Know the Tax System

This is not financial advice.

Rich people know how tax works, and how to minimise their tax burden.

You should pay your fair share of tax, but not more. You don’t need to martyr yourself and pay more tax than is required. There are some tax efficient things you should do.


Pension contributions are tax efficient. You can claim back tax on pension contributions. If you pay income tax at a rate above 20%, and your pension provider has relief at source for the first 20%, you can claim additional tax relief on your private pension contributions made from post-tax income.

If you complete self assessment, you can claim when you file your return. If not, you can ring HMRC and get your tax code changed to include this extra tax relief.

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Salary sacrifice

Salary sacrifice into a pension is even more tax efficient than pension contributions from post-tax income because you are not paying National Insurance contributions on that income.

Income tax is tiered

Commonly people think that crossing an income tax threshold will earn them less money. This isn’t true, because the income tax bands are tiered.

For the current tax year 6 April 2023 to 5 April 2024.

Band Taxable income Tax rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate over £125,140 45%

If you cross an income tax band threshold only the amount more than that threshold will be taxed at the higher rate and not the entire income amount.

60% tax trap

The standard personal allowance (tax-free) is £12,570. If you earn over £100k / year in taxable income, your personal allowance is cut by £1 for every £2 above £100k.

Earning £101,000 will cost you £600 more than if you earned £100,000. So you get just £400 that extra £1000 earnings. An effective tax rate of 60%. You can make pension contributions for the amount over £100k to avoid this problem.