UK Additional Rate Taxpayer Strategy 2026/27
UK additional rate tax 2026/27: 45% above £125,140, pension annual allowance taper, EIS and VCT relief, Gift Aid, family income and IHT planning.
Tax planning above £125,140 in 2026/27: the 45% rate, the pension annual allowance taper, EIS and VCT relief, Gift Aid, family income and the 6 April 2026 Inheritance Tax changes. England, Wales and Northern Ireland bands; Scottish rates differ.
Additional rate landscape 2026/27
- Taxable income above £125,140: 45% Income Tax, plus 2% employee NI on salary = 47% marginal
- No Personal Allowance: it is fully withdrawn by £125,140
- Threshold income over £200,000 and adjusted income over £260,000: the pension annual allowance starts to taper
- Adjusted income of £360,000 or more: the allowance is at its £10,000 minimum
- No Personal Savings Allowance at the additional rate (£0); dividends above the £500 allowance taxed at 39.35%
4-pillar additional-rate strategy
1. Pension contributions
- Use the annual allowance each year: relief at 45%, plus 2% NI through salary sacrifice
- Carry forward unused allowance from the previous 3 years, if you were a scheme member in those years
- Check the taper if your income is near £260,000 adjusted income
- Relief on your own contributions is capped at 100% of relevant UK earnings
2. EIS / VCT investments
- EIS: 30% Income Tax relief, Capital Gains Tax deferral on reinvested gains, minimum 3-year holding
- VCT: 20% Income Tax relief from 6 April 2026, tax-free dividends, no Capital Gains Tax on sale, 5-year holding
- Relief reduces your tax bill; unused relief cannot be carried forward to later years
- Risk: small, unlisted companies; you can lose the whole investment
3. Family income spreading
- ISAs in both names (£40,000 a year for a couple)
- Junior ISAs for children (£9,000 a year per child)
- Savings held by a basic-rate spouse use their £1,000 Personal Savings Allowance
- Jointly held property: 50/50 by default, or a form 17 declaration of unequal shares
4. IHT planning
- Gifts outside the estate after 7 years
- Business and agricultural property relief: 100% within the £2,500,000 allowance from 6 April 2026, 50% above it
- Life insurance written in trust
- Leave at least 10% of the net estate to charity for the 36% rate
- Unused pension funds count towards the estate for deaths from 6 April 2027
Related pages
Frequently asked questions
What are the 2026/27 additional rate thresholds?
Income Tax is 45% on taxable income above £125,140 in England, Wales and Northern Ireland. Employees also pay 2% NI above the Upper Earnings Limit, so the marginal rate on salary is 47%. By this point the Personal Allowance has been fully withdrawn. Scottish taxpayers pay the Scottish top rate on earnings instead.
How do EIS and VCT investments help additional rate taxpayers?
Income Tax relief for 2026/27: Enterprise Investment Scheme 30% on up to £1 million a year (£2 million if at least £1 million is in knowledge-intensive companies), with Capital Gains Tax deferral on gains reinvested. Venture Capital Trusts 20% on up to £200,000, with tax-free dividends and no Capital Gains Tax on sale. EIS shares must be held for at least 3 years and VCT shares for 5 years to keep the relief. Both are high-risk investments.
What is the Annual Allowance taper?
If your threshold income is over £200,000 and your adjusted income is over £260,000, the £60,000 annual allowance falls by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000, reached at £360,000. Contributions above your allowance face the annual allowance charge, taxed as part of your income.
How do I use carry forward pension allowance?
You can add unused annual allowance from the previous 3 tax years to this year's allowance, using the current year first. You must have been a member of a registered pension scheme in each year you carry forward from. Tax relief on your own contributions is still limited to 100% of your UK relevant earnings for the year, so carry forward mainly helps employer contributions or a year with high earnings.
How does Gift Aid work for additional-rate taxpayers?
A £100 donation is worth £125 to the charity, which claims the basic rate from HMRC. You can claim back the difference between your rate and the basic rate on the £125: a higher-rate taxpayer's £100 gift costs £75.00, an additional-rate taxpayer's £68.75. Leaving at least 10% of the net value of your estate to charity reduces the Inheritance Tax rate on some assets from 40% to 36%.
What about the non-dom changes?
On 6 April 2025 the 4-year foreign income and gains (FIG) regime replaced the remittance basis. It lets a new UK resident claim relief on foreign income and gains for their first 4 tax years of UK residence, provided they were not UK resident for at least the previous 10 consecutive tax years. After that, worldwide income and gains are taxable in the UK. Get advice before relying on it.
Should I split family income with a spouse?
Each spouse has their own £20,000 ISA allowance, £500 dividend allowance and Personal Savings Allowance (£1,000 for a basic-rate taxpayer, £500 for a higher-rate taxpayer, £0 at the additional rate). Income from property jointly held by spouses or civil partners who live together is split 50/50 by default (ITA 2007 s.836) unless you make a declaration of unequal beneficial interests on form 17. The gift must be outright: the settlements rules (ITTOIA 2005 s.624, with the spouse exception in s.626) can tax the income back to the giver otherwise.
Do I need a tax adviser at additional rate?
Pension annual allowance tapering, carry forward, venture capital relief, share scheme timing and Inheritance Tax planning all have conditions that are easy to miss, and a mistake can trigger a charge rather than a saving. A regulated financial adviser or chartered tax adviser can check your figures before you act.
What is the IHT planning priority at this income?
Gifts survive Inheritance Tax if you live 7 years after making them. From 6 April 2026, business and agricultural property relief is 100% only within a £2,500,000 allowance and 50% above it, and AIM shares get 50% in all cases. From 6 April 2027 most unused pension funds and death benefits are brought into the estate for Inheritance Tax. See our IHT burden report.