The 50% income tax rate is here – can you avoid it?

27th Apr 2010

 

Firstly, a brief explanation of the new regime. Two key changes were introduced last month: 
  • The personal allowance is withdrawn on a tapered basis for individuals with income between £100,000 and £113,000. This means that the effective rate of income tax for individuals with income in range is 60%.
  • The income tax rate for individuals with taxable income of over £150,000 is 50%.
 
Therefore, there are two particular groups of individuals who may wish to take action following the introduction of these changes – those with income of £100,000 to £113,000, and those with income over £150,000.
 
There are many seemingly simple ways in which such individuals can reduce their income, including:
 
  • Paying pension contributions;
  • Making charitable donations under the gift aid scheme;
  • Transferring income-producing assets to a spouse, adult children or a company;
  • Investing in assets which produce capital gains (taxed at 18%) rather than income;
  • Considering investments in tax-advantaged schemes such as the Enterprise Investment Scheme or Venture Capital Scheme.
 
However, do be careful. There are many issues to consider in making any changes to your circumstances, including the costs of other taxes (such as capital gains tax, inheritance tax and stamp duty). Obviously there may also be an effect on your disposable income or lifestyle. Therefore any changes must be very carefully considered in order to ensure that they are right for you.
 
This article provides only a broad summary of the rules, and a limited number of ideas to solve the problem, and cannot be relied on. Specific advice should always be obtained about your own circumstances. Emma Glover, Tax Partner, can be contacted on 0191 411 2468 or emma.glover@rowlandsaccountants.co.uk.

Author: Emma Glover (emma.glover@rowlandsaccountants.co.uk)

« Back to Article List