Tax planning, essentially, is taking the required steps to reduce your tax bill. This is done by making smart financial decisions. This can be done by saving and investing, using salary sacrificing schemes. You will be able to reduce tax by using the services of a specialist tax or financial adviser. But please do bare in mind, tax payable depends on individual circumstances and may be subject to change in the future.

High rate taxpayer

A higher rate taxpayer is exactly that; someone who pays higher tax based on their annual income. Someone will qualify as a higher rate taxpayer if they earn in excess of £50,271. If you are one of those who falls into the high rate taxpayer bracket, having tax planning is essential as this could save you a substantial amount.

- Maximise pension contributions; this scheme allows you to put 100% of your earnings into a pension and as a higher rate taxpayer, you will be allowed to claim an additional 20% tax relief. This added to the 20% tax relief claimed by your pension provider, you could be making a total saving of 40%. Although investing in a pension can be a great way to save tax on, you need to be aware that the money paid in will not be available to you until you reach retirement age which is currently set at 55.

- Use your capital gains allowance; If you make a financial gain from selling an additional property or other asset worth more than £3,000 (excluding your vehicle), you’ll need to pay capital gains tax.
Everyone receives a capital gains tax allowance, although this amount has sharply decreased in recent years. For the 2025/26 tax year, you will need to pay capital gains tax on anything you gain from the sale of an asset over £3,000.

- Invest in an ISA; an ISA account allows you to save up to £20,000 tax free per year. There are various types of ISAs available to you depending on your needs. These vary from Cash ISA, Stocks & Shares ISA, Lifetime ISA or Junior ISA.

- Salary sacrifice schemes; salary sacrifice schemes allow employees to purchase a non-cash benefit from their employer, such as extra holiday. In exchange, the employer will reduce the amount of pay the employee receives. Backed by the Government, salary sacrifice schemes help employers and employees to save on tax because less take home pay means less income to be taxed on.

- Dividend allowance; if shares are owned in a company, it is likely you will receive a dividend payment. While dividends are taxable, you will receive a dividend tax allowance each year. The allowance for 2025/26 is £500, meaning you’ll only pay tax on anything you earn from dividends above that amount. The dividend allowance is the same for everyone, regardless of any other types of income you receive. It cannot be carried over to the following year.

Tax Planning is essential for those who wish to reduce their tax bill. With spiralling costs during these times, every form of reducing outgoings is helpful. Enquire here at LUX Realty where we will happily guide you in the right direction.