It’s bonus season for millions of UK workers, but there’s a sting in the tail for a record 750,000 people who will see all or part of their bonuses taxed at rates of up to 60% - potentially losing more than half of their payout to HMRC.
The enormous deduction is due to the tapering rule that removes £1 of your £12,570 tax-free personal allowance for every £2 you earn between £100,000 and £125,140, when the tax-free allowance is effectively exhausted. From that point on, earnings are taxed at the top rate of 45%.
Fortunately, there are steps you can take to mitigate the size of the tax take and even earn some of that tax back.
I’m referring of course to diverting some of your bonus into your pension. Or at least the part of your bonus that will take you over the £100,000 threshold. That way, not only do you avoid the 60% hit, but you will also be rewarded with tax relief at your highest rate on the contributions.
In other words, if you divert £6,000 into your pension, the taxman will top it up to £10,000, although you will need to claim some of that top up with your tax return.
For those with self-invested personal pensions (SIPPs), who make their own investment decisions, the most important consideration then becomes what fund or shares to buy.
I regularly speak to financial advisers about where they’re seeing the best opportunities and the various investment trusts they are recommending to their clients. I’ve noticed a definite shift this year away from the US and towards UK-focused funds and also emerging markets, as investors look to profit from the weak US dollar. Also, globally diversified trusts that invest all around the world remain universally popular.
So, what trusts should you be using to squirrel away your bonus this year? The right choice will vary according to your age, goals and risk profile. I spoke to some financial planners for their recommendations.
Trusts for younger investors
Paul Chilver, director and financial planning manager at Birkett Long IFA, said: “When looking for investment trusts for younger investors, you can usually take a long-term investment timescale and with that in mind I have gone for a couple of investment trusts further up the risk scale.
“First is Scottish Mortgage. A truly global trust with substantial private company and technology exposure, it can be volatile but it has recovered well and the discount has narrowed significantly.”
Paul then suggested some emerging markets exposure. He said: “JP Morgan Emerging Market Dividend Income has its largest geographical exposure in China, Taiwan and South Korea and pays a dividend of over 3%”.
Tom Poynton, executive director at investment adviser Baron and Grant, recommends Mercantile Investment Trust, which focuses on UK mid and small-cap companies.
He said: ”Mercantile has comfortably outperformed its benchmark over the past decade and has also delivered 12 consecutive years of dividend growth, yielding around 3%. With UK mid and small caps currently trading at attractive valuations, the trust is available at a discount of around 10%, offering a compelling entry point for younger investors willing to back a UK recovery.”
Poynton’s other choice was Worldwide Healthcare Trust. He pointed to the tailwinds from ageing populations and pharmaceutical innovation, saying: “It has delivered average annual total returns on net asset value of over 13% since its launch in 1995 - a remarkable 30-year track record. It currently trades at a discount of around 7%, offering scope for this to narrow as performance recovers.”
Finally, Philippa Maffioli, senior advisor at Blyth-Richmond Investment Managers, suggested two global trusts: Alliance Witan and F&C Investment Trust.
She said: “Both give broad international diversification with strong management. The yield isn’t the main draw here, it’s a sensible core holding for long-term growth.”
| Fund | Size | Sector | 5-yr return | OCF |
| Scottish Mortgage | £12.8bn | IT Global | 11.5% | 0.31% |
| F&C Investment Trust | £5.8bn | IT Global | 84.0% | 0.45% |
| Worldwide Healthcare | £1.3bn | IT Biotechnology & Healthcare | 0.2% | 0.83% |
| JPMorgan Emerging Markets Dividend Income | £483.7m | IT Global Emerging Markets | 69.4% | 0.96% |
| JPM The Mercantile Investment Trust | £1.7bn | IT UK All Companies | 33.2% | 0.50% |
| Willis Towers Watson Alliance Witan | £4.6bn | IT Global | 63.7% | 0.47% |
Source: FE Analytics
Middle-aged investors
Tom Poynton likes Murray International Trust and Temple Bar Investment Trust for this age group. Murray International is a global fund that has delivered real dividend growth in 15 of the past 20 years and is an AIC Dividend Hero with 21 consecutive years of dividend increases.
