That would mark a growth of more than two million people in just three years.
With income tax thresholds frozen in the last Budget by the former Government, that figure is set to rise over the next few years too, as more people are dragged into higher bands after pay increases.
Indeed, HMRC predicts that the number of people paying that top rate is expected to exceed one million for the first time this year.
Dean Butler, the managing director of retail direct at Standard Life, says with no changes to the threshold policy on the horizon until April 2028, “the buffer between wages and tax band thresholds” will get ever closer.
Butler said: “Being aware of the allowances and reliefs that allow you to keep more of your hard-earned money is a must. One way to do this is by putting more into your pension, protecting more of your income, while also saving for your future.”
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Here are four ways you can avoid paying over the odds to the tax collector, using tips from Standard Life:
- Claim back extra tax relief on pension payments
Most UK taxpayers get a 20% top-up from the Government to contribute towards their own pension payments.
This is based on the rate of income tax you pay, but means it could only cost you £80 to add £100 to your pension.
You can reclaim an extra 20% tax on your pension contributions if you are a higher-rate taxpayer, for a total of 40% tax relief, and a claim can be backdated for the last four tax years. If you pay the additional rate, you can reclaim an extra 25%.
Butler said: “However, many higher-rate taxpayers don’t realise that this relief isn’t applied automatically – you have to claim it.
“Depending on how your payments are being made, you may need to complete a self-assessment tax return, and you’ll then either get the tax back as a rebate at the end of the tax year or through an adjustment to your tax code. You can claim back any tax relief for the last four tax years only.”
- Recover your tax-free personal allowance
When your taxable income is more than £100,000, your personal allowance is reduced by £1 for every £2 above this amount, and if your income is £125,140 or more, then that allowance disappears. But if you pay into a pension plan, you can reduce your adjusted net income, helping you recover some or all of your personal allowance, depending on how much you put in.
- Pay more into your pension to keep more of your child benefit
Earlier this year, the High Income Child Benefit Charge rules changed, with child benefit reducing if you or your partner earn over £60,000, while you’ll lose it entirely if one of you earns more than £80,000.
Higher earners could consider paying more into a pension plan to reduce your adjusted net income – if you manage to reduce this income to below £80,000, you could get some or all of your child benefit back, while also putting more money away for your future.
- Explore salary sacrifice options
Some workplace pension schemes offer the option of salary sacrifice (or salary exchange). This involves agreeing to reduce your salary by a certain amount, which is then contributed directly to your pension.
This can be an effective way of holding onto more of your earnings while also saving more for retirement.
Butler noted: “However, mortgage applications can be affected, as your official salary appears lower, so it may not be an appropriate step for everyone.”
