Personal finance -
How to maximise your bonus
With many professionals receiving their bonus in the first quarter of the year, we look at how to make the most of the additional income. Including the tax-efficient options.

For many professionals in the UK, January to March is bonus season. Whether it is a year-end bonus or performance-based reward, you may be wondering about how to make the most of this additional income.
One of the most common questions is how to be as tax efficient with a bonus as possible. But it is also worth thinking about longer term planning, and actually enjoying it.
A mistake we see people making is not taking advice about their bonus. This could result in choosing a risky investment or over contributing to your pension and missing out on tax relief.
In this article we look at some of the options for your bonus. If you are an Arbuthnot Latham client, get in touch with your banker to see if they can offer their expertise.
1. Invest it – pensions, ISAs, and more
Investing a bonus presents some of the most effective ways to reduce your tax burden:
- Maximise pension contributions: If you pay your bonus into a pension, you should receive income tax relief. If you can do so via salary sacrifice, you could save National Insurance on it too. Check with your employer to see if they offer a bonus sacrifice scheme. Along with saving tax on the bonus, putting it into a pension may lower your total salary, which could keep you under certain tax thresholds and allow you to retain child benefit tax relief. Of course, you won’t be able to access your pension until you are 55 (rising to 57 from 2028) but your money should grow while it is locked away. You do need to be aware of exceeding the limit on your pension allowance, although you may be able to carry forward unused allowances from years when you didn’t use it in full. If a bonus is likely to exceed your pension limit, there are other tax-efficient options, including…
- …Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS): VCTs and EIS were launched to encourage investment in small, innovative companies. They do this by providing several tax incentives. For example, EIS offers 30% income tax relief, gains on investments are capital gains free, and loss relief. However, these investments can be risky and are not right for everyone. If you are thinking of allocating your bonus to one, it is worth getting expert advice. This is something we can help with at Arbuthnot Latham.
- ISAs: Individual Savings Accounts (ISAs) offer tax-free growth on investments. The annual ISA allowance is £20,000, although if you do put some or all of your bonus in an ISA, it would be going in after you’ve already paid income tax and National Insurance.
- GIA: If you have already utilised your ISA allowance, you can invest in companies and funds with a General Investment Account. If you do make withdrawals, you may have to pay capital gains tax.
2. Debt repayment
Using your bonus to pay down high-interest debt can be a smart move. Reducing or eliminating debt not only improves your financial health but also frees up cash flow for other investments and expenses. You may want to considering paying off credit cards or loans, but it is worth getting advice if you are considering other debt, such as a mortgage.
3. Build an emergency fund
An emergency fund is an important part of financial planning. Aim to have at least three to six months' worth of living expenses saved in an easily accessible account. This fund can provide a safety net in case of unexpected expenses or financial setbacks.
4. Enjoy life
While it's important to be prudent with your bonus, you shouldn’t be afraid to enjoy the fruits of your labour. Consider spending it on:
- Family Holidays: Take your family on a memorable trip to create lasting memories and give yourself a well-deserved break.
- Personal Indulgences: Whether it's art, a luxury item, a course to learn new skills, or a home renovation, treating yourself can be a rewarding way to use your bonus.
5. Gifting and estate planning
Finally, consider how your bonus can be used to benefit others and plan for the future.
Some of the options may also help reduce inheritance tax, which you may be starting to think about if you’re towards the end of your career. Why not consider:
- Gifting to family: You can gift money to family members, which can be particularly useful for helping children or grandchildren with education or housing costs. Gifts that fall within your annual exemptions, or those made at least seven years before you die, are usually not subject to inheritance tax.
- Estate planning: Use your bonus to fund trusts or other estate planning tools that can help ensure your wealth is passed on according to your wishes.
- Charitable donations: Donating to charity can provide tax benefits and support causes you care about.
Further reading
Wealth Management
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Wealth Planning
Your goals and ambitions are unique to you and we want to help you get there. Whatever your future holds, having a plan in place means you can enjoy today knowing tomorrow is under control.
Author -

Paul Clifton, FPFS
Chartered Financial Planner, Director – Wealth Planning
Paul is a trusted Wealth Planner, who has built a strong reputation for helping clients identify and achieve their life goals, while maintaining the highest standards of personal service. In addition to helping clients in the West of England and South Wales, he is responsible for developing and managing the regional Wealth Planning team at Arbuthnot Latham.
The aim is to deliver professionalism, experience and honesty. Our bespoke solutions cover wealth/tax structuring, estate planning, retirement planning and financial protection. In addition, we work seamlessly with our colleagues to provide investment management, private and commercial banking services.
Paul has over 20 years of industry experience advising individual and corporate clients. He joined Arbuthnot Latham in July 2020 having previously worked for Hargreaves Lansdown and Chase de Vere. Paul is a Fellow of the Personal Finance Society and a Chartered Financial Planner.
DISCLAIMER
This communication should be considered a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It is for information purposes only and does not constitute advice, a solicitation, recommendation or an offer to buy or sell any security or other investment or banking product or service. You should seek professional advice before making any investment decision. The value of investments, and the income from them can fall as well as rise, and may be affected by exchange rate fluctuations. Investors could get back less than they invest. Past performance is not a reliable indicator of future results. The tax treatment of investments depends upon individual circumstances and may be subject to change.
The contents of this communication are based on opinions or conditions as at the date of writing and may change without notice. To the extent permitted by law or regulation, no warranty of accuracy or completeness of this information is given and no liability is accepted for its use or reliance on it.