New 50% tax rate comes into force

From the Beeb:

A new 50% tax rate for top earners has come into force at the start of the financial year.

The new rate will affect the 300,000 highest earners in the UK, out of the 29 million people who pay income tax.

It will be levied on taxable incomes greater than £150,000 a year and aims to raise an extra £2.4bn by next year.

The 600,000 people who earn more than £100,000 a year will have their personal tax allowance eroded too, raising £1.5bn for the government.

Together with increased tax on pension contributions, which starts next year, the UK's top 600,000 earners are expected to be paying an extra £7.5bn a year in tax.

...the Institute of Directors (IoD) argued that the new rate would damage business confidence, foreign investment and entrepreneurial aspiration.

Full article:
BBC News - New 50% tax rate comes into force for top earners


Is this really the incentive British Business needs to encourage growth? Top earners are normally running successful businesses employing people, and already paying enough corporation tax.

Sounds like Labour of old. I wonder if the Tories will dimantle this if they get into power?

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Directorships will get around it with the gains, 10% and dividends surely?

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With loss of personal allowances for income over £100k some will be paying tax at a marginal rate of 60%! i.e. tax on income between £100k and approx £114k.

Planning to avoid this position and the 50% rate will include:

1. Generating capital gains as opposed to income.
2. Transfer of income producing assets to spouses with lower marginal rates or into "tax shelter" companies.
3. More into pensions
4. Salary sacrifices for employer pension contributions
5. Those in business will want to make use of Annual Investment Allowance if possible to avoid high marginal rates.
6. A resurgence of use of Limited Companies where an element of control on reward and distributions may help to avoid higher rates.
7. Where normal accounting base periods for the 2010/11 tax year have already ended more use of change of accounting date to enable AIA claims and dilution of profits assessable for 0210/11 year.
8. Planning for efficient use of losses or realisation of losses to offset against potential higher rates.
9. Making full use of "averaging" where possible to dilute the tax bill.

The Revenue will be very much aware of this and will be bringing forward anti-avoidance measures, previously deferred because of the recession, to counter tax advantages from shifting income streams where the main benefit is about lower tax rates and sharpen up their enquiry activity particularly into smaller company dividend scenarios where procedures do not stand up to scrutiny and inevitably the distribution is taxed as earnings.

The problem of course is the election and as already demonstrated things may change before the finance bill gets the Royal Assent in the summer!

Barry

Barry J Nudds, Chartered Accountant Accountant for Suffolk, Norfolk, Cambridgeshire and areas of London

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More taxes, better get myself a new accountant?

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Hi Mark

This change has been around for a while and there's more in the pipeline!

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A fantastic way to encourage underhand tactics & quality to leave the country... I salute you Mr. Brown (unfortunately for you, it is the one fingered salute)

I so wish earlier generations had experienced the down-side of a labour government, that way the Tories would have a huge % lead.

One finger salute also from this poster.

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I had an email from Flora (tory office) today, asking if it was ok to use my name against the NI increase, I said yep, and sent her the pic I did of Gordon Brown! I rarely swear on a forum, but he is a Twat! (sorry Ste)

Another one fingered salute here

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