on the market. Note that we do not condone any schemes mentioned, caveat emptor.

The landlord