How can high earners and business owners reduce tax over the long term?

Neil starts by looking at a client’s life and future plans.

Someone hoping to retire early could have very different needs from somebody who wants to build their business or continue working for another 15 years. You might want to move home, help your children or preserve more of your wealth for future generations.

“You have to start with the client and the life they want to live,” Neil says. “Once you understand that, you can start to understand what they want their money to do, and then you can look at the most tax-efficient way of helping them achieve it.”

That matters because some tax-efficient options involve giving up access to your money for a period of time. Pensions are an obvious example. They can offer valuable tax advantages, but the money will generally be inaccessible until minimum pension age.

So, while tax efficiency is obviously important, it’s also worth considering when you’ll need to access your money and how much flexibility you want to keep.

Cashflow modelling can help put those decisions into context.

Neil uses it to look ahead at a client’s lifetime: their objectives, likely income, expenditure and major financial commitments. This could include retirement, moving home, helping family, major purchases or other planned spending. It can also include a number of ‘what if’ scenarios, to help give clients confidence that their plan can flex if something unplanned crops up.

“Cashflow modelling helps us understand what the client is likely to need and what might genuinely be surplus. Once we know that, we can start looking at where that money could go.”

For a higher earner, that might help establish how much income or capital could potentially be directed towards pensions or investments without affecting other goals.

For a business owner, it could also help answer how much money they genuinely need to take out of the company and how much could remain within it.

If there’s surplus income or capital, there may then be opportunities around pensions, investments or estate planning. The modelling can help test whether those decisions are affordable alongside everything else you want to do.

The missed opportunities won’t be the same for everyone.

For higher earners, Paul and Neil see people missing opportunities around pensions, investments, or simply allowing large cash balances to build up without a longer-term plan.

Business owners may have additional opportunities through the company, including employer pension contributions, business-funded life insurance or different ways of taking money from the business.

Neil says: “They might have an accountant, investments and pensions, but nobody has looked at the direction they’re travelling in.”

Paul also sees clients where tax has simply been dealt with after the event: “Sometimes you meet somebody who has been paying a lot of tax for years and everything has just been dealt with after the event. The accounts are prepared, the tax return is done and the tax is paid, but nobody has really asked what could be done differently.”

That doesn’t necessarily mean somebody needs a more complicated strategy. But regular reviews can help identify opportunities earlier, while there’s still time to act on them.

This can become more important as your income or wealth grows.

For a higher earner or investor, that might mean thinking earlier about retirement, how investments are structured or how wealth could eventually pass to family.

For a business owner, it could also mean reviewing the company’s ownership or wider structure before significant value has built up.

Neil says what matters is what the client ultimately wants to achieve with their wealth: “If a business owner wants to take all their money out and spend it, that might call for one approach. If they’re more focused on Inheritance Tax and succession planning, it could be quite different. More often than not, it’s a blend of the two”.

Making changes can become more complicated once assets or a business have grown substantially in value, so starting those conversations earlier can leave more options open.

As wealth grows, decisions about tax can start to affect what eventually happens to your estate.

You might want to spend most of your wealth yourself, help family during your lifetime or preserve more for future generations. Each of those priorities could point towards a different approach.

Neil explains: “You can solve one tax issue and create another if you’re not looking at the whole picture.”

For business owners, for example, assets held within a trading company may qualify for Inheritance Tax relief in some circumstances. Taking money out of the company could change how that wealth is treated once it forms part of your personal estate.

The same principle applies more widely. A decision that looks tax-efficient today might affect how much money you can access later, how your assets are structured or how easily wealth can eventually pass to your family.

That’s why tax planning and estate planning often need to be considered together, particularly as your wealth grows.

Paul and Neil tend to start with different parts of a client’s finances.

Paul might have detailed knowledge of income, tax liabilities, business profits and, where relevant, the company’s ownership structure.

Neil may know more about pensions, investments, spending plans, family circumstances and longer-term goals.

Paul uses pension contributions as an example: “We might identify that making pension contributions could reduce the company’s tax liability. But that’s then where Neil needs to look at whether the client actually needs access to that money and whether it works within their wider financial plan.”

The same principle applies to somebody who isn’t a business owner. An accountant might identify a tax-planning opportunity based on earnings or investments, while the financial planner can consider whether it fits with the client’s retirement plans, spending needs and other assets.

It also works the other way round. If Neil knows that a client wants to retire, move home, sell a business or transfer wealth to the next generation, that information could affect tax or investment decisions being made several years earlier.

You can also read more about why your accountant should partner with your financial planner

Some clients first seek advice after something has already happened.

They may be paying more tax than expected, holding large amounts of cash without a plan or approaching retirement without having considered how their different assets will work together.

A business owner might also have a company or shareholding structure that was set up years ago and has never been reviewed.

Paul says an accountant’s role should go further than reporting on the previous year: “You need an accountant who is going to look ahead and give strategic advice, not somebody who is effectively just bookkeeping and reporting what has already happened.”

Financial planning takes a similar forward-looking approach, considering how today’s decisions might affect your options in future.

And some situations may need input from more than one profession. Neil gives trusts as an example: a solicitor might prepare the legal documentation, the accountant could deal with tax reporting and the financial planner may advise on the investments held within it.

“Nobody can provide every part of the solution,” Neil says. “The important thing is having a team of professionals who understand each other’s roles and are prepared to work together to benefit the client.”

Paul agrees: “None of us has the complete skill set. If we’re working together, the client gets the benefit of the right expertise without having to keep explaining the same thing to different people.”

Long-term tax planning is likely to involve a series of decisions rather than one action.

Those decisions might come when your income rises, when your investments grow, when you have surplus cash, when your business builds significant value or when retirement and succession plans start to take shape.

It can be useful to ask:

• What do I want my wealth to help me achieve?
• How might my income and assets change over the next few years?
• What money might I need access to?
• Are there opportunities I’m missing through my business?
• Could a tax-saving decision today restrict my choices later?
• Am I starting these conversations early enough?

Tax will be part of those decisions, but it’s only one part. The aim is to make decisions that support what you want to do with your money over the longer term, rather than looking at each tax year in isolation. That’s why it helps to have a team of experts on your side, working together in your best interests.