From April 2011, the Government is lowering the 40% higher rate band from £37,401 of taxable income to £35,001, to ensure high earners do not benefit from the £1,000 increase in the personal allowance. National Insurance will also rise by 1%.
Furthermore, those earning over £100,000 like you will lose their personal allowance at a rate of £1 for every £2 of income in excess of this band. And worst of all, income in excess of £150,000 will be taxed at the Additional Rate of 50%. You’ve mentioned that you employer gives you benefits, so this may well apply to you.
High earners have been one of the hardest hit by the Budget, so you need to be more aware of the allowances available to you and smarter with your tax planning. Here are some really simple ideas for you to consider:
- Investing up to £10,680 in an ISA
- Top up your pension. Whilst relief has reduced to contributions below £50,000, contributing to your pension remains one of the best ways to reduce your tax liability
- Transferring assets to someone you trust such as your spouse if they are a lower tax rate payer, to cut your overall tax bill as a couple
- Childcare vouchers. Their benefits have been reduced for higher rate tax payers, but there are still some tax savings
- Putting your money in investments with capital growth; rather than income such as dividends, to make use of your Annual Exemption of £10,100
- Making sure your tax code is correct; to avoid surprises in January
- Donating under the Gift Aid scheme
If you would like more guidance on issues relating to high earners, please contact your local TaxAssist Accountant.