Are you paying tax at 60%?

For high earning taxpayers, their Income Tax personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This creates an effective marginal rate of tax of around 60% for tax payers as the £11,500 tax-free personal allowance is gradually withdrawn.

Taxpayers whose income sits within this band should consider what planning opportunities are available to them in order to avoid this personal allowance tax ‘trap’. This can include giving gifts to charity, increasing pension contributions and participating in certain investment schemes. These strategies also apply to higher rate and additional rate taxpayers looking to reduce their tax bills.

Planning note

For example, a higher rate or additional rate taxpayer who wanted to reduce their tax bill for the last tax year could decide to make a gift to charity in the current tax year and then elect to carry back the contribution to 2016-17. A request to carry back the donation must be made before or at the same time as the 2016-17 self-assessment return is completed. The deadline for filing a paper tax return has now passed but the online deadline of 31 January 2018 means that for most taxpayers there is still some time to act.

Posted in Income Tax

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Client Portal Login

Forgot Password?

Latest News

How the £1,000 trading allowance works

There is a £1,000 tax allowances for miscellaneous trading income that has been available to taxpayers since April 2017. This …
Read More

When is lettings relief available?

In general, there is no Capital Gains Tax (CGT) on a property which has been used as the main family …
Read More

Qualifying for VAT special schemes

There are three main special VAT schemes available to small businesses. These are the flat rate scheme, the annual accounting …
Read More