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How to minimise your tax as a higher earner

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How to minimise your tax as a higher earner

When your salary increases, it can suddenly feel like you have loads of free cash at the end of the month. But in some cases, your salary may rise a significant amount – but you end up with less of it than you expected.

This may be because you’ve crossed over into a higher tax bracket, which means a higher rate of tax is charged on any income over a certain amount. That means more of your money is going to tax, and less into your pocket.

Once you start earning above £50,270, every pound over that amount is charged at 40% tax. Over £125,140, it’s charged at 45%.

Many people are also stung around the £100,000 mark, as you lose a lot of tax benefits when you earn over this amount.

For example, your personal allowance – the amount you earn without paying tax – starts to reduce. For every £2 you earn over £100,000, your personal allowance is reduced by £1. You also lose tax-free childcare and other free childcare hours.

How to take home more of your money

One of the best ways to keep more of your income as a higher earner is to redirect more of your earnings into your pension. Money put into your pension is tax-free, so you get to keep the extra rather than giving it to HMRC.

Be aware that the current standard annual allowance – the amount you can put into your pension each year – is £60,000, but it can be lower for high earners. However, you can ‘carry forward’ any unused allowance from the three previous tax years if you need to put a lot away in one year. 

If you’re trying to avoid the ‘£100k tax trap’, you could also consider making charitable donations to bring your salary down below this threshold. This means you’ll keep your personal allowance and childcare benefits.

Charitable donations through Gift Aid extend your basic rate tax band, reducing your higher-rate exposure. For example, a £1,000 donation could increase your basic rate band by £1,250.

Saving your money into an ISA can help you keep more of your savings. Interest or returns earned inside an ISA are tax-free, so you get to keep every penny.

Clare West
Clare West Finance Editor

As a finance writer and editor, I can’t make decisions for you because only you know what’s right for you, and your personal priorities and goals. My role is to understand the things that are going to be important to you, remove anything that could work as a barrier to understanding, and then ensure you don’t miss a thing.

It’s an approach that has won me awards from professional bodies (‘Website of the Year’ at the Professional Adviser Awards 2021; Finalist – ‘Start Up of the Year’ at the UK FinTech Awards 2025) and seen me featured in the press as a commentator and expert.

Finances are about so much more than numbers on a page. Achieving your financial goals allows you to feel peace of mind, have confidence in your future, and achieve the things that matter to you. Financial wellbeing allows for life goal fulfilment.

I’ve spent more than a decade specialising in writing about financial services, so I know that in financial services, trust is absolutely vital. I am delighted, therefore, that everything we do at Investing Insiders centres around trust. Our mission is to write honest reviews based on our personal opinions and professional insights. We are not swayed in our opinions by incentives or influences from providers. Where we have a relationship with a provider that could affect our neutrality, we will let you know. But we are clear; whatever relationship we have with providers, our reader comes first. Simply put, we can’t be paid to change our opinion. My obligation is to you, the saver or investor, looking to build your wealth and protect your future.

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