The number of higher-rate taxpayers in the UK has reached record levels, with over 5.1 million people now paying 40% tax — and forecasts suggesting this figure could rise to 9 million by 2028. With fiscal drag, frozen thresholds, and economic uncertainty all in play, careful tax planning has never been more critical.
At Beavis Morgan, we are working with more individuals and business owners than ever to proactively manage their tax position, protect wealth, and plan ahead with confidence. Here’s why taking action in 2025 matters — and what you should be thinking about.
Why Tax Planning Matters More in 2025
Several factors are making 2025 a pivotal year for personal tax:
- Fiscal Drag: The freezing of income tax thresholds means more income is pushed into higher tax bands without any rise in real earnings.
- Rising Costs: Inflation remains high, impacting disposable income even for higher earners.
- Reduced Reliefs: Many previously generous allowances (such as the Dividend Allowance and Capital Gains Tax allowance) have been cut.
- HMRC Scrutiny: Increased HMRC funding and enhanced digital systems mean more focus on compliance and tax payments.
In this environment, failing to plan means potentially paying much more tax than necessary.
Key Tax Planning Strategies for Higher-Rate Taxpayers
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Maximise Pension Contributions
Pensions remain one of the most tax-efficient ways to save. Key benefits include:
- Tax Relief: Contributions attract 40% or 45% tax relief, depending on your marginal rate.
- Annual Allowance: You can contribute up to £60,000 annually (or more if you have unused allowances from previous years).
- Reducing Taxable Income: Contributions can help bring your income below key thresholds (such as the £100,000 limit where the personal allowance starts to taper).
Beavis Morgan can help calculate the optimum contribution level for your situation.
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Utilise ISAs Fully
While not offering tax relief on contributions, ISAs provide:
- Tax-Free Growth: No Capital Gains Tax or Income Tax on ISA returns.
- Flexible Withdrawals: Funds can usually be accessed tax-free at any time.
The 2025/26 allowance remains £20,000 per person — and should be used annually if possible.
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Structure Income Effectively
If you own a business, consider:
- Balancing Salaries and Dividends: Taking a combination of salary and dividends can optimise your total tax liability.
- Family Tax Planning: Using family members’ lower tax bands (e.g., through share ownership or dividends) where appropriate.
Our team can help model the most tax-efficient extraction strategy.
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Capital Gains Tax Planning
With Capital Gains Tax (CGT) allowances reduced, smart planning is essential:
- Use Annual Allowances: £3,000 (2025/26 allowance) per individual per year.
- Crystallise Gains Strategically: Spread disposals across multiple tax years to maximise allowances.
- Asset Transfers: Gifting assets to a spouse or civil partner can effectively double CGT allowances.
Planning well ahead of any major disposals is key to minimising exposure.
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Review Inheritance Tax (IHT) Position
Higher earners with growing estates should also review:
- Gifting Strategies: Utilise annual IHT allowances.
- Trust Planning: Consider trusts as a way to pass wealth tax-efficiently.
- Business Property Relief (BPR): For business owners, planning now ensures potential BPR claims are protected.
Early action can prevent unnecessary future tax bills for heirs.
Tax Changes to Watch in 2025
Several upcoming developments highlight the need for proactive planning:
- Making Tax Digital (MTD) for Income Tax: Digital record-keeping requirements from 2028 will apply to incomes over £20,000. Preparing systems now avoids last-minute issues.
- Increased Late Payment Penalties: The penalty for late Income Tax payments doubles from 5% to 10% from 2025/26 onwards.
- Continued Threshold Freezes: With no sign of thresholds rising, the effective tax burden will continue to grow even if your income stays the same.
Common Mistakes Higher-Rate Taxpayers Make
Avoid these pitfalls:
- Ignoring Allowances: Not using pension, ISA, or CGT allowances results in unnecessary tax payments.
- Overlooking Tax Traps: Income over £100,000 loses £1 of personal allowance for every £2 over the limit — an effective 60% marginal rate trap.
- Last-Minute Planning: Scrambling to plan right before the tax year ends often results in missed opportunities.
Tax efficiency requires consistent, year-round management.
How Beavis Morgan Can Help
We offer a comprehensive, personalised approach to tax planning for higher-rate taxpayers, including:
- Personal tax reviews and strategy development
- Investment and pension contribution advice
- Business owner income structuring
- Capital Gains Tax and Inheritance Tax planning
- Ongoing monitoring and support
With careful planning, we can help you reduce your tax burden and protect your long-term financial goals.
Conclusion: Act Now to Protect Your Wealth
The landscape for higher-rate taxpayers in 2025 is challenging — but with smart planning, there are still plenty of opportunities to save, invest, and plan for the future.
At Beavis Morgan, we are ready to help you navigate the changes and put an effective strategy in place.
Contact Neal Groves or your usual Beavis Morgan partner for a confidential conversation about your personal tax position and how we can support your goals. Alternatively, email info@beavismorgan.com
