Whilst most of the media coverage post-Budget centred around the creation of a new 50% rate of income tax for individuals earning more than £150,000, far more people will  be impacted by the proposed restriction of the personal allowance for individuals earning in excess of £100,000 which is also due to be introduced for 2010/11. Personal allowances will be phased out at the rate of £1 for each £2 of income in excess of £100,000.

The definition of income is, broadly speaking, gross taxable income less specified deductions, such as pension contributions and Gift Aid payments. The result of this reform will be that from 2010/11 the band of income between £100,000 and £112,950 will suffer a marginal rate of tax of up to 60%, assuming that the personal allowance is unchanged next year.

However, unlike the retrictions announced for earnings of more than £150,000, legitimate financial planning using pension contributions and salary sacrifice can reduce or negate the loss of the personal allowance and higher marginal rate. If you would like to discuss your own situation and options please get in touch. Remember, total earnings include all sources of taxable income.

Posted in individuals |