Tax Planning for Higher Earners in the UK: What's Changed, What Hasn't, and What to Focus On
For a UK senior executive earning £150,000, the effective marginal income tax rate between £100,000 and £125,140 is 60%, not 40%. For a business owner extracting dividends, the basic and higher rate dividend rates increased by 2 percentage points from April 2026. For investors using VCTs as a tax efficient capital deployment route, the income tax relief was cut from 30% to 20% in April 2026. Tax planning for HNW UK individuals has moved more in the last twelve months than in the previous five years, and most existing tax strategies need a fresh look.
UK tax for HNW individuals has historically been a slow moving area. The headline rates, allowances, and reliefs have shifted incrementally over the years rather than fundamentally, and the planning playbook has accordingly been stable.
That has changed. From April 2026, dividend tax rates have increased two percentage points across the basic and higher rate bands. VCT relief has been cut from 30% to 20%. The BPR/APR reform has reshaped IHT planning for clients with qualifying business assets. The April 2027 inclusion of unused DC pensions in the IHT estate is twelve months ahead. The cumulative effect for HNW UK clients is that the tax landscape now looks materially different from the one most existing tax strategies were designed against.
This article sets out the specific tax planning levers that matter most for HNW UK individuals under the current 2026/27 regime, focused on income tax, CGT, and the post-2026 changes to dividends and venture capital schemes. The pension and IHT specific tax planning sits in the dedicated articles that I have previously written and this is the integrative piece for the broader tax position.
The income tax cliff effects most HNW clients underestimate
UK income tax has three structural cliff effects that matter for HNW earners and that produce effective marginal rates substantially higher than the headline percentages.
The personal allowance taper at £100,000
Between £100,000 and £125,140 of adjusted net income, the personal allowance reduces by £1 for every £2 of income above £100,000, eliminating it entirely at £125,140. The effective marginal rate across this band is 60%, not the 40% higher rate band rate. For an executive whose income sits in this range, every £1 of additional income above £100,000 produces 40p of net retention.
The planning response is to engineer adjusted net income to sit either below £100,000 (rarely achievable for senior earners) or above £125,140 (where the taper has done its work and the marginal rate returns to 40%/45% at the relevant band). The main practical lever is salary sacrifice into pension contributions, which reduces adjusted net income and can pull the income back below the £100,000 threshold or out of the taper band entirely.
The 45% additional rate threshold at £125,140
Above £125,140, the marginal rate is 45%. For senior executives and business owners with substantial income, the planning question is whether to compress income above the threshold (where the marginal rate is highest) or extend it across multiple years where possible.
The threshold income gateway at £200,000 for pension Annual Allowance taper
A separate test applies for pension contributions. If both adjusted income exceeds £260,000 and threshold income exceeds £200,000, the Annual Allowance tapers. We covered this in detail in my Pension Planning for Executives and Business Owners article. The key planning point is that salary sacrifice arrangements can pull threshold income below £200,000 even where adjusted income exceeds the threshold, preserving the full Annual Allowance.
Capital gains tax planning: Timing, allowance, and loss harvesting
CGT rates for higher rate taxpayers are now 24% on all gains (basic rate taxpayers pay 18% on gains within the basic rate band). The residential property surcharge was removed in October 2024, leaving residential and non-residential at the same rate. The Annual Exempt Amount is £3,000, having been cut from £6,000 to £3,000 from April 2024 and currently held at that level.
The planning levers for HNW clients with substantial chargeable assets:
Use the Annual Exempt Amount every year. £3,000 of gain crystallised each year produces a cumulative £30,000 of tax free disposals over a decade. For HNW clients with substantial pre-existing portfolios, this is a meaningful lever but requires discipline, disposals carried out specifically to use the AEA, not just to rebalance.
Spread disposals across tax years. Where a meaningful capital gain is being realised (a business sale, a property disposal, a portfolio rebalancing of significant size), splitting the disposal across two tax years can produce two AEAs and, in some cases, allow some of the gain to sit in a lower income year where the CGT rate is lower (18% basic rate vs 24% higher rate).
Use spouse transfers. Transfers between spouses are on a no gain no loss basis, allowing a portfolio to be split across both spouses' AEAs and CGT bands. For couples where one spouse is in the basic-rate band, this can reduce the effective CGT rate on the gain.
Harvest losses. Realised losses can be offset against gains in the same tax year and carried forward against future gains. Active loss harvesting, selling positions at a loss to offset against realised gains elsewhere is a real lever for clients with diversified portfolios that include some underperforming positions.
Dividend planning under the new rates
From 6 April 2026, dividend tax rates rose two percentage points at the basic and higher rate bands:
Basic rate: 10.75% (up from 8.75%).
