50% Tax Rate Increase – Less than 3 months to go!
13/01/2010
The new 50% tax rate for higher earners will come into force from 6 April 2010 - less than three months from now - a 10% increase over the current top rate of tax. The 50% rate will apply to anyone earning over £150,000 per year on their income above that threshold.
Except of course it is not quite as simple as that! The 50% rate will apply to most types of income, but dividends are treated differently. Because of the way tax is calculated on dividends, the tax a top rate taxpayer will pay on their dividends will increase from 25% to 36.1% - somewhat more than a straightforward 10% rise!
Those who have incomes between £100,000 and £150,000 are not immune either. The personal allowance will be phased out for people with incomes over £100,000 - these people will lose £1 of personal allowance for every £2 of income over that amount. What this means is that, for every £1 of income between £100,000 and (roughly) £113,000 the tax will be 60p - the real top rate of tax!
Because these changes come into force on 6 April, there is now a short window of opportunity to think about the timing of your income - is it better to take additional income before 6 April? This means paying the tax earlier, but at least you would "only" be paying at the current rates. What is the best way to take the income - bonus or dividend? What does this mean for other interested parties (not least your manufacturer and your bank manager?) There are also a number of more complex tax planning strategies that are currently available to mitigate the effects of the tax rate rise.
The time to take this opportunity is limited, and as tax rates seem unlikely to be coming back down at any time in the future it may be a long time before the next such opportunity comes along!
At ASE plc we are already advising a number of our clients on these issues. If you would like to discuss the options available to you on a free of charge basis then please contact
Paul Brown, Tax Director paul.brown@ase-global.com
Bett Twiggs. Personal Tax Manager bett.twiggs@ase-global.com
Telephone number 0161 493 1930.