Three Wealth Management Errors in Tax Planning for High Earners This New Tax Year
Tax planning for high earners is not about finding one clever allowance or one product that solves everything. It is the coordination of income, pensions, investments, gifting, allowances, estate planning and timing so that avoidable tax leakage does not quietly compound.
This guidance is for senior employees, business owners, partners, consultants and retirees with meaningful pension and investment wealth who are making new tax year decisions. The real decision is whether your planning still matches the current rules, or whether last year’s sensible strategy has become this year’s expensive mistake.
What this area really covers, and where it stops
This article covers three planning errors that regularly affect high earners: ignoring the Personal Allowance taper above £100,000, relying on old pension estate planning assumptions, and leaving annual allowances until the end of the tax year.
It is often confused with general investment management. Portfolio performance matters, but a strong portfolio can still deliver a poor net outcome if income timing, pension limits, ISA use, CGT planning or IHT exposure are handled badly.
It is also not aggressive tax avoidance. The focus here is on mainstream, lawful planning: pension contributions, Gift Aid, ISA subscriptions, CGT allowance use, spouse or civil partner transfers, and estate planning decisions.
It cannot remove tax entirely. It also cannot fix poor cash flow, excessive spending, weak pension records, unsuitable investment risk or complex family ownership problems without wider advice.
Error 1: Missing the £100,000 income trap
The first error is letting adjusted net income drift above £100,000 without noticing the marginal tax effect.
HMRC guidance confirms that adjusted net income affects the income-related reduction to the Personal Allowance where income exceeds £100,000. The Personal Allowance is reduced by £1 for every £2 of income over £100,000 until it is fully lost. (GOV.UK)
That creates the well-known 60% tax trap.
| Adjusted net income movement | Tax effect |
| Income rises from £100,000 to £120,000 | £20,000 extra income |
| Higher rate tax on £20,000 | £8,000 |
| Personal Allowance lost | £10,000 |
| Extra tax from lost allowance | £4,000 |
| Total tax cost | £12,000 |
| Effective rate | 60% |
The planning point is not that earning more is bad. The point is that high earners need to know when the next pound of income carries a much higher tax cost than expected.
“My bonus takes me to around £115,000. Is that really a problem?”
Yes, it can be. A bonus that pushes adjusted net income into the £100,000 to £125,140 band can trigger loss of Personal Allowance and create an effective 60% marginal tax rate. Pension contributions, salary sacrifice and Gift Aid can reduce adjusted net income, but timing matters. Once payroll has run, some options become harder or impossible to use cleanly.
How the £100,000 trap happens in real life
What we typically see in practice is a senior employee receiving a bonus in March, only to discover in April that the tax cost was higher than expected.
The variable is timing. If the employer offers salary sacrifice and the employee acts before payroll cut-off, pension contributions may reduce taxable income efficiently. If the bonus has already been paid, the route may shift towards personal pension contributions or Gift Aid, depending on cash flow and pension allowance position.
This is where adjusted net income matters. It is not simply salary. It can include salary, bonus, dividends, rental income, interest and other taxable income, reduced by items such as grossed-up pension contributions and Gift Aid.
Error 2: Treating pensions as permanently outside the estate
The second error is relying on an old pension estate planning assumption.
For years, many high earners treated pensions as the last pot to touch. They drew from ISAs, General Investment Accounts and cash first, while leaving SIPPs and workplace pensions intact for heirs.
That logic is changing.
GOV.UK’s technical note states that from 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person’s estate for IHT purposes. (GOV.UK)
The government has also confirmed that death-in-service benefits payable from a registered pension scheme will remain outside the scope of IHT. (GOV.UK)
The practical issue is sequencing. Pensions may still be excellent retirement vehicles, but using them primarily as IHT shelters now needs rethinking.
“Should I still leave my pension untouched for inheritance planning?”
Not automatically. From 6 April 2027, most unused pension funds and death benefits are due to fall inside the estate for IHT. That does not make pensions unattractive, but it weakens the old strategy of spending taxable assets first and preserving pension wealth for beneficiaries. The right sequence now depends on income needs, IHT exposure, beneficiary tax rates, life expectancy and liquidity.
The double tax problem families may underestimate
The concern is not only IHT.
Where pension wealth is included in the estate for IHT and then paid to beneficiaries, there may also be income tax consequences depending on the age at death and the way benefits are paid. That creates the possibility of a harsher combined outcome than families expected.
This does not mean everyone should rush to empty pensions before 2027. That could create large income tax bills, damage retirement security and trigger poor investment decisions.
It does mean the old “never touch the pension” default is no longer safe as a blanket rule.
| Old assumption | New planning question |
| Pension is mainly an IHT shelter | How much pension wealth is genuinely needed for retirement? |
| Spend taxable assets first | Should some pension income be used earlier? |
| Preserve SIPP for heirs | Are gifts, spending, trusts or insurance more appropriate? |
| Death benefits sit outside estate | What happens from 6 April 2027? |
Error 3: Leaving allowances until March
The third error is turning tax planning into a late-March admin exercise.
