Financial advice for high earners: what is best practice?

Who is considered a high earner?

Before we explore what a high earner is, it's worth flagging that most people have an annual personal allowance (£12,570), which is how much you can earn before you start paying income tax.

However, you may have a lower (or even no) personal allowance, depending on your income.

In the UK, a high earner is typically someone earning over £50,270, which is when additional tax implications start to apply.

The key threshold is £100,000, where you begin losing your tax-free personal allowance, and if you earn over £125,140, you're in the 45% additional income tax bracket. 

These income levels increase financial responsibilities, especially regarding tax planning for high earners.

What is the importance of having a financial adviser as a high earner?

For a high earner, managing your wealth can become complex, and a financial adviser can help you navigate these challenges.

Professional advice ensures you’re taking advantage of tax advice for higher earners to minimise your tax burden and optimise your wealth.

With tailored guidance, you can structure your income, investments, and pension contributions in the most tax-efficient way possible.

What does being a higher earner mean for my taxes?

As a high earner, you face higher tax obligations. If your income is between £50,271 and £125,140, you're taxed at 40%; for income above £125,140, you're taxed at 45%. 

For example, someone earning £60,000 pays 40% tax on the portion above £50,270, while a basic-rate taxpayer earning £30,000 pays just 20% on their income outside of their personal allowance.

National insurance adds another layer of cost, with higher earners paying more as their income rises.

One major financial impact for higher earners is the loss of benefits, particularly around childcare.

If you earn over £60,000, you’ll face the high income child benefit charge, and once your income reaches £80,000, you lose child benefit entirely. Those earning over £100,000 no longer qualify for the tax-free childcare scheme. 

Higher earners also lose their personal allowance once their income exceeds £100,000.

For every £2 earned over this threshold, you lose £1 of your personal allowance, meaning it’s fully phased out at £125,140. This creates the 60% tax trap, where your effective tax rate rises sharply for income in this range. 

A high earner with significant investments will also face additional tax implications from dividends and capital gains.

These taxes can significantly affect your overall tax liability, so careful planning is essential.

How can I maximise my finances as a high earner?

With the right strategies, high earners can maximise their wealth while keeping taxes in check.

Here are some options to explore for those in the higher earners tax bracket:

Maximising pension contributions

Pension contributions are among the most effective ways to lower your tax burden as a higher earner.

The annual pension contribution allowance is currently £60,000 or 100% of your annual earnings, and these contributions are tax-free up to the limit.

If you’re earning over £100,000, putting more into your pension can help you regain part or all of your personal allowance. This not only lowers your taxable income but also boosts your pension.

Utilise ISAs

Another tax-efficient strategy is to maximise your annual individual savings allowance (ISA) allowance.

With an ISA, you can save or invest up to £20,000 a year, and any interest, dividends, or capital gains earned are tax-free.

ISAs are an excellent way for high earners to legally shelter money from tax while growing their wealth.

Charitable donations

Donating to charity is a win-win strategy for high earners. You get to support causes you care about, and charitable donations are eligible for tax relief.

For higher-rate and additional-rate taxpayers, the Gift Aid scheme allows you to reclaim 20% or 25% of your donation’s value. This reduces your tax liability and makes your contribution go further.

Salary sacrifice schemes

Salary sacrifice is another tool for lowering your tax burden.

With these schemes, you agree to give up part of your salary in exchange for benefits such as pension contributions, childcare vouchers, or a company car.

The reduction in salary means you pay less tax and national insurance, helping to keep more money in your pocket while enjoying additional perks.

How can a high earner invest to grow their wealth?

Investing is key for high earners looking to build long-term wealth. Whether you’re interested in stocks, bonds, or property, investing provides opportunities for your money to work harder. However, with investing, there’s always risk involved, and your capital is at risk. 

High earners should take a balanced approach, diversifying their portfolio to manage risk while maximising returns.

Seeking expert advice is essential, as tax implications on dividends and capital gains can increase your tax bill and impact your overall wealth-building strategy.

How can high earners mitigate tax burdens?

Mitigating tax for high earners is about structuring income and assets to take advantage of reliefs and allowances that reduce overall tax exposure.

This could involve spreading income across family members, reviewing your investment portfolio to ensure it's tax-efficient, and exploring government incentives.

High earners may also benefit from optimising the timing of income, such as deferring bonuses or adjusting the way capital gains are realised, to avoid crossing into higher tax brackets unnecessarily.

Strategic use of financial instruments and tax reliefs is key to keeping your tax liabilities in check.

What questions should I ask a financial adviser as a high earner?

When seeking tax advice for higher earners from a financial adviser, asking the right questions is critical to ensure you get the most out of your income. 

Here are some questions to ask and why they’re important:

• How can I minimise my tax liability? This will help you explore options for reducing your tax burden, like pension contributions or charitable giving.
• How can I maximise my investments? Get advice on how to structure your investment portfolio to grow wealth while considering tax implications.
• What strategies should I use to protect my wealth? Discuss risk management, including insurance and diversification strategies.
• How should I plan for retirement? Make sure your pension strategy aligns with your long-term financial goals.
• Are there any benefits I’m not taking advantage of? Salary sacrifice schemes or specific tax breaks may be available to you as a high earner.

Get expert financial advice

For high earners, managing wealth effectively involves more than just earning a high income. With complex tax implications and the potential loss of key benefits, financial planning becomes crucial. 

By working with a financial adviser, exploring tax-efficient strategies, and making smart investment decisions, high earners can reduce their tax burden and build long-term financial security.

Proactive planning is the key to turning the challenges of higher earnings into opportunities for sustained growth.

Let Unbiased match you with a qualified financial adviser who can help you maximise your income, reduce your tax burden, and grow your wealth efficiently.