Financial Planning for High Income Individuals: 5 Traps to Avoid
You’ve worked hard to build your success. But without careful financial planning, more of your wealth than necessary could end up with HMRC. From changes to pensions legislation to overlooked inheritance tax risks, high income individuals face a number of financial pitfalls. Fortunately, there are strategies available to help you protect your assets and grow them tax-efficiently.
Here, we explore some of the most common traps and how to avoid them.
Trap 1: If you’re a high-income individual you may have a tapered annual allowance
The annual allowance for tax-relievable pension contributions is currently £60,0001 (2025/26 tax year), but if your threshold income exceeds £200,000, and your adjusted income exceeds £260,000, this allowance is tapered, potentially reducing to as little as £10,000 per year.
Calculating your threshold income and income can be complex as a number of factors need to be accounted for, but a financial adviser can help make the process easier.
Tapering means that some high income individuals receive significantly less pension contribution tax relief than expected. Exceeding your annual allowance will result in an annual allowance charge. Alternative tax-efficient investments, may help bridge the gap, but advice is key to tailoring a strategy aligned with your retirement goals and risk appetite, as it is important to always remember that the value of an investment may fall as well as rise and you may get back less than you invested.
Trap 2: Misunderstanding the new lump sum allowances after the abolition of the Lifetime Allowance
On the 6th April 2024 the Lifetime Allowance (LTA) was fully abolished. While this removed the overall cap on tax privileged retirement and death benefits there are still limits on how much you can take out as tax-free cash. You now have two key limits:
The Lump Sum Allowance2 (LSA): The standard amount you can take as a tax-free lump sum is usually £268,275 (25% of the previous LTA) – but it may be higher if you have a protected allowance. This covers:
- Pension Commencement Lump Sum
- 25% tax-free element of Uncrystallised Funds Pension Lump Sums
The Lump Sum and Death Benefit Allowance2 (LSDBA): The effective cap on all non-taxable lump sums paid during lifetime and on death: £1,073,100.
These allowances replace the LTA and still require careful planning, particularly for those with larger pension pots or significant death-in-service benefits. You may be eligible for protected allowances if you had existing protections in place.
Trap 3: Your loved ones could lose out if your Death in Service benefit isn’t properly structured
If your employer offers a Death in Service benefit, it could pay your family a lump sum worth several times your salary.
If the death benefit is linked to your pension, it will count toward your Lump Sum and Death Benefit Allowance, should the benefit exceeds this threshold, your beneficiaries could face an unexpected income tax bill.
It's also worth reviewing your pension and death In service nomination forms regularly.
Trap 4: Capital Gains Tax when selling your company or shares
Selling your business or a large shareholding can unlock life-changing value, but without the right planning, it may come with a significant Capital Gains Tax (CGT) bill.
If you're eligible for Business Asset Disposal Relief, you may be able to pay CGT at 14% on gains realised after 5th April 2025 of up to £1 million. However, gains above that threshold are taxed at 18% or 24%, depending on your income and asset type.
Trap 5: Leaving more of your estate to HMRC than to your family
As former Chancellor Roy Jenkins so famously quipped, "Inheritance Tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue."
With the nil-rate band frozen at £325,000, and the residence nil-rate band capped at £175,000, many high income individuals’ estates exceed IHT thresholds—even more so when factoring in rising property and investment values. You also need to be mindful that should your net estate exceed £2,000,000, your residence nil rate band Is reduced by £1 for every £2 over this threshold.
There are numerous ways to mitigate IHT, including:
- Lifetime gifting
- Trusts
- Business Property Relief
- Charitable legacies
- Whole of Life policy
An effective estate plan can reduce or even eliminate IHT liabilities – ensuring more of your legacy reaches your loved ones.
Trap 6: All of the above
For high income individuals, these challenges rarely exist in isolation. Overlapping tax limits, changing legislation, and evolving personal circumstances can make financial planning feel like a minefield.
At Amanda Redman Financial Planning, it is our firm belief that financial advice should be personalised, proactive, and built around your life – not just your assets. That means regular reviews, forward-thinking strategies, and expert guidance at every stage.
If you’re a high income individual looking to protect and grow your wealth tax-efficiently, we’d be delighted to have a no-obligation conversation.
Contact us if you would like help creating tax-efficient financial strategies that support your personal goals. We would be delighted to have an initial no-obligation conversation with you.
Based in Tonbridge and West Sussex, Amanda Redman Financial Planning supports clients across Kent, Sussex, Surrey and Greater London.
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
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Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.
1Pension schemes rates & HS294 Trusts and Capital Gains Tax (2025) - Gov UK - April 2025
2Find out the rules about Individual Lump Sum Allowances - Gov UK - April 2024
