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MoneyWeek - How to limit the tax bill from your Christmas bonus

Journalist: Marc Shoffman, Freelance

ended 16. December 2025

Hi,

I am writing a piece for MoneyWeek on how getting a Christmas bonus this year could push up your tax bill.

I am keen for tips on how to reduce your tax bill when the bonus comes in.

I know pensions are a popular one, are there any other tips? E.g could you opt for equity instead or do employers ever offer to split the payments? 

Kind regards

Marc

3 responses from the Newspage community

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Editor
Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
With Rachel Reeves scrapping many salary sacrifice benefits, it’s drawn attention to it and many employees will look to use this to shelter their bonus this Christmas before it’s taken away. There are a few tax perks for employees through flex benefits and these don’t just include pension payments (although that is probably the best). You could buy a bike, increase your life insurance or look to beat the queue at the GP surgery and get private medical. All can be sacrificed so you don’t just get a tax saving but your employer has a significant national insurance saving that they are usually keen to share with you.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
A £10,000 bonus pushes many earners from the 20 percent basic rate into 40 percent higher rate territory, while those already earning £100,000 face the notorious 60 percent effective rate as personal allowances disappear. The timing makes it worse. December bonuses often coincide with other year end payments, creating artificial income spikes that HMRC treats as permanent earnings progression rather than one off windfalls.

The pension contribution route remains the most powerful escape mechanism, allowing you to reclaim higher rate relief while building retirement wealth. A £10,000 bonus becomes £16,000 in your pension pot once you factor in basic rate relief and reclaimed higher rate tax.
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Luke James
Tax Director at Gravitate Accounting
Free shares or equity options are a potential route, though it’s rare for these to be offered instead of a cash bonus.

More commonly, they sit alongside bonuses for senior managers or directors as part of a wider remuneration package.

Free or discounted shares are treated as a benefit‑in‑kind and therefore boost taxable income at the point of award, but the valuation is often heavily discounted compared to their potential long‑term worth.

For executives in a growing business, this can be attractive: the upfront tax charge may be outweighed by future capital growth. Beyond the initial award, dividend income from those shares will add to taxable income, but this is typically taxed at dividend rates alongside the dividend allowance.

Pensions remain the most straightforward way to reduce the tax bill on a Christmas bonus, with personal contributions still offering strong benefits. Gift Aid can help but only if philanthropy is the goal.