Higher rate: 35.75% (up from 33.75%).
Additional rate: 39.35% (unchanged).
The Dividend Allowance remains £500 per year (technically a zero rate band rather than a true allowance).
For business owners extracting profit through dividends, the change is material, every £100,000 of dividends extracted in the higher rate band now produces £35,750 of tax versus £33,750 previously. Across a planning horizon of multiple years, the increase is meaningful.
The structural response for many business owners is to revisit the salary/dividend extraction balance. With dividend rates rising and corporation tax in the main rate at 25%, the relative efficiency of dividend vs salary extraction has shifted. For some directors, particularly those with full personal allowance and basic-rate band available, modest salary extraction combined with pension contributions becomes more efficient than pure dividend extraction.
I covered the related profit extraction question in my Pension Planning for Executives and Business Owners article. The dividend rate change reinforces the case for employer pension contributions as a profit extraction lever, pension contributions don't attract corporation tax (deductible at 25%), don't attract employer NI, and grow tax free for the director.
Venture capital schemes: The EIS/SEIS/VCT position post-2026
Venture capital schemes have offered three distinct UK income tax reliefs for clients with appetite for early stage investment risk. The current position is:
EIS - Enterprise Investment Scheme. 30% income tax relief on subscription up to £2m annually for investments in knowledge intensive companies, £1m for other qualifying companies. CGT deferral on gains reinvested into EIS. Tax-free capital gains on EIS shares held for at least three years and disposed of after the initial three year holding period. Income tax relief unchanged at 30%.
SEIS - Seed Enterprise Investment Scheme. 50% income tax relief on subscription up to £200,000 annually. CGT relief on 50% of any gain reinvested. Tax-free capital gains on SEIS shares held for at least three years. Income tax relief unchanged at 50%.
VCT - Venture Capital Trust. 20% income tax relief from April 2026 (cut from 30%) on subscriptions up to £200,000 annually, for shares issued on or after 6 April 2026. Existing holdings are unaffected. No CGT on disposal after the five-year holding period. Tax-free dividends from the VCT. The cut from 30% to 20% is the most material change to the venture capital scheme regime in recent years.
The VCT cut in particular has changed the relative case for the three schemes. EIS remains the highest-relief option (30%) but with single company concentration risk and longer holding periods. SEIS offers the highest relief percentage (50%) but with the smallest investment limit (£200k). VCT was historically the lower risk diversified option at 30% relief, at 20%, the relative case for VCT vs holding the same equity exposure in an ISA or GIA has narrowed.
For HNW clients using venture capital schemes as part of their tax planning, the post-2026 position needs explicit recalibration. The case for some allocation to the schemes remains strong, the income tax relief is genuinely valuable, the early stage exposure is worth holding for clients with the appetite, and the underlying companies often produce meaningful long term returns. But the structural assumption that "VCT relief is the same as EIS relief at 30%" no longer holds, and clients with substantial VCT subscriptions in previous tax years may need to revisit the planning assumption.
The interaction with the 6 April 2026 BPR reform also matters here. EIS shares quoted on AIM no longer benefit from 100% BPR relief, they now receive 50% relief. The £2.5m allowance is transferable between spouses, so a surviving spouse can pass on up to £5m of qualifying assets tax-free, on top of existing nil rate bands. The IHT specific case for EIS as an estate planning tool has weakened. EIS continues to provide income tax relief and CGT deferral at the same rates as before, it's the IHT relief that has changed.
What this means in practice
If you are reading this because your tax planning was designed before the recent changes, three structural questions are worth working through:
Has your income tax planning been recalibrated for the cliff effects? The 60% effective rate between £100,000 and £125,140, the 45% threshold at £125,140, and the threshold income gateway at £200,000 for the pension Annual Allowance taper are all structural features of the regime that produce specific planning levers. Salary sacrifice into pension is usually the highest value lever for executives whose income sits in or near these bands.
Has your CGT planning incorporated the £3,000 AEA and spouse transfer levers? The AEA cut to £3,000 from £6,000 (and from £12,300 a few years before that) has changed the calculus on annual disposal discipline. For HNW clients with substantial portfolios, the AEA matters more relatively now than it did historically because it's a smaller absolute number that needs to be used systematically.
Have your VCT and EIS holdings been reviewed against the post-April 2026 position? VCT relief at 20% rather than 30%, and AIM quoted EIS at 50% BPR relief rather than 100%, both change the case for the schemes meaningfully. Existing holdings may still produce meaningful planning value but the assumed reliefs need to be revisited.
The right answer for most HNW clients is to revisit each lever explicitly against the current rules, not to assume that strategies designed in previous tax years still produce the same outcomes.