Earn over £100,000? – How to pay less tax but save and invest more

It’s a taxing time for Henrys (High Earners Not Rich Yet) – younger, higher earners, who fall off the £100,000 cliff edge for childcare support and income tax.

If you’re a Henry, there’s a real risk that you spend so much on tax that you can’t put much away for the future.

And the threat of more taxes in the Autumn Budget, later this year, risks setting you back further.

So, what can you do to pay less tax and save and invest more of your money?

This article isn’t personal advice. If you're not sure if a course of action is right for you, ask for financial advice.

Remember, unlike cash all investments and any income from them can rise and fall in value, so you could get back less than you invest. ISA, pension, and tax rules can change, and benefits depend on your circumstances.

Income tax set to rise? – What you can do

Income tax already falls heavily on higher earners.

Earning more than £97,900 puts Henrys in the top 5% of earners – who pay almost half of all income tax (49%).

The portion of income that falls between £100,000 and £125,140 is taxed particularly heavily.

For every £2 you earn over £100,000 you lose £1 of your personal allowance.

By the time you earn £125,140 you’ve lost the lot, so on that chunk of your salary you effectively pay 60% tax. Once you’ve breached £125,140 you pay 45% on the extra.

The frozen income tax thresholds have taken a toll and the freeze to 2028 will only add to the pain. If the Autumn Budget brings another freeze, it will add insult to injury.

In this environment it’s important to do what you can to keep your income tax bills down.

Adding money to a pension, including through the HL Self-Invested Personal Pension (SIPP) or a workplace pension, is particularly key for higher earners.

Not only can it grow free from UK income and capital gains tax (CGT), but you also get tax relief from the government on what you put in – boosting your pension pot even further.

Salary sacrifice also lets you give up a chunk of your salary – or your bonus – in exchange for money paid into your pension. This saves you income tax and National Insurance on that portion of your pay and the employer saves National Insurance too.

Just remember, you usually can’t access your pension until 55 (rising to 57 from 2028).

If you’re also making income from savings interest, the HL Cash ISA is a great way to shelter as much as possible from tax too.

What can you do about tax on your investments?

Henrys might not have been able to build up significant investments, but thanks to changes in tax-free allowances, even typical investors face the threat of tax – including capital gains tax and dividend tax when you invest outside an ISA or a pension.

The dividend and capital gains tax allowances have been cut so much in recent years that there’s a risk that any more changes expose even those with modest investments to these taxes.

If these taxes are a concern, it makes sense to take as much advantage of Stocks and Shares ISAs and pension allowances if you can. Money in both is sheltered from tax, helping you build more effectively for the future.