Tax Planning for High Net-Worth Individuals (HNWI) in the UK

Tax planning for high net-worth individuals in the UK comes with unique challenges. With a complex array of income sources, investments, and assets, HNWIs must take a strategic approach to managing their wealth and minimising tax liabilities. Effective tax planning isn’t just about saving money, it’s about long-term wealth preservation, control, and legacy. Fortunately, there are several tax-efficient strategies that can help optimise your financial position while keeping you compliant with UK regulations.

In this blog post, we’ll explore the most effective tax strategies available to HNWIs in the UK, including Family Investment Companies (FICs), Investment and Pension Schemes, Business Asset Disposal Relief (BADR), and Charitable Giving. These strategies not only reduce tax liabilities but also enhance long-term wealth management. 

Table of Contents

• Family Investment Companies (FICs) 

• Investment and Pension Schemes: Maximising Tax-Deferred Growth 

  • Investment Schemes: 

  • Pension Schemes: 

• Business Asset Disposal Relief (BADR): Tax-Efficient Business Sales 

• Offsetting Capital Gains Tax (CGT) with Losses: Reduce Your Tax Burden 

• Charitable Giving: Reduce Tax While Supporting Causes You Care About 

• Additional Tax Strategies for High Net-Worth Individuals in the UK

• Final Thoughts: Tax Planning for High Net-Worth Individuals in the UK

Family Investment Companies (FICs)

A Family Investment Company (FIC) is a popular vehicle for high-net-worth families in the UK to manage their wealth efficiently. A FIC is a private limited company that holds and manages the family's investments and assets. By using a FIC, families can structure their wealth to ensure tax-efficient transfers across generations while maintaining control over assets. 

👉 Dive deeper into how Family Investment Companies work in practice - read our full guide on FIC tax implications and wealth preservation.

Key Benefits of FICs:

• Tax Efficiency: FICs are subject to corporation tax, which is lower than personal income tax rates. Moreover, when a family member receives income from a FIC, dividends can be paid out at a lower tax rate than personal income. 

• Control Over Wealth Distribution: A FIC allows families to maintain control over wealth distribution and decision-making while minimising the tax impact on individual family members. 

• Inheritance Tax Planning: By gifting shares to family members, you can pass on wealth tax-efficiently and reduce potential inheritance tax liabilities. 

Strategic Use: For HNWIs, FICs can provide a flexible and structured way to manage investments, avoid excessive tax burdens, and keep wealth within the family.

Investment and Pension Schemes: Maximising Tax-Deferred Growth

A combination of tax-efficient investment and pension schemes is key for HNWIs looking to optimise long-term wealth. Both types of schemes offer significant tax relief and opportunities for growth. 

Investment Schemes:

• ISAs (Individual Savings Accounts): While the annual limit on ISA contributions is relatively low, the returns generated from investments within an ISA are free from income tax and capital gains tax. 

• Enterprise Investment Scheme (EIS): The EIS allows investors to receive substantial tax relief on investments in smaller, high-growth companies. HNWIs benefit from income tax relief of 30% on investments up to £1 million, as well as potential capital gains tax relief. 

• Venture Capital Trusts (VCTs): VCTs offer tax breaks for investing in smaller companies. Investors receive income tax relief on investments, as well as tax-free dividends and capital gains. 
  

Pension Schemes:

• SIPP (Self-Invested Personal Pension): A SIPP offers control over your pension investments and benefits from tax relief on contributions, as well as tax-deferred growth. SIPPs allow you to invest in a wide range of assets, including commercial property, stocks, and bonds. 

• SSAS (Small Self-Administered Scheme): A SSAS is similar to a SIPP but is more appropriate for business owners. It allows investments in company shares and loans to the business, providing tax-efficient growth and the opportunity to consolidate pension savings within the company. 
  

Business Asset Disposal Relief (BADR): Tax-Efficient Business Sales

Business owners who are selling their business can benefit from Business Asset Disposal Relief (BADR), which provides significant tax savings on the sale of qualifying assets. Formerly known as Entrepreneurs’ Relief, BADR allows you to reduce your capital gains tax liability on the sale of business assets. 

