A number of measures were introduced by the previous government to increase the tax burden on so-called high earning persons:
- A new higher rate of tax applies to taxable income above £150,000 as of the 6th April 2010. The new higher rate of tax will be 50%, with the dividend rate increasing to 42.5% for those whose income includes such income streams.
- Individual Personal Allowances will be abated at £1 for every £2 of income over £100,000. As a consequence an individual earning above approximately £113,000 will lose all of their personal allowances, which is an effective tax cost of up to £3,250. This is the equivalent of a tax rate of approximately 60% within this banding, and so is to be avoided!
- Tax relief on pension contributions made by individuals with net adjusted earnings over £150,000 is restricted from 6th April 2011, with those earning over £180,000 receiving only basic rate relief. Interim measures will be introduced by HMRC to prevent high earning individuals accelerating their pension contributions into the period between now and April 2011. This anti-avoidance must be negotiated, as taxpayers quite legitimately making pension payments might be caught by this legislation.
In light of the above changes it is vital for high earning individuals that a full review is undertaken of your business structure and the method of extracting funds from the business. We can then ensure that the most tax efficient option as we move into 2010/11 is still the one taken.