A practical guide to the personal tax rules that most higher earners in Richmond and South West London do not realise apply to them, updated for 2025/26.
The UK tax system rarely announces itself. Rules change quietly, allowances are frozen or cut, and obligations appear without much fanfare. For professionals and business owners in Richmond and the surrounding areas of South West London, the cumulative effect of those changes over the past few years has been significant, even for people who consider themselves financially aware.
This guide covers the personal tax facts that come up most often in conversations with clients who had no idea the rule applied to them. None of these are obscure. They affect a large number of higher earners, and the financial consequences of not knowing can be considerable.
What you will learn
- Why earning between £100,000 and £125,140 can result in a 60% effective tax rate
- How the dividend allowance has shrunk from £5,000 to £500 in under a decade
- When the High Income Child Benefit Charge applies, and how it is now collected
- How far the capital gains tax annual exempt amount has fallen, and what it means for shares and crypto
- Why your pension may no longer sit outside your estate for inheritance tax purposes from April 2027
- Which inheritance tax reliefs are changing in April 2026, and what the revised figures are
- How regular gifts from surplus income can leave your estate immediately, with no seven-year wait
Income Tax
Did you know that earning between £100,000 and £125,140 can result in an effective tax rate of 60%?
Most people assume the highest income tax rate in the UK is 45%. In practice, anyone earning in the band between £100,000 and £125,140 faces something considerably worse. For every £2 earned above £100,000, £1 of the tax-free personal allowance is withdrawn. That withdrawal means a portion of income that was previously untaxed becomes taxable at 40%, on top of the 40% already due on the additional earnings. The combined effect is an effective marginal rate of 60% on that slice of income, rising to 62% once National Insurance is included.
The most commonly used way to address this is pension contributions. Contributions reduce adjusted net income, which can restore some or all of the personal allowance and bring the effective rate back down substantially. For anyone approaching the £100,000 threshold, particularly those who receive a bonus, this is worth reviewing before the tax year ends on 5 April.
Did you know the personal savings allowance is only £500 for higher rate taxpayers, and zero for additional rate taxpayers?
Basic rate taxpayers can receive £1,000 of savings interest tax-free each year. Higher rate taxpayers receive just £500. Additional rate taxpayers receive nothing at all. With interest rates having risen significantly over the past few years, many people holding cash savings in standard accounts are now earning enough interest to generate a tax liability they are not expecting, and which does not come with a tax deduction at source. If that interest is not declared through self assessment or PAYE, it can accumulate as an underpayment.
Dividends
Did you know the dividend allowance has fallen from £5,000 in 2017 to just £500 today?
In 2017, an individual could receive up to £5,000 in dividend income before paying any tax on it. That allowance has been reduced steadily: to £2,000, then £1,000, and from April 2024, to £500. For company directors who take a combination of salary and dividends, and for individuals holding shares outside an ISA, this change has materially increased tax bills over the years, often without much awareness that it was happening.
Dividends above the £500 allowance are taxed at 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate. If your dividend income exceeds £10,000 in a tax year, you are required to file a self assessment return. If it is between £500 and £10,000, you should notify HMRC, which can collect the tax through your PAYE code.
Child Benefit
Did you know the High Income Child Benefit Charge now applies from £60,000, not £50,000?
Until April 2024, the High Income Child Benefit Charge began when either partner’s income exceeded £50,000. From the 2024/25 tax year, the threshold moved to £60,000. The charge is tapered at 1% of the child benefit received for every £200 of income above that threshold, and the full benefit is clawed back at £80,000.
The practical implication: a family where one partner earns £70,000 is repaying half the child benefit received. A partner earning £80,000 or more is effectively receiving nothing, while the other partner continues to claim on their behalf. From September 2025, HMRC introduced a new system allowing the charge to be paid through the PAYE tax code rather than through self assessment, which removes the need for many people to file a return solely for this purpose. If this is the only reason you have been filing, it is worth contacting HMRC to switch to the new system.
One often-overlooked point: even if your income exceeds £80,000, it can still be worth registering for child benefit without receiving the payments. Registering preserves National Insurance credits that count towards the state pension, which is particularly relevant for a non-earning or lower-earning partner.
Capital Gains
Did you know the capital gains tax annual exempt amount has fallen from £12,300 in 2022 to just £3,000 today?
As recently as 2022/23, individuals could realise up to £12,300 of capital gains before paying any CGT. The allowance was halved to £6,000 in 2023/24, then halved again to £3,000 in 2024/25, where it remains for 2025/26. For anyone holding shares, investment portfolios, or other assets outside an ISA, this reduction means gains that would previously have been covered by the allowance are now fully taxable.
CGT rates on non-property assets are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, following changes introduced in the October 2024 Budget. One straightforward planning point: assets can be transferred between spouses or civil partners at no gain and no loss, effectively doubling the annual exempt amount available to a couple. ISA contributions also shelter future gains entirely.
Did you know that swapping one cryptocurrency for another is treated by HMRC as a disposal, triggering a potential capital gains liability?
HMRC treats cryptoassets as chargeable assets for capital gains purposes. A disposal occurs not only when you sell crypto for sterling, but also when you exchange one cryptocurrency for another, use crypto to purchase goods or services, or gift crypto to anyone other than a spouse or civil partner. Each of these events requires you to calculate a gain or loss based on the sterling value at the time of the transaction. With the annual exempt amount now at just £3,000, even modest gains can generate a tax liability. HMRC receives data from UK-based exchanges as part of the Crypto-Asset Reporting Framework, which has been in effect since January 2026.
Pensions
Did you know that if your income exceeds £260,000, your pension annual allowance can fall as low as £10,000?
