Vicky Platt MA FCA CTA
Chartered Accountant and Tax Adviser
High income individuals – tax planning
Higher tax rate considerations
(figures for 2016-17 in bold, 2015-16 not bold)
Higher tax rates affect two categories of individuals: those with income of £100,000 - £122,000 (£121,200)
and those with income of £150,000 (£150,000) plus.
(1) Adjusted net income over £100,000
The personal tax free allowance £11,000 (£10,600) will be withdrawn by £1 for every £2 that the
adjusted net income is over the £100,000 limit. This augments the effective tax rate from 40% to 60%
on the band of income affected between £100,000 and £122,000 (£121,200).
Adjusted net income is usually:
Income subject to tax gross
less:
(1) Trading losses (subject to a £50,000 or 25% of income limit if higher, including pension
contributions)
(2) Gift aid payments grossed up, not limited as in (1)
(3) Pension contribution payments grossed up (those paid in tax year only)
Note:
Gift aid payments made after the end of the tax year, after 5 April 2016, can be treated as
paid in the previous year, but must be paid before you submit your tax return. Pension
contributions must be paid in the tax year.
(2) Total taxable income over £150,000 per annum
For individuals with income from £122,000 (£121,200) to £150,000, the marginal rate of tax is 40% and
dividends taxed on the net dividend at 32.5% (25%). Income over £150,000 is taxable at 45%. Dividend
tax rates are 38.1% (37.5%). Pension contribution relief is allowed up to £40,000 gross, £32,000 net
with possible use of unused contribution allowance from the previous three tax/input years. There is
potentially an extra £40,000 that can be contributed in 2015/16. From 6 April 2016 the relief will be
tapered to as low a contribution as £10,000, for relevant income of £210,000 or more. Unused
allowance should still be available.
High Income tax payer considerations to mitigate tax
General considerations to reduce taxable income:
 Charitable donations may be used effectively to avoid the 60% effective tax rate transitional band
£100,000 - £122,000. They may also be used to go below the £150,000 point if income is near that level.

ISA investments are very tax effective. Junior ISAs for under 18s may also be worthwhile. For
investments outside the tax free wrapper, capital growth rather than income yielding investments will
help reduce the adverse impact of the top tax rates. They all help to keep the taxpayer’s income below
the £100,000/£150,000 thresholds. The ISA tax free wrapper also transfers on the death of the first
spouse.

If you are married or in a civil partnership you may be able to transfer unearned income by transferring
income bearing assets to joint (usual split is 50/50) or single ownership in your spouse’s name and
reduce your income below the limits. There is no capital gains tax on transfers to your spouse/civil
partner. This is particularly relevant where one party has low income. Up to £16,000 of income in 201617 can be received tax free with the £5,000 savings band.

If you have earned income, pension contributions are worth consideration (see overleaf). If you have no
earned income, pension contributions are limited to £3,600 gross per tax year.
VP2016/Mailings/Budget 2016/High income individuals February 2016.doc
Vicky Platt MA FCA CTA
Chartered Accountant and Tax Adviser
High income individuals – tax planning
Business considerations:
 Business incorporation can spread income round shareholders, avoid costly National Insurance
contributions and possibly keep the tax bill at 20%. Capital distributions taxable at CGT rates of 28% /
18% and 10% with Entrepreneurs’ Relief, become particularly attractive. Dividend higher rates are now
more costly, reducing the benefits of corporation. Capital gains on transfer of goodwill to a limited
company, are no longer subject to Entrepreneurs Relief, and generally there are more restrictions on
Entrepreneurs Relief.
 Spread your business income to lower tax rate payers in the family by paying them fully for the work that
they do to support your business. All employment payments require PAYE/RTI processing with HMRC.
 Pension contributions up to the £40,000 per tax or input year should be made by the company, not the
employee. This avoids expensive NI contributions by the employer at 13.8%, and employee
contributions at 12%.
Pension contributions and limits
From 6 April 2016 the lifetime limit is reducing to £1million
You may have sought individual/fixed protection at 5 April 2014 at the lifetime limit of £1.25million or on an
earlier limit; in that case, nothing needs to be done. The proposed reduction in saving limits on 6 April 2016
means that more people must review their pension savings and seek advice and protection so as not to
exceed the limit and suffer high tax rates on excess pension savings.
Contributions and allowances
2015-16 Realignment of input years to tax years
It is possible if you contributed before 8 July 2015 to contribute up to another £40,000 gross in the year to 5
April 2016. This is a great opportunity for higher earners – if available.
Annual Allowance reducing from 5 April 2016 for those earning over £150,000.
The relief available will continue to be £40,000 per year gross for all those with adjusted incomes under
£150,000. For those with income over £150,000, the relief available is reduced by £2 for every £1 over the
limit until the minimum relief of £10,000 is available if adjusted income if £210,000 or over. Unused relief
will be available on the three year rule without restriction.
Annual allowance for contributions
The annual contribution limit gaining the top rate of tax relief is £40,000 gross per tax year. This may be
augmented by up to three years unused relief (annual allowance 2013-14 £50,000) 2014-15 and 2015-16
£40,000, possibly adjusted to £80,000, if £40,000 was contributed before 8 July 2015 and provided the
taxpayer had a pension policy in force during the tax years concerned.
Inheritance tax and pension
Inheritance tax aspects and drawdown rules are much more favourable to pension savings. If you are eligible
for pension and over 55, it is worth taking advice to take advantage of the new flexible rules which now
apply.
Pension Review outcome
The government are reviewing the pension policy. It appears that they won’t make pension savings more
like ISAs. It looks like their longer-term aim in a year or so’s time is to have one relief rate at around 25%.
No clear proposals yet. These are being formulated.
February 2016
VP2016/Mailings/Budget 2016/High income individuals February 2016.doc