Key Benefits of BADR:

• Lower CGT Rate: BADR offers a reduced capital gains tax rate of 10% (set to increase to 14% in April 2025), up to a lifetime limit of £1 million. This is a considerable saving compared to the standard capital gains tax rates, which can go up to 28%. 

• Eligibility: To qualify for BADR, the business must be a sole trade, partnership, or limited company, and you must have owned at least 5% of the business for at least two years before the sale. 

• Tax-Deferred Strategy: If you’re planning to sell a business or any business assets, BADR provides a tax-efficient way to maximise your profits and reduce the tax burden. 
  

For HNWIs involved in business ownership, taking advantage of BADR is an essential strategy to reduce CGT on business sales or asset disposals. 

Offsetting Capital Gains Tax (CGT) with Losses: Reduce Your Tax Burden

Another effective strategy for HNWIs looking to reduce their CGT liability is offsetting gains with losses. The UK tax system allows individuals to use capital losses to offset capital gains, effectively reducing the tax payable on profits made from selling assets. 

How to Offset CGT with Losses:

• Realising Losses: You can offset capital losses against gains made on the sale of assets such as property, stocks, or business shares. If your losses exceed your gains in a tax year, the excess loss can be carried forward to offset gains in future years. 

• Tax-Efficient Selling: By strategically timing the sale of assets to realise losses, you can significantly reduce your overall CGT exposure. This is particularly important for HNWIs with substantial investment portfolios or multiple properties. 
  

Example Strategy: Suppose you sell a property or investment at a loss in a given year. If you have capital gains from other assets, you can offset those gains with the losses, potentially reducing or eliminating CGT for that year.

Charitable Giving: Reduce Tax While Supporting Causes You Care About

For HNWIs looking to support charitable causes, charitable giving offers the dual benefit of reducing tax liabilities while making a positive impact. The UK offers generous tax relief on charitable donations, making it an effective strategy for both reducing income tax and inheritance tax (IHT). 

Key Benefits of Charitable Giving:

• Income Tax Relief: Donations to registered charities are eligible for Gift Aid, meaning that charities can claim an additional 25% of your donation from HMRC. As a donor, you can also claim tax relief on the amount you donate, further reducing your taxable income. 

• Inheritance Tax (IHT) Relief: Donations made to charity can also reduce your IHT liability. If you leave at least 10% of your estate to charity, the IHT rate on the rest of the estate can be reduced from 40% to 36%. 

• Strategic Giving: Many HNWIs establish charitable trusts or foundations, allowing them to make tax-efficient contributions over time while maintaining control over how the funds are distributed. 

Charitable giving not only helps you reduce your tax liability but also allows you to leave a lasting legacy that aligns with your values and philanthropic goals.  

Additional Tax Strategies for High Net-Worth Individuals in the UK

• Tax-Efficient Investment Structures: Structuring your investment portfolio using tax-efficient vehicles such as offshore bonds or trusts can help mitigate tax exposure on income and gains. 

• Family Trusts: Setting up a family trust can provide significant inheritance tax savings and ensure the efficient transfer of wealth to future generations. Trusts can also offer flexibility in income distribution and asset protection. 

• Gifting to Family Members: By gifting assets to family members, you can reduce the value of your estate, which can lower inheritance tax liabilities. The annual gift allowance for gifts between individuals is £3,000 per tax year. 
  

Final Thoughts: Tax Planning for High Net-Worth Individuals in the UK

For HNWIs in the UK, strategic tax planning is essential for preserving wealth, minimising liabilities, and ensuring long-term financial security. By leveraging strategies, you can significantly enhance your tax efficiency and safeguard your wealth for future generations. 

It’s important to seek expert advice to tailor these strategies to your specific circumstances and ensure that you’re making the most of every tax advantage available. Consulting with a tax advisor who specialises in wealth management for High Net-Worth Individuals (HNWI) can help you optimise your financial plans and navigate the complexities of the UK tax system. 

At ASWATAX, we specialise in developing bespoke strategies for HNWIs, ensuring you maximise your wealth while minimising your tax liabilities. Contact us today to schedule a consultation and take the first step towards a more tax-efficient future. 

Meet Omar Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn. Book a call today to learn more about what Omar and ASWATAX can do for you.

*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.