Poynton said: “Temple Bar Investment Trust is a value-focused UK equity trust that delivered a standout 33.9% NAV return in 2025. Managers Ian Lance and Nick Purves hunt for undervalued companies in the FTSE 350, and the trust has moved to a small premium reflecting renewed optimism towards UK equities. With a yield of around 4%, it offers a cost-effective way to access the UK market, which remains significantly cheaper than its US counterpart.”
Chilver also suggested focusing on the growth potential of UK equities with Fidelity Special Values. He said: “As the name suggests it looks for unloved companies. The trust has produced excellent returns in recent years and the manager has stuck to his guns on his investment approach.”
Maffioli suggested emerging markets for this cohort. She said: “I’d go for emerging markets with Templeton Emerging Markets Investment Trust.
“Emerging markets are an important diversifier in a portfolio and Templeton is very well managed, with a decent yield alongside the growth potential.”
| Fund | Size | Sector | 5-yr return | OCF |
| Murray International Trust | £20.239m | IT Global Equity Income | 120.0% | 0.59% |
| Fidelity Special Values | £13.851m | IT UK All Companies | 117.0% | 0.68% |
| Franklin Templeton Emerging Markets | £24.689m | IT Global Emerging Markets | 64.9% | 0.96% |
| Temple Bar | £11.047m | IT UK Equity Income | 142.1% | 0.62% |
Source: FE Analytics
Trusts for older investors
As investors close in on retirement, they will usually want to take less risk or focus on generating an income – possibly both.
For this age bracket, Chilver suggested Personal Assets Trust, which focuses on preserving capital, whatever the market conditions. He said: “The trust has a large exposure to gold and its equity holdings are in well-known, global brands.”
To generate an income, he suggested City of London Investment Trust, which produced total share price returns of around 26% over the past year and has raised its dividend payments every year for 59 years, with a current dividend yield of 4%.
Poynton suggested Merchants Trust. He said: “It is one of the AIC's elite dividend heroes, and invests primarily in higher-yielding large UK companies. It currently yields around 5% with quarterly payments. The dividend has grown at an annualised 6.4% over the long term, consistently outpacing inflation. For retired investors seeking dependable, inflation-beating income, Merchants is hard to beat.”
He also suggested HICL Infrastructure, which invests in a range of infrastructure assets. He said: “It offers a diversified core infrastructure portfolio of hospitals, roads, schools, and utilities, with inflation-linked cash flows providing a natural hedge for retirees. The trust yields around 7%, and the dividend has returned to growth. Shares trade at a discount of around 23%, with recent disposals completed at or above book value, suggesting the underlying assets are worth considerably more than the share price implies.”
Maffioli recommended two trusts for those nearing retirement, focusing on income but avoiding putting all your eggs in one geography – using Merchants Trust and Murray International Trust.
“Both offer attractive yields. Merchants is UK-orientated and Murray is global, so together they diversify income sources and reduce reliance on any single market,” she said.
| Fund | Size | Sector | 5-yr return | OCF |
| Allianz Merchants Trust | £895.8m | IT UK Equity Income | 85.8% | 0.59% |
| City Of London | £204.2m | IT Unclassified | 26.3% | 0.00% |
| HICL Infrastructure | £2.3bn | IT Infrastructure | -1.8% | 1.14% |
| Personal Assets | £1.7bn | IT Flexible Investment | 33.3% | 0.67% |
Source: FE Analytics
Two points to remember after all of this. First, you need to get your pension contributions in before the end of the tax year on 6 April to take advantage of this year’s pension allowance of £60,000. Anything above this may not qualify for tax relief.
Second, remember that investing is a long-term commitment, for a minimum of five years or preferably ten or more. That will give you time to ride out any ups and downs in the market, which although they might be stressful, you should do your best to ignore.
Annabel Brodie-Smith is communications director at the Association of Investment Companies (AIC). The views expressed above should not be taken as investment advice.