The Chancellor and the Business Secretary have recently indicated that the 50% tax rate will only be temporary.

So if your income currently exceeds the £150,000 threshold, what measures can you take in the interim to avoid paying more tax than is absolutely necessary?

As an investor there are several ways to shelter investment income. For example, the annual investment limit for cash individual savings accounts (ISAs) is quite low at £5,340, but the maximum you can invest in a full ISA this year is £10,680. Also, National Savings & Investment (NS&I) recently reintroduced its five-year fixed interest savings certificates. The interest rate is only 2.25% (equivalent to 4.5% for a 50% taxpayer), but the investment limit is £15,000 per issue – so a total of £30,000 if you invest in index-linked certificates as well. You might also consider postponing investment income by rolling it up within a UK or offshore life assurance bond.

As a director or employee pension contributions will benefit from 50% tax relief; so the cost of adding £10,000 to your pension fund would be just £5,000. This year, the annual maximum amount of pension contributions that qualify for tax relief is £50,000. However, you might also have unused relief from previous years that you could make use of this year.

If you are self-employed you are also in a position to make pension contributions, but you may also have scope to plan your taxable profits. The 50% tax saving could make it attractive to spend money on new capital investment, such as new IT equipment. Remember, the annual investment allowance limit is currently £100,000 but it is due to fall next tax year.

If you run your own company you are probably in the best position to avoid 50% tax because you can control how you deploy your income between yourself and your company. One straightforward approach could simply be to retain profits in the company and pay corporation tax (20% on profits up to £300,000) on them until the 50% rate is abolished. A danger is that if you retain too much cash in the company, you might jeopardise your capital gains tax entrepreneurs’ relief.

Finally, if you are feeling generous, remember that charitable gift aid donations can benefit from 50% relief.

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