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A 60% tax rate?

We are warning tax payers about a hidden 60% tax rate.

Alan Rolfe, Tax Manager, said “Our clients are aware by now that a new 50% tax rate is coming in for earnings above £150,000 per year, but what some people may not realise, is additional restrictions on personal allowances introduced in the 2009 Budget mean there is a small income band where the effective tax rate is 60%.

“Because those earning over £100,000 are set to gradually lose their personal allowances on a sliding scale, at a rate of £1 for every £2 of extra income, anyone earning above £112,950 will no longer receive any personal allowance. For anyone earning between £100,000 and £112,950, the restriction results in an effective tax rate of 60%”.

Since this income band is relatively narrow, it may make sense for individuals to adjust their income below £100,000, in order to keep hold of their personal allowance and reduce their tax liability. This could be done through making extra pension contributions or charitable donations, which would attract tax relief, boosting the value of the contributions.

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