How High Earners in the UK Can Reduce Their Taxable Income

Introduction

As your income increases, so does your tax liability at a much higher rate. For high earners in the UK, this can significantly impact overall wealth if not managed carefully. That’s why efficient tax planning becomes crucial. It’s not just about staying compliant with HMRC; it’s about taking control of your finances, preserving more of what you earn, and unlocking opportunities for smarter investments and long-term growth.

By proactively managing your tax responsibilities, you can reduce unnecessary burdens, avoid costly penalties, and ensure that your wealth works harder for you. Whether you’re a business owner, consultant, or high-earning professional, strategic tax planning helps you stay ahead financially, legally, and confidently.

At PKPI, we specialise in supporting professionals such as dentists, consultants, and SME owners. Our goal is to help you maximise your income and minimise unnecessary tax.

📞 Book your free consultation today: PKPI Chartered Accountants, team@pkpi.uk. 📱 +44 2079 418160

Strategies to Reduce your Taxable income 

1.  Maximise Pension Contributions 

Contributions to a registered pension scheme are tax-deductible and reduce your taxable income. For high earners, this is one of the most powerful tools for long-term tax efficiency. 

• The Annual Allowance is currently up to £60,000 (2024/25) but can taper for incomes over £260,000. 

• Unused allowances from the previous 3 years can be carried forward. 

Tip: Consider using employer pension contributions through your limited company—it can reduce corporation tax as well. 

2.  Use Salary & Dividend Optimization (if you’re a company director) 

If you own a limited company, structuring your income as a low salary plus dividends can significantly reduce National Insurance and income tax. 

• Dividends are taxed at lower rates (8.75%–39.35%) than salaries. 

• Ensure you stay within the basic or higher rate thresholds for optimal efficiency. 

3.  Claim All Allowable Expenses 

Ensure you’re deducting all legitimate business costs—especially if you’re self-employed or run a consultancy/dental practice. 

• Professional fees, travel, equipment, and even home office use may qualify. 

• Accurate, up-to-date bookkeeping is crucial. 

  
  

4.  Consider the Rent-a-Room Relief 

If you rent out a furnished room in your home, you can earn up to £7,500 tax-free under the Rent-a-Room Scheme—perfect for those with additional property space. 

5.  Invest in Professional Development 

Training and education relevant to your profession can be deductible—especially for self-employed professionals. 

• Courses, certifications, and even travel for CPD events may qualify. 

 

6.  Claim R&D Tax Credits

If your business undertakes innovative work, such as improving products, processes, or systems, you may qualify for R&D tax relief. 

• This can reduce your corporation tax or result in a cash refund. 

7. Use Gift Aid for Charitable Donations 

Donating to a registered charity using Gift Aid can extend your basic rate tax band, reducing the amount of income taxed at higher rates. 

• Keep records and ensure the charity is registered. 

8.  Tax-Efficient Investments (EIS, SEIS, VCT) 

These HMRC-approved schemes offer generous income tax relief (up to 30% or more) when investing in early-stage or high-growth companies. 

• Great for experienced investors seeking both growth and tax breaks. 

9.  Review Your Tax Code & Income Sources 

An incorrect tax code can cause you to overpay tax throughout the year. Review this annually especially if you have multiple income sources, such as rental property, dividends, or consulting. 

The Value of Proactive Planning 

Tax planning isn’t something to do in January—it’s a year-round strategy. Working with a specialist accountant like PKPI Chartered Accountants ensures you’re not just compliant but also financially strategic. 

FAQs 

1. What happens when I earn over £100,000  

Once your income exceeds £100,000, your Personal Allowance (£12,570) starts to reduce by £1 for every £2 earned over that threshold. This means that by the time you earn £125,140, you lose your allowance entirely—creating an effective marginal tax rate of 60% on income between £100,000 and £125,140. 

2. How can I avoid the 60% effective tax rate? 

To bring your income below £100,000 and retain your Personal Allowance, you can: 

• Make pension contributions (tax-deductible) 

• Donate to charity via Gift Aid 

• Claim all allowable business expenses 

These methods reduce your adjusted net income, which is used to calculate the tapering. 

3. Can I reduce tax through pension contributions if I’m a high earner? 

Yes—but be aware of the Annual Allowance, currently up to £60,000. 

If your “adjusted income” exceeds £260,000, your allowance may be tapered down to a minimum of £10,000. 

However, unused allowances from the previous 3 years can be carried forward. Speak with a financial adviser to maximise this tax-saving opportunity. 

4. Are dividends more tax-efficient than salary in a limited company? 

Yes, for company directors, paying yourself a low salary (to qualify for state pension) and the rest in dividends can be more tax-efficient: 

• Dividends are taxed at 8.75% (basic), 33.75% (higher), and 39.35% (additional)—lower than income tax and exempt from National Insurance. 

However, this strategy requires proper planning and company profits. 

  

5. Are there any HMRC-approved investment schemes for tax relief? 

Yes. HMRC offers tax-efficient investment schemes such as: 

• Enterprise Investment Scheme (EIS) – 30% income tax relief 

• Seed Enterprise Investment Scheme (SEIS) – 50% relief 

• Venture Capital Trusts (VCTs) – 30% relief + tax-free dividends 

These reduce your income tax bill while supporting early-stage UK companies. 

 At PKPI Chartered Accountants, we work with: 

•  Dentists & healthcare professionals 

• Consultants and limited company directors 

•  Business owners & individual 

  
  

Let us help you keep more of what you earn, plan smarter, and reduce stress around tax season.

 Free consultation, expert advice, and lower taxes — that’s what PKPI Chartered Accountants delivers. Book now: +44 2079 418160.