GOV.UK confirms the ISA allowance for 2026/27 is £20,000. (GOV.UK) The CGT Annual Exempt Amount is £3,000. (GOV.UK) The dividend allowance is £500, with 2026/27 dividend rates of 10.75%, 35.75% and 39.35% depending on tax band. (GOV.UK)
These are use-it-or-lose-it allowances. Delay creates three problems.
| Allowance | What goes wrong when left late |
| ISA allowance | Less time in a tax-free environment |
| CGT exemption | Less time to plan disposals, Bed and ISA, or spouse transfers |
| Dividend allowance | Income structure may already be fixed |
| Pension allowance | Contributions may be blocked by tapering, cash flow or payroll timing |
In my time reviewing these situations, the March rush rarely produces the best decision. It produces the decision that can still be implemented before 5 April.
“Does it really matter whether I fund my ISA in April or March?”
It can. The ISA allowance is the same either way, but April funding gives investments up to twelve extra months inside a tax-free wrapper. For high earners already paying higher or additional rates on dividends, interest or gains outside an ISA, that timing can compound meaningfully. The issue is not only tax saving. It is also avoiding rushed decisions when platforms, transfers and investment instructions slow down near year end.
Spousal allowances are often left unused
A common pattern is one spouse or civil partner holding most of the taxable investments while the other has unused allowances.
That can be costly. A high earner may be paying dividend tax at 39.35% or, from April 2027, savings tax at rates rising by 2 percentage points across the bands, while a non-working or lower-earning spouse has unused Personal Allowance, dividend allowance and Personal Savings Allowance. GOV.UK policy material confirms dividend rates rise from April 2026 and savings rates rise from April 2027. (GOV.UK)
Spousal transfers can be effective, but they need to be genuine. The recipient spouse or civil partner needs to own the asset and the income. This is not just a spreadsheet allocation.
“Can I move investments to my spouse to reduce tax?”
Yes, often, where you are married or in a civil partnership and the transfer is genuine. The benefit comes from using both sets of allowances and lower tax bands. The risk is assuming this is only a tax entry. Ownership, control, income entitlement and future access all change. That matters in divorce, death, financial abuse risk, family disagreement and long-term estate planning.
Pension contributions are powerful, but not unlimited
A common response to the £100,000 trap is: “I’ll just put the excess into my pension.”
That may work, but high earners need to check tapering.
GOV.UK’s 2026/27 rates and allowances show the Annual Allowance at £60,000 and the Money Purchase Annual Allowance at £10,000. The tapered Annual Allowance applies where adjusted income exceeds £260,000, provided the threshold income test is met. (GOV.UK)
HMRC guidance states that for every £2 of adjusted income over £260,000, the Annual Allowance reduces by £1, subject to a minimum reduced allowance. (GOV.UK)
| Pension issue | Why it matters |
| Annual Allowance | Limits tax-relieved pension input |
| Tapered Annual Allowance | Reduces allowance for very high earners |
| Carry forward | May help, but depends on previous years and pension membership |
| Money Purchase Annual Allowance | Can restrict future contributions after flexible access |
| Employer contributions | Useful, but still count towards allowance |
What tends to break down in real environments is coordination between employer payroll, bonus timing, personal pension contributions and carry-forward calculations. Each part may be technically simple. Together, they become easy to mistime.
“Can I just use pension contributions to avoid the 60% trap?”
Sometimes, but not blindly. Pension contributions can reduce adjusted net income and restore some or all of the Personal Allowance. However, the Annual Allowance, tapering, carry forward, cash needs and pension access rules all matter. Very high earners can have their allowance tapered, and people who have already flexibly accessed pensions may face the Money Purchase Annual Allowance.
What we typically see in practice: the bonus blindspot
A senior employee expects total income of £98,000. In February, they receive a £17,000 discretionary bonus. Their income moves to £115,000.
If no action is taken, part of the bonus falls into the Personal Allowance taper zone. If salary sacrifice was arranged before the bonus payroll, the outcome may be cleaner. If not, the individual may need to consider a personal pension contribution or Gift Aid donation before the tax year ends.
The outcome changes because the same bonus produces a different net result depending on whether planning happens before or after payroll.
What we typically see in practice: the untouchable pension
A retired couple draw income from a General Investment Account and cash savings while leaving a large SIPP untouched.
Before the 2027 pension IHT change, that could be a rational estate planning decision. After the change, the better question is whether the pension still deserves to be the last asset used.
The outcome changes where the estate is already above IHT thresholds, the pension is large, beneficiaries are higher-rate taxpayers, or the estate lacks liquid assets to meet tax.
What we typically see in practice: wasted spousal allowances
One spouse has a large investment account, significant dividends and taxable interest. The other spouse has little income and unused allowances.
A transfer of income-producing assets may reduce household tax, but only where ownership genuinely changes.
The outcome changes depending on trust between spouses, future access needs, estate planning, family dynamics and whether the income is required by one person or the household.
The myth: “High earners have too much income for allowances to matter”
This myth is expensive.
High earners often assume small allowances are not worth planning around. Yet the real cost is not one allowance in isolation. It is the combined effect of Personal Allowance tapering, pension tapering, ISA use, CGT exemptions, dividend tax, savings tax and IHT exposure.
