The Loss of personal allowance due to the level of income breaching the £100,000 threshold is an issue that is a double edged sword from a taxpayer’s point of view. There are a few taxpayers where they have moved into staff positions during the current tax year and have other income sources where income is not assessed for tax. For example dividends under £5,000 and bank interest under £500 – these amounts are still included when calculating the total income amount for the restriction of personal allowances. These individuals are then taxed on the income at the higher rate and hit with an additional liability on the overstated personal allowances.
This increases the tax rate for those within the £100K to £123K income bracket to 60% in real terms on the earnings within that bracket even where full allowances have been given through payroll.
All or part of the personal allowances could be recovered by the payment of a pension contribution or even a gift aid payment before the end of the tax year so that relief is obtained on the payment at the equivalent rate that would have been charged by the Revenue – up to 60%.
If you would like some tax planning performed then please contact the office as this is part of our normal service to clients that we carry out prior to 5th April.
If you have any questions or would like to talk to us about any of the above in more detail then please don’t hesitate to contact us by phone on 01224 748 298 or by email on info@grampianaccounting.co.uk.
