Bonus season is here, and with it comes a familiar set of questions. As annual bonuses are confirmed and paid – often in the final months of the tax year – many people naturally start asking how to make the most of what can be a significant, one-off payment.
Unlike regular income, a bonus isn’t usually earmarked for day-to-day spending. That makes it a useful opportunity to review tax, allowances and longer-term planning decisions – particularly with the tax year end approaching on 5 April. It can also mean there’s time pressure, as some options need to be considered before the bonus is paid.
When people ask how to maximise a bonus, they’re rarely looking for anything clever or complex. They want to understand what choices are available, which ones are time-sensitive, and how to avoid missing straightforward planning opportunities. Here’s how to approach it in a structured way.
First: understand how your bonus will be taxed
Most bonuses are paid through PAYE and taxed in the same way as salary. That means:
- Income tax is deducted at your marginal rate
- National Insurance usually applies
- The bonus may be taxed partly or entirely at a higher rate than your regular income
A bonus can also push your total income for the tax year over key thresholds. Depending on your circumstances, this may affect:
- The rate of tax you pay on part of the bonus
- Eligibility for certain allowances
- Whether additional charges apply
This is why it’s often helpful to look at your full-year income position, not just the bonus in isolation. Planning based on the net figure – rather than the headline amount – avoids decisions that later need to be revisited.
Bonus sacrifice: one of the few decisions that must be made in advance
If your employer offers it, bonus sacrifice (sometimes called salary sacrifice) can be one of the most effective ways to use a bonus from a tax perspective.
In simple terms, you agree to give up some or all of your bonus in return for an employer pension contribution. Because the bonus is never paid as income:
- Income tax is not charged on the sacrificed amount
- Employee National Insurance is not paid on it
- The full amount goes into your pension
The key point here is timing. This decision usually needs to be made before the bonus is paid, and often well before the end of the tax year. Once the bonus has been paid as income, this option is no longer available.
Whether bonus sacrifice makes sense depends on:
- How much access you need to the money
- Your existing pension position
- Whether you have available pension allowance
It can be very effective, but it’s not appropriate for everyone – particularly if flexibility is important.
Pension contributions at tax year end
Where bonus sacrifice isn’t available, bonuses are often used to make additional pension contributions before the end of the tax year.
This can be particularly relevant if:
- A bonus pushes income into a higher tax band
- You haven’t fully used your pension allowance for the year
- You have unused allowance from previous tax years
Unlike bonus sacrifice, pension contributions can usually be made after the bonus has been paid. However, the tax relief mechanism is different, and the overall outcome can vary depending on your circumstances.
Pensions can be a powerful tax-year-end planning tool, but they involve committing money for the longer term. It’s important to balance tax efficiency with access and cash-flow needs.
Using ISA allowances before they reset
ISAs are often considered alongside pensions, particularly where flexibility matters.
Each tax year comes with a fixed ISA allowance, which cannot be carried forward if unused and resets after 5 April. Using a bonus to fund an ISA can:
- Shelter future investment growth from tax
- Create a pot of money that remains accessible
- Complement longer-term pension planning
ISAs don’t offer upfront tax relief, but they do provide certainty around access and tax treatment. For many people, they play an important role in balancing efficiency with optionality.
Higher-risk tax-efficient investments
Once mainstream allowances have been considered, some people look at higher-risk tax-efficient investments at tax year end. These can offer attractive tax incentives, but they also:
- Involve higher investment risk
- Usually require longer holding periods
- Are only suitable in specific circumstances
These options should never be seen as a default destination for a bonus. They sit firmly at the more specialist end of planning and should only be considered as part of a wider, diversified strategy.
How to prioritise decisions
A useful way to think about bonus planning is in layers, rather than trying to choose a single destination:
- What must be decided before payment?
(For example, bonus sacrifice) - What can be reviewed after payment but before tax year end?
(Such as pension contributions or ISA funding) - How much flexibility do you want to retain?
(Not all efficiency comes from locking money away)
This sequencing helps avoid rushed decisions and makes it easier to see where trade-offs sit.
Porta’s take
A bonus can create genuine planning opportunities, but only if it’s considered in context. Tax efficiency matters, but so does access, timing and how decisions fit with the rest of your financial life.
At Porta, we approach bonus decisions as part of wider financial planning rather than a one-off exercise. That means understanding which choices are time-sensitive, which can be revisited later, and how everything fits together over the longer term.
If you want help working through the options – or simply want reassurance that you haven’t missed anything obvious – we’re here to provide clear, practical advice grounded in your individual circumstances.
Important information
This article provides general information only and does not constitute personal financial advice. The information is based on our understanding of current regulations, which may change in future. Decisions about your finances should always be made based on your individual circumstances. If you’re unsure about the suitability of any course of action, you should seek regulated financial advice. The Financial Conduct Authority does not regulate tax planning, estate planning, trusts or wills. The value of your investments can go down as well as up, so you could get back less than you invested.
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