Six tax tips that could save a higher-rate taxpayer £8,500 ahead of the Budget

Waiting for the Budget to drop can be a nerve-wracking experience, as people worry it might land them with a bigger tax bill in the years to come. But rather than just bracing for impact, it’s worth using this opportunity to take some positive steps to save tax, so you’ll be better off regardless and in a stronger position to face whatever the Budget holds in store.

If they’ve not already taken advantage, under current rules there are six steps that could leave a higher-rate taxpayer as much as £8,500 better off over the course of a year. You might not be able to take advantage of all of them, but they’re all worth investigating to see what you could save.

1. Pay a lump sum into your pension

Most people can pay up to £60,000 into a pension in the current tax year – or an amount that’s equal to their total income. Few people can stretch to that, but it’s worth considering whether you can boost contributions and shield more of your income from the taxman.

If you get a windfall, such as a bonus or any other kind of lump sum, you could consider paying it into your pension for a tax-efficient boost overnight. You can get tax relief at your highest marginal rate.

Saving: Someone getting a £10,000 windfall could put it all into their pension. A basic-rate taxpayer could get £2,500 in tax relief, and a higher-rate taxpayer up to £5,000 if they claim for higher rate tax relief.

2. Boost your pension contributions

You don’t need a windfall to save tax through pension contributions. With any pay rise or job change, you could ask to pay more into your workplace pension, or increase contributions to a private pension, so the tax relief saving builds over time – along with your retirement resilience.

Saving: Someone could pledge to set aside an extra £100 a month for their pension, which could save a basic-rate taxpayer another £300 through basic rate tax relief a year and a higher-rate taxpayer £600 – provided they’ve not already used their annual allowance.

3. Use tax-free childcare

This can be put towards childcare, or wrap-around care and holiday clubs for children aged 11 and under. For every £8 a parent pays into the childcare account, the government adds another £2 – up to £2,000 per child each year. The provider is then paid direct from the account. However, if someone (or their partner) earns more than £100,000 in adjusted net income a year, they cannot claim tax-free childcare.

Saving: You can put in up to £2,000 every three months, and get £500 from the government each time – so this side of the Budget you could be £500 better off, and over the course of a year you could receive £2,000.

4. Use a Cash ISA

In the current tax year, there is a £20,000 Cash ISA allowance for everyone, but it drops to £12,000 for those under the age of 65 in April 2027 – so it pays to take as much advantage as makes sense for your finances now. Outside a Cash ISA, a basic-rate taxpayer has a £1,000 savings allowance, a higher-rate taxpayer has £500, and an additional-rate taxpayer doesn’t have one. In the current tax year, you pay savings tax at your income tax rate, but in the coming tax year you will pay an additional two percentage points. Someone without sufficient £20,000 ISA allowance can give the money to their spouse and use theirs – to maximise the total tax saving within a couple.

Saving: If someone has £20,000 in a Cash ISA paying 4.5% interest after a year, they’d earn £900 in interest. If the interest is paid at the end of a 12-month fix, by using a Cash ISA a higher-rate taxpayer would save £160 and an additional-rate taxpayer £405 at the current tax rates, compared with if they held the money in standard savings account.

5. Use a Stocks and shares ISA

If you invested £20,000 outside of an ISA and made 5% for one year before selling up, you wouldn’t bust your £3,000 capital gains tax (CGT) allowance. CGT savings through investing in an ISA would come to those who had invested for longer and those with larger portfolios. However, you could save dividend tax in the first tax year of investing, if you have already used up and invested your £20,000 annual Stocks and shares ISA allowance.

Saving: If you made 4% in dividends a year on a £20,000 portfolio, you would have made £800. After the £500 annual allowance, you’d save dividend tax on £300, which for a basic-rate taxpayer would be £32.25, a higher-rate taxpayer £107.25, and an additional-rate taxpayer £118.05.

6. Take advantage of your capital gains tax allowance

If you have investments outside ISAs and pensions, you could be building a capital gains tax liability as your investments grow, so it can make sense to realise gains up to your annual £3,000 allowance each tax year. You can then use the Bed and ISA process to sell and buy the same assets within an ISA, which protects them from capital gains tax and dividend tax in future too. It’s worth bearing in mind that if you do this without moving into an ISA, you can’t buy back exactly the same assets within 30 days, or the taxman will treat them as not being sold at all.

Saving: If you have assets that have made capital gains of up to £3,000 outside an ISA or pension, you can move them into a Stocks and shares ISA and pay no tax on them this year, or in future. If you left them untouched and sold up in one go, after they had gained £6,000, a basic-rate taxpayer would pay 18% tax on the amount over £3,000 – or £540 – and a higher or additional-rate taxpayer would pay 24% – or £720.