Income Tax Is Changing
New 50% tax rate
The top rate of Income Tax will increase to 50% from April 2010 (42.5% for dividend income) for individuals whose income exceeds £150,000.
Income in excess of the personal allowance and up to the basic rate band will continue to be taxed at 20%, and income between the basic rate band and £150,000 will be taxed at 40%.
Loss of personal allowance
In addition, from April 2010 the tax free personal allowance will be restricted for individuals whose income exceeds £100,000.
The restriction will operate on a sliding scale and the allowance will be reduced by £1 for every £2 of income received over £100,000. If for example the personal allowance is say £6,600, the personal allowance would be reduced to zero when the individuals net income reaches £113,200.
Tax relief on pension contributions restricted
From April 2011 tax relief on pension contributions will be restricted for individuals with relevant income of £150,000 or more.
The relief will be tapered away until individuals with income in excess of £180,000 will be restricted to basic rate relief.
In addition, anti-forestalling measures have already been put in place to prevent large additional contributions being made now in order to benefit from the higher rate relief before April 2011.
We have a number of strategies which could help you to reduce the impact of these changes. Please contact us for further information.