10 Tax-Saving Strategies for Business Owners and High Earners (2026/27)

“The clients who save the most tax aren’t necessarily the ones with the most complex situations — they’re the ones who plan ahead. Most of the strategies we use are straightforward. The difference is just knowing they exist and actually using them before 5 April.”

James Mackay, Chartered Financial Planner and Managing Director, Frazer James

If you run a business or earn a high salary, the UK tax system will take a significant share of your income unless you plan deliberately. At Frazer James, we work with business owners and senior professionals across Bristol and beyond. We see the same missed opportunities repeatedly. This guide covers ten strategies we use with clients every day. Each one is legal, HMRC-approved, and worth understanding properly.

All figures are 2026/27 unless stated. Worked examples are illustrative only and do not constitute personal advice.

1. Maximise Pension Contributions — Including Employer Contributions From Your Company

What it is

Pension contributions attract tax relief at your marginal rate. For a higher-rate taxpayer, a £10,000 contribution costs £6,000 after relief. For an additional-rate taxpayer, it costs £5,500. If you run a limited company, employer contributions are even more powerful: the company pays directly into your pension, receives corporation tax relief at 25%, and avoids employer National Insurance at 15%.

The 2026/27 numbers

• Annual allowance: £60,000 (combined employer and employee contributions)
• Tapered annual allowance: begins at £260,000 adjusted income, reduces to a minimum of £10,000
• Carry forward: up to three prior tax years of unused allowance can be added
• Tax-free cash: 25% of your pension, capped at the £268,275 Lump Sum Allowance
• Lifetime allowance: abolished April 2024
• Normal minimum pension age: 55 now, rising to 57 in April 2028

Who it suits

Business owners who can direct company profits into a pension rather than taking them as salary or dividend. Also higher earners who have unused allowance from prior years and want to reduce a large income spike — a bonus year, for example.

Illustrative saving

A company makes a £40,000 employer pension contribution on behalf of a director. The company saves 25% corporation tax (£10,000) and avoids 15% employer NI on the equivalent salary (£6,000). The director pays no income tax or employee NI on the contribution. Total tax saving across company and director: illustratively around £16,000 compared with paying the same amount as salary. Figures are illustrative and depend on individual circumstances.

Read our full guide to saving tax through pensions

2. Optimise Your Salary and Dividend Mix

What it is

If you own a limited company, you choose how to extract profit. Salary is subject to income tax and National Insurance. Dividends are not subject to NI and are taxed at lower rates: 10.75% (basic), 35.75% (higher), 39.35% (additional). The optimal mix depends on your total income, but most owner-directors take a small salary up to the NI threshold and draw the remainder as dividends.

The 2026/27 numbers

• Dividend allowance: £500 (tax-free)
• Employer NI: 15% above £5,000 secondary threshold
• Employee NI main rate: 8%
• Corporation tax: 25% (19% on profits under £50,000)
• Personal allowance: £12,570

Who it suits

Owner-directors of profitable limited companies. The strategy is most effective when profits comfortably exceed the director’s personal living costs, leaving room to retain earnings or invest them tax-efficiently.

Illustrative saving

A director takes a salary of £12,570 (using the personal allowance, no income tax) and draws £37,700 in dividends (taxed at 10.75% above the £500 allowance). Compare this with taking the same £50,270 entirely as salary: the NI saving alone is illustratively several thousand pounds. Exact figures depend on company profits, other income, and personal circumstances.

3. Escape the 60% Tax Trap on Income Between £100,000 and £125,140

What it is

The personal allowance of £12,570 is tapered away for incomes between £100,000 and £125,140. For every £2 of income above £100,000, you lose £1 of personal allowance. This creates an effective marginal tax rate of 60% in that band. It is one of the most damaging and least-discussed features of the UK tax system.

Who it suits

Employees and business owners whose adjusted net income sits in or near the £100,000 to £125,140 range. This includes many senior professionals, consultants, and company directors.

How to escape it

Reduce your adjusted net income below £100,000 by making pension contributions, salary sacrifice arrangements, or Gift Aid donations. Each pound contributed reduces adjusted net income by one pound, restoring personal allowance at the same time.

Illustrative saving

A professional earns £110,000. They make a £10,000 personal pension contribution. Their adjusted net income falls to £100,000. They recover £5,000 of personal allowance (worth £2,000 in tax at 40%) and receive 40% relief on the contribution itself (£4,000). Illustrative combined benefit: around £6,000. Figures are illustrative only.

