“You might have thought that the 50% top rate of tax only applied to those earning £150,000 or more,” says Tax Tips & Advice. But from 6 April 2010, the Budget introduced an effective tax rate of 60% for those with incomes between £100,000 and £114,000.
That’s because, as of next year, for every £2 you earn in excess of £100,000, you will lose £1 of your tax-free personal allowance, expected to be around £7,000 for the 2010/2011 tax year, says Michael Roberts on Ross Brooke Financial Services website.
So if you were to earn £114,000, you’d pay 40% tax on the £14,000 above the £100,000 limit and would be taxed at 40% on the £7,000 that would have been your personal allowance, taking your total additional tax to total £8,400. That’s 60% of the £14,000 earnings over the £100,000 limit.
Ways around this include salary sacrifice, or shifting income-producing assets to your spouse, civil or unmarried partner, says Tax Tips & Advice. Don’t wait until next year: “there are savings to be made this way even at the current 40% tax rate”.