Having discussed tax with a high earning client earlier today, I was suprised they hadn’t realized there is a current highest rate for some earners of 60%. So I thought if one person didn’t know then there are probably a few more out there that ought to be informed before [private_basic]they cast a vote on May 6th.
OK. It isn’t a universal tax rate. It only applies to some people whose income falls into a certain range, but it is only too real and needs to be planned for and avoided if at all possible.
The 60% rate applies to people whose income falls between £100,000 and £112,950. The rate is a stealth rate and it happens within that particular band of income because the personal allowance is gradually removed. In living memory it has been a convention that every person is entitled to a tax free allowance from birth. Our esteemed (ex) Prime Minister has decided to rake in some more cash for the bankrupt treasury by deciding people with a certain income can now afford to relinquish this tax free allowance. This year the personal allowance is £6,475 and gets restricted by £1 for every £2 your income is over £100,000 and so by the time your income hits £112,950 you will have no personal allowance left.
The maths are simple. For someone earning £100,000 who receives a £10,000 bonus, the extra tax on the bonus is £4,000 (40%) but then they lose £5,000 of their personal allowance which gives another extra tax bill of £2,000 (40% of the £5,000). This means the total tax on the £10,000 bonus is £6,000 – or 60%.
Isn’t our government wonderful the way they slide these things in without the public noticing. I wonder what else Gordon Brown will hit us with if he gets returned to Downing Street.