4. Use Salary Sacrifice and Bonus Sacrifice

What it is

Salary sacrifice means agreeing with your employer to give up part of your salary in exchange for a non-cash benefit — most commonly pension contributions. Because the sacrifice happens before tax and NI are calculated, both you and your employer save National Insurance. Bonus sacrifice works on the same principle: instead of receiving a cash bonus, you redirect it into your pension.

The 2026/27 numbers

• Employee NI saving: 8% on sacrificed amount (main rate)
• Employer NI saving: 15% on sacrificed amount
• Income tax relief: at your marginal rate (40% or 45%)

Who it suits

Employees who receive bonuses and want to avoid a large tax bill in a single year. Also useful for anyone approaching the £100,000 threshold or the tapered annual allowance threshold. Some employers pass on their NI saving as an additional pension contribution.

Illustrative saving

A higher-rate taxpayer sacrifices a £20,000 bonus into their pension. They save 40% income tax (£8,000) and 2% employee NI (£400), the rate that applies above £50,270. Their employer saves 15% employer NI (£3,000). Total illustrative saving across employer and employee: £11,400. Figures are illustrative and depend on individual circumstances.

Read our full guide to bonus sacrifice

5. Use ISAs and Your Partner’s Allowances

What it is

ISAs shelter investment growth and income from tax permanently. There is no tax on interest, dividends, or capital gains within an ISA, and no reporting requirement. A couple can shelter £40,000 per year between them. The Lifetime ISA (LISA) adds a 25% government bonus on contributions up to £4,000 per year for those under 40 who open one, though the bonus is capped at age 50 and the account is designed for first-home purchase or retirement from age 60.

The 2026/27 numbers

• ISA allowance: £20,000 per person
• LISA allowance: £4,000 per person (counts within the £20,000 ISA limit)
• LISA bonus: 25% government top-up, maximum £1,000 per year
• Dividend allowance outside ISA: £500

Who it suits

Anyone with savings or investments outside a pension. Particularly valuable for business owners who hold investments personally, and for couples where one partner has unused allowance. Transferring income-producing assets to a lower-earning spouse before the tax year end can also reduce the household tax bill.

Illustrative saving

A couple each contribute £20,000 to ISAs annually. Over ten years, assuming modest growth, the tax saving on dividends and gains sheltered inside the ISA compared with a general investment account can be substantial. The exact figure depends on returns and tax rates, but the compounding effect of tax-free growth is significant over time.

6. Plan Capital Gains Tax With the £3,000 Exemption and Spousal Transfers

What it is

Capital Gains Tax (CGT) is charged on profits when you sell or dispose of assets such as shares, investment property, or business assets. The annual exempt amount is £3,000 per person. Transfers between spouses and civil partners are free of CGT, which means assets can be moved to a lower-rate taxpayer before sale, or to use a second annual exemption.

The 2026/27 numbers

• CGT annual exempt amount: £3,000 per person
• CGT rates on investments: 18% (basic rate), 24% (higher/additional rate)
• Spousal transfers: at no gain/no loss — no CGT on the transfer itself

Who it suits

Investors with unrealised gains in general investment accounts. Business owners planning to sell assets. Couples where one partner pays a lower rate of tax or has unused annual exemption.

Illustrative saving

A higher-rate taxpayer has a £30,000 gain on a share portfolio. They transfer half to their spouse before selling. Each uses their £3,000 exemption. The spouse pays 18% on their remaining gain; the original owner pays 24%. Compared with the original owner selling everything and paying 24% on £27,000, the illustrative saving is several thousand pounds. Exact figures depend on individual circumstances.

7. Business Asset Disposal Relief on Business Exit

What it is

Business Asset Disposal Relief (BADR) reduces the CGT rate on qualifying business disposals. If you sell your business and meet the qualifying conditions, gains up to the £1 million lifetime limit are taxed at a preferential rate rather than the standard CGT rate. The rate increased from 10% to 14% in 2025/26 and rises again to 18% from April 2026. Planning the timing of a sale matters.

The 2026/27 numbers

• BADR rate: 18% from April 2026
• Standard higher-rate CGT: 24%
• Lifetime limit: £1,000,000
• Qualifying conditions: broadly, you must have owned at least 5% of the company and been an employee or officer for at least two years

Who it suits

Business owners planning to sell or wind up their company. The relief is most valuable where the gain is large and the owner qualifies. Early planning — ideally two or more years before exit — is essential to ensure qualifying conditions are met.

Illustrative saving

A business owner sells their company and realises a £1,000,000 gain. With BADR at 18%, the CGT bill is £180,000. Without BADR at 24%, it would be £240,000. Illustrative saving: £60,000. Figures are illustrative and depend on individual circumstances including the annual exempt amount and any other gains in the year.

