The Complete Guide to High-Net-Worth Tax Planning

Tax planning is essential when it comes to managing wealth. However, the benefits and consequences of adopting effective tax strategies are even more significant for high-net-worth individuals. High-net-worth tax planning helps meet financial goals, ensure compliance with HMRC regulations and, ultimately, preserve wealth.

If you are a business owner or individual with complex financial arrangements, our guide to high-net-worth tax planning will help you navigate the core priorities of estate planning. First, we'll explain what high-net-worth tax planning is, then share some critical areas to consider in this process and strategies to make the most of your tax allowances.

What Is High-Net-Worth Tax Planning?

Definitions of a high-net-worth individual can vary. However, HM Treasury recently updated the financial thresholds for the high-net-worth criteria as follows:

  • income of at least £170,000 (from £100,000) in the last financial year; or
  • net assets of at least £430,000 (from £250,000) throughout the last financial year.

Typically, the higher the wealth, the more complex it is to manage. High-net-worth tax planning is about optimising this level of liquidity as well as your assets for the best possible outcomes. It usually includes strategies to minimise your tax liabilities and maximise growth while protecting your assets, which could include businesses, properties, or other diverse investments. The process of high-net-worth tax planning also gives you peace of mind for the future, knowing that you're protected should you face challenges such as ill health or changes in tax laws and that your inheritance for your loved ones is secure.

Key Areas of Focus for High-Net-Worth Tax Planning

Often, there is a lot to consider when carrying out high-net-worth tax planning. Below, we explore some of the most critical aspects:

Income Tax Planning

If you have multiple income streams, whether from businesses, dividends or rental properties, effectively structuring your income will allow you to make the most of tax allowances and avoid escalating your liabilities.

For example, consider how to balance your salary income versus your dividends. Also, review your pension contributions to reduce your taxable income while helping to secure your financial future.

Capital Gains Tax (CGT)

Be sure to evaluate your tax-free allowances when seeking to sell high-value assets, such as properties or a business, to avoid CGT taking a significant chunk out of your profit. Look at your eligibility for options like Business Asset Disposal Relief (formerly Entrepreneurs' Relief), or consider gifting your assets to family members and making use of their CGT allowance. However, be aware of the recent budget changes, which see higher taxes on capital gains even when gifting a property.

Inheritance Tax (IHT)

For many, high-net-worth tax planning is about protecting your wealth for future generations. However, this goal involves taking IHT into account. In the UK, the current IHT threshold is £325,000, meaning anything above that will get taxed at 40%. The exception is if you leave everything above the threshold to your spouse or civil partner. The threshold increases to £500,000 if you leave your home to your children (including adopted, foster or stepchildren) or grandchildren.

In addition, high-net-worth tax planning around IHT can also include strategies such as creating trusts for your assets or regular gifting, both of which can help reduce tax liabilities.

Property Tax Planning

If you have a property portfolio, you may also face tax liabilities in the form of stamp duty land tax (SDLT) and rental income taxes. These need careful management to minimise your liabilities. One strategy to maximise tax advantages is to set up a limited company to hold the property. 

The Value of Expert Advice

High-net-worth tax planning can be incredibly complex, with many significant aspects to consider. If you overlook updates or subtleties in the law or mismanage your assets, the results can be very costly.

For high-net-worth individuals, professional advice is invaluable. A specialist account will provide you with a tailored plan and help you make tax-efficient, compliant choices that protect your assets.

At Keith Graham, our team of experienced chartered accountants offer comprehensive support for high-net-worth tax planning, covering aspects such as income tax, inheritance tax and capital gains liability.

Please take a look at our Personal Tax Planning page to find out more.