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Jun 26
2009
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That seems to have been the message of the latest Budget with the new 50 per cent income tax rate and a number of proposed changes to pension payment relief aimed at individuals with income over £150,000.
In addition anyone earning over £100,000 will see their personal allowances tapered away by £1 for every £2 over £100,000 earned, such that persons receiving income over £112,950 will have no personal allowances at all.
The new 50% income tax rate, the highest of any major economy in the developed world, will apply from 6 April 2010 as will the reduction in personal allowances meaning that the effective rate of income tax on income between £100,000 and £112,950 will be an eye-watering 60 per cent!
However, how much will the new 50 per cent tax rate actually generate for the Government coffers? Astonishingly, even the Government seems to think that the amount of tax it will raise will be negligible with Treasury figures revealing that they expect 69 per cent of those liable to pay the tax will find some ways of avoiding it.
The Institute for Fiscal Studies went even further and stated that the rises may not result any increase in tax takings as those individuals affected may decide to leave the country or retire early.
It said that those who stayed in the system would look for ways to reduce their taxable income by working less, contributing to a tax-free pension or converting it into other types of earnings which are taxed at lower rates.
Our own experience since the announcement of the 50 per cent tax rate and the restrictions on pension contribution reliefs certainly bears out the Institute for Fiscal Studies’ view as there has been a marked increase in interest from clients at looking at ways of reducing their taxable income below the thresholds that the new measures will apply from.
We have been able to advise them of a number of methods in which income can be sheltered from tax completely or how pension contributions can be made without falling foul of the new rules saving the clients significant amounts of tax immediately and also moving forward.
In addition anyone earning over £100,000 will see their personal allowances tapered away by £1 for every £2 over £100,000 earned, such that persons receiving income over £112,950 will have no personal allowances at all.
The new 50% income tax rate, the highest of any major economy in the developed world, will apply from 6 April 2010 as will the reduction in personal allowances meaning that the effective rate of income tax on income between £100,000 and £112,950 will be an eye-watering 60 per cent!
However, how much will the new 50 per cent tax rate actually generate for the Government coffers? Astonishingly, even the Government seems to think that the amount of tax it will raise will be negligible with Treasury figures revealing that they expect 69 per cent of those liable to pay the tax will find some ways of avoiding it.
The Institute for Fiscal Studies went even further and stated that the rises may not result any increase in tax takings as those individuals affected may decide to leave the country or retire early.
It said that those who stayed in the system would look for ways to reduce their taxable income by working less, contributing to a tax-free pension or converting it into other types of earnings which are taxed at lower rates.
Our own experience since the announcement of the 50 per cent tax rate and the restrictions on pension contribution reliefs certainly bears out the Institute for Fiscal Studies’ view as there has been a marked increase in interest from clients at looking at ways of reducing their taxable income below the thresholds that the new measures will apply from.
We have been able to advise them of a number of methods in which income can be sheltered from tax completely or how pension contributions can be made without falling foul of the new rules saving the clients significant amounts of tax immediately and also moving forward.
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