The standard pension annual allowance for 2025/26 is £60,000. For higher earners, a tapered annual allowance applies. If your threshold income (broadly, total taxable income minus personal pension contributions) exceeds £200,000, and your adjusted income (which adds back employer pension contributions) exceeds £260,000, the allowance reduces by £1 for every £2 over that adjusted income threshold. The minimum tapered allowance is £10,000, reached when adjusted income hits £360,000.
Unused allowances from the previous three tax years can be carried forward, which can be valuable for those with irregular income or who have received a significant one-off payment. The interaction between salary, bonuses, employer contributions, and the taper calculation is complex, and getting it wrong can result in a tax charge that cancels out the pension tax relief entirely.
Inheritance Tax
Did you know the nil rate band has been frozen at £325,000 since 2009, and will remain frozen until at least 2030?
The standard nil rate band, the threshold below which no inheritance tax is paid, has stood at £325,000 since 2009 and is now frozen until the end of the 2029/30 tax year. For married couples and civil partners, unused nil rate band can be transferred on death, giving a combined threshold of up to £650,000. Where a main residence is passed to direct descendants, the residence nil rate band adds a further £175,000 per person, bringing the combined couple’s threshold to £1 million, though this tapers for estates above £2 million.
In practice, the freeze means that rising property values and investment growth are steadily pulling more estates into IHT territory. HMRC collected £8.2 billion in inheritance tax in the year to March 2025, up 11% on the previous year, and the figure is expected to rise further.
Did you know that from April 2027, most unused pension funds will be included in your estate for inheritance tax?
Under current rules, pension funds held in discretionary schemes fall outside the estate for IHT purposes, making them a widely used vehicle for passing wealth to the next generation. From 6 April 2027, that changes. Most unused pension funds and death benefits will be included in the estate valuation, and potentially taxed at 40% above the nil rate band. For those who die after age 75, beneficiaries will also pay income tax on withdrawals from the inherited pension, creating the possibility of a combined effective tax rate that can exceed 60%.
Draft legislation was published in July 2025 and confirmed in the November 2025 Budget. For anyone who has deliberately retained pension funds as an estate planning tool, the strategy requires urgent review. The window before April 2027 is narrowing.
Did you know that Business Property Relief is changing from 6 April 2026, and the 100% relief cap is now set at £2.5 million?
Business Property Relief (BPR) and Agricultural Property Relief (APR) have historically provided 100% IHT relief on qualifying business and agricultural assets, with no cap. From 6 April 2026, 100% relief will be capped at £2.5 million of combined qualifying assets per individual. Assets above that threshold will qualify for 50% relief, leaving an effective IHT charge of 20% on the excess. Married couples and civil partners can each use the £2.5 million allowance, giving a combined shelter of £5 million.
AIM-listed shares, which have been a common estate planning vehicle under BPR, will move from 100% to 50% relief from the same date. This change sits outside the £2.5 million allowance. For business owners or those holding AIM portfolios with estate planning in mind, the effect of this change is immediate and material.
Did you know that regular gifts from surplus income can leave your estate immediately, with no seven-year wait?
Most people are familiar with the seven-year rule for gifts: a gift only falls fully outside the estate if the donor survives for seven years after making it. The normal expenditure out of income exemption works differently. Gifts made regularly from surplus income, where the donor retains enough to maintain their normal standard of living, leave the estate immediately and with no upper limit beyond the income available.
To qualify, the gifts must form part of a habitual pattern, they must come from income rather than capital, and the donor must not be reducing their standard of living to make them. Standing orders to children, regular payments toward school fees, or consistent gifts made annually all have the potential to qualify. The exemption requires careful record-keeping, as executors will need to demonstrate the pattern on form IHT403 after the donor’s death. Given that pensions will be brought into the estate from April 2027, interest in this exemption has grown considerably in recent months.
A note on Family Investment Companies
For individuals with larger or more complex estates, a Family Investment Company can allow future growth to be held outside the estate while the founder retains control as director. It is a structure that suits specific circumstances rather than everyone, and requires careful professional advice to establish correctly. We will be covering this topic in depth in a forthcoming article. In the meantime, our tax planning service page outlines the range of estate and personal tax advice we offer.
Key takeaways
- The effective tax rate for income between £100,000 and £125,140 is 60%, not 45%
- The dividend allowance is now £500, down from £5,000 in 2017
- The High Income Child Benefit Charge applies from £60,000 and can now be paid through PAYE
- The CGT annual exempt amount is £3,000, down from £12,300 in 2022
- Swapping one cryptocurrency for another is a taxable disposal in HMRC’s view
- Pension funds will be included in the taxable estate for IHT purposes from April 2027
- BPR and APR 100% relief is capped at £2.5 million per person from April 2026, with AIM shares reducing to 50% relief
- Regular gifts from surplus income leave the estate immediately, with no seven-year clock and no monetary cap
If any of these points feel relevant to your situation, a short conversation with one of the team at our Richmond office is often enough to clarify where you stand. Personal tax has become considerably more complex over the past few years, and the cost of not knowing is frequently greater than the cost of taking advice.
You may also find the following articles from our insights series useful: Do I Need to File a UK Tax Return This Year? covers self-assessment obligations in more detail, and our forthcoming piece on capital gains on UK property sales looks specifically at the 60-day reporting requirement for residential disposals.
About the author
Partner at Xeinadin Richmond
Donovan advises professional services firms and owner-managed businesses whose operations and finances have grown more complex over time. His work focuses on clarity, sustainability, and helping leaders regain control before pressure becomes crisis.
LinkedIn: https://www.linkedin.com/in/donovan-crutchfield-22550814/
