Top rate of personal tax 61%!

The Chancellor announced an increase in the top rate of personal tax from 2010 to 50%. This will be the highest personal tax rate in Europe, which could have a serious impact for those businesses that meet tax on behalf of employees on certain benefits. Those employers could face an effective tax rate of up to 126%.

What the Chancellor omitted to mention was that for those with incomes between £100,000 and £112,950 they will effectively be paying 60% tax on that income. This arises because of the gradual withdrawal of the personal allowance for those with incomes over £100,000 from 2010. This may even increase to 61% if all of your income is earned income as a result of the extra 1% National Insurance. Or 61.5% f`rom 2011 when the extra 0.5% increase in National Insurance kicks in.

Tip: If your personal income is likely to between £100,000 and £112,950 in the tax year from 6^th April 2010, then it may be worth looking at ways to reduce your income in that year to below £100,000, which could include making personal pension contributions.

From 2010 there will be an increase in the tax rate for Trusts to 50%. Many Trustees may wish to consider the impact of the tax increases and what options are available.

With the increase in the personal tax rate to 50% for incomes over £150,000, comes an increase in the tax payable on dividends. Prior to 6^th April 2010 the top rate of tax payable on dividends is 32.5%. This will increase to 42.5% on dividends where the individual's income exceeds £150,000.