Four out of ten respondents to the FT’s annual bonus survey say high personal taxation rates are tempting them to leave the UK, despite their expectations of a bumper bonus season.
A record 55 per cent of respondents to our survey — now in its fifth year — said they expected their bonus this spring to be bigger than the previous year, with nearly one in three readers (31 per cent) in line to receive six or seven-figure sums.
The poll also asked readers if high personal tax rates were tempting them to leave the UK. Of those who responded, 41 per cent admitted they were considering it, with a further 12 per cent saying they could be in the future, perhaps to retire abroad. Yet 47 per cent of respondents said they had no plans to leave.
Recent changes to bonus deferral periods for senior banking staff have led to some eye-watering payouts, but readers stuck in the so-called £100,000 tax trap expressed frustration about frozen tax thresholds taking large bites out of their bonuses.
“My taxable income has been £99,999 for seven years now, and I’m sick of it,” said one reader, who yet again intends to sacrifice all of their bonus straight into their pension to keep their pay below £100,000 and avoid a 62 per cent marginal tax rate.
Another reader in the same position said that moving to the Middle East was “a repeat conversation in our household” as the added impact of student loan repayments took the marginal tax rate on his bonus to 71 per cent. “On paper, we look like relatively high earners, but we don’t feel like we get to enjoy the fruits of that labour,” said another.
Despite the largesse traditionally associated with bonus season, only 11 per cent of readers said they intended to spend their bonus money this year — an all-time low in the history of the FT bonus survey — with the majority preferring to invest their cash as tax-efficiently as possible.
Nevertheless, bonus season this year looks set to be a vintage one, with UK bank bosses’ pay hitting its highest level in a decade as bank share prices surge and regulatory restrictions are relaxed.
The UK’s removal of banker bonus cap requirements in October 2023 means annual bonuses are no longer restricted to a maximum 200 per cent of salary. But across banking, finance and other professional sectors, this has resulted in a shift towards performance-related pay making up a greater proportion of total compensation packages.
This year’s poll, answered by 1,100 readers, found widespread evidence of salary restraint, with only one in three reporting an above-inflation increase to their basic pay. Four in 10 respondents had received a below-inflation increase, and 4 per cent reported their base pay had been cut.
“Banks will always prefer to pay lower fixed costs in the form of salaries and instead pay higher bonuses, as it de-risks their business, which means bonus pots look set to be bigger this time around,” says Susannah Streeter, chief investment strategist at Wealth Club. “Protecting bonus cash from the taxman is therefore an even bigger priority this year.”
The majority of readers [54 per cent] said they still intended to take the most tax-efficient route and invest the bulk of their bonus, matching the numbers who said they would do so in last year’s bonus survey.
The popularity of stocks-and-shares Isas continues to grow, with a record 62 per cent of readers intending to invest all or part of their bonus in the tax-free accounts, up from 55 per cent in last year’s poll. In their more detailed comments, many readers said they intended to use their own £20,000 allowance and invest a further £20,000 for their spouse.
Pensions have clung on to the number two spot, with readers seeking to maximise salary sacrifice benefits ahead of restrictions announced at the last Budget that apply from 2029. However, the annual allowance taper means that the highest earners (earning over £360,000) see their pension investments restricted to just £10,000; one factor driving the increased popularity of Isas and general investment accounts (GIAs) in recent years.
“Worries about the future tax treatment of pensions is also turning people off,” says Jason Hollands, managing director of wealth manager Evelyn Partners, noting inheritance tax changes that will apply to pensions from 2027.
He adds that the flexibility of accessing stocks-and-shares Isas is an added attraction. “Tax rates going up on dividends in April, and on savings and rental income in 2027 offer more reasons why people are investing their bonus money into Isas as fast as they can.”
Although it is now possible to gain crypto exposure within an Isa wrapper, the number of readers who said they intended to use part of their bonus to buy cryptocurrencies has halved in the space of a year to just 3 per cent of those polled. However, 6 per cent of readers said they intended to invest in gold or precious metals (a question not asked in previous years).
