Tax planning high net worth individuals is a complex topic. As a result, we have distilled some of the key elements into this easy to understand article.

Tax planning, a crucial aspect of financial management, requires a nuanced approach to not only comply with the law but also to protect and grow one’s assets.

This guide sheds light on effective tax planning for high net worth individuals that can help wealthy people understand the complex nature of taxation, ensuring their wealth serves them and their families, both now and in the future.

Related reading: Five ways to preserve your wealth & pay less tax

Tax planning for high net worth Individuals

In this article, we will explore seven key areas of tax planning that high net worth individuals should consider: inheritance tax planning, the use of trusts, and pensions, reducing corporation tax through pension contributions and leveraging Venture Capital Trusts (VCTs), and Enterprise Investment Schemes (EIS).

Furthermore, other strategies include collaborating with a wealth management company, and comprehensive estate planning.

Effective tax planning for high net worth individuals

In this guide, we focus on seven key areas covering:

  1. Inheritance tax planning
  2. Setting up trusts
  3. Making use of personal pensions
  4. Corporation Tax reduction through pensions
  5. Estate planning
  6. VCTs and EIS scheme
  7. The role of wealth managers

Related services

1. Inheritance tax planning

Inheritance tax can significantly reduce the assets you leave behind. However, there are ways to reduce or avoid this tax completely.

Lifetime gifts, annual exemptions, the residence Nil-Rate Band and investing in qualifying relief assets can mitigate these taxes.

Furthermore, life insurance, held in trust, offers a way to cover inheritance tax liabilities, preserving the value of your estate for future generations.

Related reading

2. Using trusts

Trusts are a powerful tool in tax planning, offering control over how your assets are managed and distributed.

They can reduce taxes and ensure your wealth is allocated according to your wishes.

From discretionary to lifetime trusts, the proper trust structure can be beneficial in reducing inheritance tax burdens.

If you are seeking advice on this matter, you should look to work with a firm that offers dedicated estate planning services.

3. Making Use of Pensions

Pensions are among the most tax-efficient ways to invest

By maximising pension contributions, high earners can not only reduce their taxable income but also secure tax relief at their highest marginal rate.

As a result, this fosters significant wealth accumulation over time.

Related reading: Is a SIPP better than a personal pension?

4. Reducing Corporation Tax by paying into a pension

Business owners have the unique opportunity to lower their corporation tax by making company contributions to their pension.

This strategy does not only reduce the taxable income of the business, but also enhances the individual’s retirement savings in a tax-advantaged manner.

Estate planning

Beyond drafting a will, estate planning encompasses a holistic approach to managing your financial affairs.

It ensures your assets are distributed as desired, taking into account any potential tax implications.

Strategic use of trusts, charitable donations, and other legal structures can play a pivotal role in wealth management and preservation.

5. Reducing Taxes via VCTs and EIS Schemes

VCTs and EIS offer appealing tax benefits. This includes income tax relief and capital gains tax exemption.

These schemes encourage investment in small, growing businesses, albeit with higher risk.

If you are new to this topic here is an overview of each:

  • VCTs: A UK investment fund that pools money to invest in small, growing companies, offering investors tax benefits and the potential for high rewards despite higher risks
  • EIS: A government program encouraging investment in small businesses by offering tax relief to investors who buy new shares in those companies

6. Working with a wealth management company

With the tax landscape evolving, partnering with a wealth management company can provide personalised advice tailored to your financial situation.

This collaboration ensures that your tax planning strategy is both compliant and optimally structured to meet your financial objectives.

Conclusion: Tax planning for high net worth individuals

For affluent individuals, tax planning is a critical component of financial prudence.

By engaging in strategic planning with professionals and leveraging tax-efficient investment opportunities, you can safeguard your wealth and ensure a lasting legacy.


Need a quick recap?

Here are a handful of answers to some questions you may have after reading this article.

What is the best way to reduce inheritance tax?

Investing in assets that are eligible for reliefs, making lifetime gifts, and using trusts effectively can reduce inheritance tax expenses.

How can trusts benefit my tax planning?

Trusts can reduce taxes and provide controlled distribution of your assets according to your wishes.

Are pensions tax-efficient for high net worth individuals?

Yes, maximising pension contributions can reduce taxable income and provide significant tax relief.

Can my business reduce tax by paying into my pension?

Absolutely, company pension contributions can lower corporation tax while building your retirement savings.

What are VCTs and EIS, and how do they benefit me?

These are investment schemes offering tax reliefs to encourage investments in small businesses, with advisement recommended due to higher risks.