The government’s last budget is due next month, but for high earners the clock is already ticking on the tax crackdown that arrives on
April 6.
Their advisers are busy, and some are indignant. “Who would be a high earner in the UK – about to become one of the most heavily taxed countries in the developed world? asks Steve Forbes, managing director at Linlithgow-based Alan Steel Asset Management. “They are unloved, unappreciated and seen as a captive audience by a tax-hungry government.”
Anyone with earnings of more than £150,000 will be taxed at a rate of 50% - half their income, with a further 1.5% national insurance contribution on top.
“Nor is it simply salary which will be affected,” Forbes notes. “Earnings, for these purposes, includes investment income, rental income from property, bonus payments and interest on any savings held.” ......
...... Tax-free personal allowances are disappearing too, with the £6,475 for which most people qualify being phased out on earnings between £100,000 and £112,950, when an effective 60% tax rate kicks in.
At the same time, higher-rate tax relief on pension contributions is starting to be withdrawn, mainly affecting people on more than £150,000 and not fully kicking in until April 2011, although lower earners with more generous schemes could be affected as well.
Forbes says: “These changes are a matter of concern for people below the thresholds as well, because unexpected bonuses, above-average pay rises, or even unexpectedly good performance of investments, could tip the scales and push them into a higher bracket.”
Advisers say there is no magic bullet, but are urging high earners to use the next month to lessen the impact.
Higher-rate taxpayers who still take income from their investments should consider taking capital withdrawals instead and, at the very least, using their capital gains tax allowance. “Even in excess of this, gains are taxed at 18%, a fair contrast to income tax at 50%,” says Forbes. “The same consideration could apply to income generated within a trust.”
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Quote courtesy of The Herald
Friday 26 February 2010
