Are You Paying the Hidden 60% Tax Rate?
If you earn over £100,000, you may be losing a large chunk of your income to tax without even realising it. Here’s how to reduce your tax bill before April 2025.
1. The 60% Tax Trap – How to Avoid It
Once your income exceeds £100,000, your Personal Allowance (£12,570) starts to disappear. For every £2 you earn above this threshold, you lose £1 of your Personal Allowance, resulting in a hidden 60% tax rate on income between £100,000 and £125,140.
📌Action Tip: Reduce your taxable income by making pension contributions or donating to charity through Gift Aid.
2. Maximise Pension Contributions
Pension contributions not only save for retirement but also lower your taxable income. The annual tax-free contribution limit is £60,000. Contributions also benefit from 40% or 45% tax relief for higher earners.
Read more on pensions by clicking here
📌Action Tip: If your income is above £100,000, increasing your pension contributions can help you reclaim your Personal Allowance and reduce your tax bill.
3. Check Your Tax Code
Errors in tax codes can result in overpayments. If you’ve had a salary increase or multiple income sources, it’s worth reviewing your tax code to ensure it’s correct.
📌Action Tip: Check your tax code on your HMRC account or with an accountant.
4. Invest in Enterprise Investment Schemes (EIS) & Venture Capital Trusts (VCTs)
For those looking to invest, EIS and VCTs offer generous tax reliefs, including 30% income tax relief. They can be particularly useful for high earners trying to offset their tax liability while growing their wealth.
📌Action Tip: Consider investing in EIS or VCTs to claim tax relief while diversifying your investment portfolio.
5. Use Marriage Allowance (If Eligible)
If you’re married and one spouse earns under the Personal Allowance (£12,570), you may be able to transfer up to £1,260 of their tax-free allowance to you, reducing your overall tax bill. This is especially useful if your partner is working part-time.
📌Action Tip: Check eligibility for the Marriage Allowance on the HMRC website to see if you can benefit.
Get in touch
Need Help Navigating Your Tax Strategy? Understanding the tax system and making the right financial decisions can be complex. At AEL Markhams, we help high earners like you minimise tax liabilities and optimise financial strategies. If you’d like to discuss how to reduce your tax bill before the April 2025 deadline, get in touch with us today!
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