Smart Tax Strategies for High Incomes – The Irish News

QUESTION: How can high earners in Northern Ireland reduce their tax liability and maximize their savings?

ANSWER: For high income earners in Northern Ireland, the January tax payment deadline can be long, but there are several strategies you can follow to reduce your tax liability. This way you can ensure that you make optimal use of the opportunities that the tax system offers.

In Northern Ireland, you will be classified as a higher rate taxpayer for the 2024/25 tax year if your income exceeds £50,271. For those earning more than £125,140, ​​the additional tax rate applies.

It is important to note that if your income exceeds €100,000, your personal allowance will start to decrease and will be reduced by €1 for every €2 you earn above this threshold. At £125,140 the allowance will be withdrawn completely.

Income includes salary, self-employment income, rental income and investment returns, all of which contribute to your taxable income.

What can you do to reduce your tax bill?

1. Contribute to your pension

Pension contributions are one of the most effective ways to reduce your taxable income and prepare for retirement:

• Personal Pensions: For premiums you automatically receive a tax reduction of 20%, added by your pension provider. If you pay a higher tax rate, you can claim additional deductions through your tax return.
• Workplace schemes: Salary sacrifice schemes allow pension contributions to be deducted before tax, reducing your taxable income.

This dual benefit of reducing your current tax liability and building your retirement fund makes pensions an important consideration.

2. Support charities through Gift Aid

Gift Aid allows charities to reclaim basic tax on your donations, increasing the value of your gift. As a higher taxpayer, you can reclaim the difference between the tax paid and the amount received by the charity. You do this via your tax return or by adjusting your tax code.

3. Use your allowance.

• ISA allowance: The interest earned within an ISA is tax-free, making it a valuable tool for higher earners whose savings income allowance is capped at £500 per year.
• Dividend payment: The annual tax-free dividend payment of £500 (2024/25) helps reduce tax on investment income. Dividends above this amount are taxed at 33.75% for higher rate taxpayers and at 39.35% for higher rate taxpayers.

If you take full advantage of these benefits, you can significantly reduce your overall tax bill.

If your income falls between £100,000 and £125,140, ​​you will effectively face a 60% tax rate due to the reduction of your personal allowance. You can arrange this by reducing your taxable income, for example by increasing pension contributions or donations to charities.

If you earn more than £60,000 you will be liable for high income child benefit. This tax increases with income and ultimately equals the full value of the £80,000 benefit. To simplify your finances, you may consider no longer receiving child benefit.

If you’re planning to sell an asset, consider when you can make the most of your annual CGT exemption. By spreading sales over several tax years you can avoid higher CGT rates and ensure you stay within the exemption limit.

There are some additional tax savings options, including:

• Invest in start-ups: Schemes such as the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCT) offer tax relief for investments in eligible businesses, making them attractive to individuals with surplus income.
• Inheritance Tax (IHT) Planning: Consider making gifts to family members. If you survive seven years after making these gifts, they will fall outside your estate for IHT purposes.

Malachy McLernon ([email protected]) is a partner at AAB Group Accountants Ltd (www.aabgroup.com). The advice in this column is specifically aimed at the facts surrounding the question asked. Neither Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on the answers