Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Due to tax threshold freezes since 2021, HMRC predicts there will be over 1,230,000 people in the highest income tax bracket this year, over double the amount in the 2022/2023 tax year.
The additional rate of income tax begins at £125,140, with earnings and saving interest above this band taxed at a rate of 45%. These taxpayers will also no longer have a personal allowance, which reduces by £1 for every £2 earned of adjusted net income above £100,000. Adjusted net income is your total income, including salary, dividend payments, interest and more, minus items like pension contributions and charity donations made through Gift Aid.
The government reduced the threshold for additional rate of income from £150,000 to £125,140 in 2023. But freezes to other allowances and thresholds have allowed the government to sneakily tax more income without having to increase the rates of income tax, because increases in salaries and inflation push more people into higher brackets.
According to the Bank of England, a basket of goods and services costing £100 in 2021 would cost near £125 as of September 2025. Accordingly, regular pay has increased about 23% during this period.* Had the additional rate band risen with inflation since 2021 (without being reduced) the threshold would be £185,566 by the end of the 2025/26 tax year. Even with the cut to £125,140 in 2023, the threshold would be over £150,000 by the end of the 2025/26 tax year.**
Unfortunately, as the government pinches pennies, it doesn’t seem that more relief is on its way to workers anytime soon. So, high earners may need to get a bit more creative with how they minimise their tax bills.
Saving with your pension
The most obvious (and probably easiest) way to reduce the amount of income eaten by tax is to contribute more to your pension. Although your pension will face income tax upon withdrawal, up to 25% can currently be taken tax free, up to an overall allowance of £268,275 for most people. If your workplace uses a salary sacrifice scheme, this could also mean eliminating some of the amount you pay in National Insurance contributions as well.
This is because salary sacrifice is a separate agreement with your employer to give up a portion of your salary for a benefit, which in this case is a pension contribution. Since it does look like a cut to your salary on paper, if you need a certain income for mortgage purposes or other reasons, be sure to check that the agreement won’t negatively impact you.
If you are enrolled in a salary sacrifice or if your workplace operates with a ‘net pay’ system, any income tax relief you get from pension contributions will be done automatically. But, if your workplace uses ‘relief at source’ and you don’t use salary sacrifice, you’ll need to claim your extra tax relief back from HMRC. They will automatically top up your contribution with 20% basic rate income relief, but you must claim any further relief you are due. The same overall contribution is paid into your pension scheme but the extra relief comes direct to you, as long as you claim it. This might be via the PAYE system, a reduction to your overall self-assessment tax bill, or a simple refund.
Relief on job expenses
Receiving tax relief for work expenses requires specific circumstances. But if you have some significant payments coming out of your own account which you must maintain for your job, it’s worth having a look.
Some of the areas where tax relief is possible are remote working, professional subscriptions, and travel costs. You won’t be able to receive any relief on these if your employer reimburses you, or if they aren’t essential to your job. But, for example, if you must work from home because your company does not have an office, you might be able to receive tax relief for this. The same goes for annual subscriptions to professional bodies, if membership is relevant to your job.
The amount of relief is calculated through what you’ve spent and the rate of income tax your pay. So, if you claimed £1,000, you could get up to £450 back in tax relief.
Gifting through Gift Aid
Those planning to make charitable donations in a year can also benefit from a bit of extra tax relief by using the Gift Aid system. Gift Aid is a scheme that allows registered charities to reclaim 25p for every pound donation. So, if someone donated £100, by using Gift Aid the charity would receive £125.
But if you’re a higher rate taxpayer, you can also claim additional tax relief that’s paid back to you. For example, if you donated £1,000 to charity through Gift Aid, they receive a total of £1,250 including gift aid. But since you pay tax at 45%, there’s an extra 25% leftover to claim. You can get that 25% of £1,250 back in your pocket, which is a £312.50 reimbursement.
If you file a self-assessment tax form, you can make your Gift Aid claim there, or you can contact HMRC to claim up to £5,000 over the phone, or over £5,000 in writing.
*Source: Office for National Statistics Average Weekly Earnings regular pay.
**Source: AJ Bell. Inflation rate taken from March 2025 OBR report based on actual figures for all available and then forecasts for future years. In practice, personal allowance and income tax thresholds are typically rounded to the nearest £10 or £100.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
