Changes for high earners from 6 April 2010
There will be significant changes for individuals earning over £100,000 from 2010/11. Personal allowances will be tapered where taxable income exceeds £100,000 and there is a new increased tax rate of 50% for taxable income greater than £150,000. Dividends falling within this higher band will be taxed as the top slice of income and subject to a tax rate of 42.5%. Currently the higher rate of income tax is 40% and 32.5% for dividends.
The example below shows the tax due on a salary of £250,000 paid in 2009/10 and 2010/11. The 2009/10 allowances and rates have been used for 2010/11 in the example.
| 2009/10 | 2010/11 | |||
| £ | £ | |||
| Gross Salary | 250,000 | 250,000 | ||
| Less Personal Allowance | 6,475 | - | ||
| Taxable | 243,525 | 250,000 | ||
| Tax due thereon: | ||||
| 37,400 | @ | 20% | 7,480 | |
| 206,125 | @ | 40% | 82,450 | |
| 37,400 | @ | 20% | 7,480 | |
| 112,600 | @ | 40% | 45,040 | |
| 100,000 | @ | 50% | 50,000 | |
| Net Pay | 160,070 | 147,480 | ||
| Effective rate of tax % | 35.97 | 41.01 |
The effective rate of tax is higher under the new rates. Taxpayers who will be affected by these changes should therefore consider tax efficient methods to reduce the tax that could be charged. In particular owner-managed companies may wish to look at the methods of extraction, whether it is as salary, benefits, bonus or dividends, together with the timing of the payment which determines when the tax would be assessable. Planning is required if you would like to extract the cash in the most tax efficient manner.
Please contact your local office for further advice.