The harm is cumulative. A missed ISA subscription, unused spouse allowance, avoidable 60% marginal tax band and outdated pension death benefit plan can create a material drag over several years.
Good planning rarely comes from one dramatic tax move. It usually comes from not wasting the boring ones.
Risks, limitations and boundaries
| Planning area | Main risk | Practical boundary |
| Pension contributions | Annual Allowance tapering can create tax charges | Check adjusted income and threshold income |
| Gift Aid | Cash leaves the estate and cannot be recovered | Use only where charitable intent is genuine |
| Spousal transfers | Loss of control over assets | Transfer only where ownership change is acceptable |
| Pension IHT changes | Administrative rules are still developing | Review again before April 2027 |
| Gifting assets | Seven-year PET rule and loss of benefit | Do not gift assets still needed for lifestyle |
| ISA funding | Investment risk remains | Tax-free does not mean risk-free |
| CGT planning | Market movement and transaction timing | Avoid forced disposals purely for tax reasons |
The most important boundary is control. Tax planning can reduce tax, but often by giving something up: access, flexibility, ownership, liquidity or certainty.
How this compares with the closest alternatives
| Alternative | When it is appropriate | Where it is commonly misapplied | Trade-off often underestimated |
| Salary sacrifice | Strong where employer supports it and timing is before payroll | Assumed after the bonus has already been paid | Reduced take-home pay and possible impact on benefits or lending |
| Personal pension contribution | Useful for adjusted net income planning and retirement funding | Used without checking tapering or carry forward | Pension access limits and future tax uncertainty |
| Gift Aid | Effective where charitable giving is intended | Treated as a tax tool rather than a real donation | The money is gone permanently |
| ISA funding | Core wrapper for tax-free investment growth and income | Left until March or ignored by high earners | Allowance cannot be recovered later |
| Spousal income splitting | Useful where a spouse has lower tax bands or unused allowances | Used without proper transfer of beneficial ownership | Loss of personal control and family law implications |
| Lifetime gifting | Useful for IHT reduction and family support | Done without checking affordability or seven-year survival | Loss of access and potential dependency later |
What the evidence still doesn’t clearly tell us
The April 2027 pension IHT reform is now clear in broad direction, but some practical administration points remain difficult for estates, advisers and families.
The open questions include how smoothly Personal Representatives will obtain pension values, coordinate tax payments, manage estates with limited liquid assets and deal with cases involving multiple schemes. GOV.UK material confirms the change and indicates that Personal Representatives will be responsible for reporting and paying IHT due on unused pension funds and death benefits from 6 April 2027. (GOV.UK)
There is also uncertainty over future pension tax policy. The Annual Allowance is £60,000 for 2026/27, but future Budgets could alter contribution limits, tapering or broader pension tax architecture. Long-term pension funding plans need room for that uncertainty.
A new tax year checklist for high earners
| Action | Why it matters |
| Estimate adjusted net income early | Identifies £100,000 taper exposure before payroll deadlines |
| Map bonus and dividend timing | Prevents accidental movement into punitive marginal bands |
| Check pension Annual Allowance | Avoids tax charges and wasted planning |
| Use ISA allowances early where affordable | Extends time in tax-free wrapper |
| Review taxable investment gains | Allows orderly CGT exemption use |
| Consider spouse or civil partner allowances | Reduces household tax where ownership change is suitable |
| Reassess pension estate planning | April 2027 changes may alter drawdown sequencing |
| Review gifting capacity | IHT planning needs affordability and control checks |
| Keep liquidity for tax bills | Efficient planning fails if cash is unavailable |
Frequently asked practical questions
When should high earners start new tax year planning?
Early in the tax year, ideally before bonus decisions, dividend declarations and pension contribution deadlines. Waiting until March limits salary sacrifice options, increases execution risk and often forces rushed CGT or ISA decisions. The best planning usually starts with projected income, not with products.
What usually drives the cost of this advice?
Complexity drives cost. Multiple income sources, employer share schemes, rental income, company dividends, tapered pension allowances, large GIAs, spouse planning and IHT exposure all add work. A single salary and bonus case is simpler than a household with business assets, pensions, trusts and cross-generational gifts.
What causes the most delivery friction?
Late information. Missing pension input statements, unknown bonus timing, unclear taxable gains, unreported dividends and incomplete spouse income details slow everything down. Payroll cut-offs are another common issue. Once the employer has processed income, some planning routes become less effective.
Where is the biggest compliance exposure?
The biggest exposure is usually pension allowance error, incorrect adjusted net income calculations, poor records for Gift Aid claims, unsupported spousal transfers and rushed CGT planning. With pension IHT reform approaching, estate administration records and beneficiary nominations also need closer review.
Make the new tax year deliberate
We hope that has brought some clarity. The three errors are common because they feel harmless at the time: accepting a bonus without modelling it, leaving a pension untouched by habit, and waiting until March to use allowances. None of these needs dramatic action, but each needs timely attention. If you would like to discuss tax planning for high earners in the context of your own income, pensions and estate position, get in touch.