Although some chunky bonuses are set to be paid this spring, only 3 per cent of readers were racing to invest in venture capital trusts (VCTs) before tax reliefs are restricted further in the new tax year, and appetite for Enterprise Investment Schemes (EIS) and Seed EIS (SEIS) has also fallen.
“If you use all these allowances in one year, you could actually invest up to £2.4mn in one go and get up to £760,000 back in upfront income tax relief,” says Streeter. “In addition, EIS allows you to defer capital gains you’ve made on other investments like some shares, while SEIS allows you to wipe out half of your capital gains tax due from other investment sales.”
However, this year’s survey also showed a significant swing back towards saving, with 20 per cent of respondents saying they had earmarked bonus money for future goals, up from 15 per cent last year. Saving up for a house purchase, or preparing to pay off a lump sum on a mortgage were the top two answers — perhaps unsurprisingly, since over 1.8mn homeowners are set to roll off cheap fixed rate mortgages this year.
As with last year’s survey, some readers said they were saving to start a family or to fund the cost of fertility treatment or future childcare costs. One reader working in financial services noted the “demotivating” impact of the £100,000 tax trap when the high cost of renting in London and south-east England makes it harder to save for a property deposit. “I worry it may be too late for me to start a family by the point my salary jumps above this squeeze point,” she said.
On the issue of staying in the UK or moving overseas, analysis of readers’ detailed responses showed that younger respondents without children were more likely to want to quit the country. Typically, they were stuck in the “tax trap”, earning between £100,000-£125,140 and paying a 62 per cent marginal rate of tax, and knew that they would lose entitlement to “free” childcare hours if they started a family.
One reader working in asset management, who has been investigating a move overseas, said: “£100,000 isn’t a big salary any more, but the UK tax system still treats it like it is.” Another reader in venture capital, about to have their first child, said: “It feels insane that I am better off earning £99,999 than, say, £120,000.” They described the £100,000 cliff edge at which childcare benefits are lost as “punitive”.
Many of those resigned to staying still complained about high tax rates, but said family circumstances were the chief barrier to moving. One reader confessed: “I cannot leave my lovely garden.”
A consultant in their late twenties summed up the views of many younger readers who said they were considering working abroad. “I was promoted last year to a role that is harder, more stressful and more important to the firm, but the £100,000 tax trap decimated my pay rise to the extent that I hardly feel better off than before my promotion,” they said.
“My end-of-year bonus will now be taxed at a ‘normal’ 45 per cent rate given I’ll have cleared the tax trap, but high marginal tax rates are a major disincentive. A lot of my friends and peers have moved abroad recently, mainly to the US and Australia, and it looks increasingly tempting.”
Other respondents said they had cut their hours to avoid the tax trap. “I went down to four days a week because having 20 per cent more free time was worth more than getting 38 per cent of the marginal pound,” said one reader working in the media industry who is looking to move to Europe or Australia with their partner’s job within the next couple of years.
Judging by some readers’ detailed responses, expats working in London are a particular flight risk. “Ten years ago, London was a destination, now it is a compromise,” said one European national working in private equity. Some readers working in Scotland said they were contemplating a move across the border to England to escape higher Scottish taxes.
As for destinations, the Middle East was most frequently mentioned in readers’ detailed comments, although it wasn’t popular with everybody. “I’d happily pay tax not to live in Dubai,” said one.
Many readers said they were keen to relocate to the US, Singapore or European capitals — including Dublin — with some hoping to secure a secondment to an overseas office through their firms. However, if readers nearing retirement age named a destination in their response it was more likely to be Italy or Spain.
High taxes weren’t the only issue — the dismal British weather was another. “As tempted as I am to move back to Australia, it would be for the beach,” said one reader working in public relations, adding: “We get taxed up the wazoo equally there too.”
For many, the next trip abroad is likely to be a foreign holiday. Although only 11 per cent of readers said they intended to splash some of their bonus cash, holidays remained the top answer (18 per cent) followed by home improvements (12 per cent). And while higher taxes may be getting them down, several readers confessed they would hand over their bonus money to a cosmetic dentist. As one put it: “This year, I’m investing in a new smile.”
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