Read our full guide to tax planning on business exit

8. Inheritance Tax Planning: Gifting and the 7-Year Rule

What it is

Inheritance Tax (IHT) is charged at 40% on estates above the nil-rate band. Gifts made during your lifetime can reduce your taxable estate, but most gifts only become fully exempt after seven years. Gifts made within three years of death are taxed at the full 40% rate. Between three and seven years, taper relief reduces the rate. Certain gifts are immediately exempt: the annual £3,000 gifting exemption, small gifts of up to £250 per person, and gifts from surplus income.

The 2026/27 numbers

• IHT nil-rate band: £325,000
• Residence nil-rate band: £175,000 (where a main residence passes to direct descendants)
• Combined allowance for a couple: up to £1,000,000
• IHT rate: 40% above the nil-rate band
• Business Relief: 100% on qualifying business assets up to £2.5 million from April 2026; 50% above that
• Pensions: included in estates for IHT from April 2027
• Annual gifting exemption: £3,000 per person (can carry forward one year)

Who it suits

Business owners and high earners with estates likely to exceed the nil-rate bands. The inclusion of pensions in IHT from April 2027 makes this particularly urgent for those who have accumulated large pension pots and planned to pass them on. Business Relief changes from April 2026 also affect owners of qualifying businesses.

Illustrative saving

A couple gift £6,000 per year (£3,000 each) using the annual exemption. That £6,000 leaves their estate immediately, with no seven-year rule to survive. At 40% IHT, each year of gifting saves an illustrative £2,400 in IHT. Over ten years of consistent gifting, the illustrative saving is £24,000. Larger gifts under the 7-year rule can save significantly more. Figures are illustrative only.

Read our full guide to IHT planning for business owners

9. Charitable Giving and Gift Aid

What it is

Gift Aid allows charities to reclaim basic-rate tax on your donation, increasing its value by 25%. Higher and additional-rate taxpayers can claim the difference between their marginal rate and the basic rate through their Self Assessment return. Donations also reduce your adjusted net income, which can restore personal allowance lost in the £100,000 to £125,140 band.

Who it suits

Higher and additional-rate taxpayers who give to charity. Also anyone whose income sits in the 60% effective tax band and wants to reduce it. Payroll Giving schemes allow donations before tax, providing immediate relief at source.

Illustrative saving

A higher-rate taxpayer donates £8,000 to charity under Gift Aid. The charity reclaims £2,000 (basic-rate relief), making the total donation £10,000. The taxpayer claims a further £2,000 through Self Assessment (the difference between 40% and 20%). Net cost of a £10,000 donation: illustratively £6,000. If the donation also reduces income from £108,000 to £100,000, the taxpayer additionally recovers personal allowance worth a further £2,000 in tax. Figures are illustrative only.

10. Venture Capital Trusts and Enterprise Investment Scheme

What it is

VCTs (Venture Capital Trusts) and EIS (Enterprise Investment Scheme) investments offer significant tax reliefs in exchange for investing in smaller, higher-risk companies. These are not mainstream investments. They carry a real risk of capital loss and are suitable only for experienced investors who understand and can afford that risk.

The reliefs available

• EIS: 30% income tax relief on investments up to £1,000,000 per year; CGT deferral; IHT Business Relief after two years; loss relief available
• VCT: 30% income tax relief on investments up to £200,000 per year; tax-free dividends; tax-free growth within the VCT
• Both require shares to be held for minimum periods to retain relief

Who it suits

Higher-rate taxpayers with a large income tax bill in a specific year — for example, following a business sale or a large bonus — who have already used mainstream allowances and are comfortable with illiquid, high-risk investments. These should never be the first port of call. They are a final layer of planning, not a foundation.

Risk warning: VCT and EIS investments are high risk. You may lose some or all of your capital. They are illiquid and not suitable for most investors. Tax reliefs depend on individual circumstances and may change. Always take independent financial advice before investing.

Talk to Us About Your Tax Position

We are Frazer James, a chartered financial planning firm based in Bristol. We work with business owners and high-earning professionals who want to pay the right amount of tax — not a penny more.

The strategies above are a starting point. The right combination depends on your income, your business structure, your family situation, and your plans for the future. We will look at all of it together.

Book a free initial conversation with our team and we will show you where the opportunities are in your specific situation.

About The Author

James Mackay

On a day-to-day basis, James advises successful professionals & small business owners on how to make the most of their money. His area of expertise includes retirement planning, tax mitigation, pension options, and investing for the future.

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