The Budget & Pre Budget Reports result in tax increases for thousands of high earners affecting pensions and income.
By Robert Brear BSc(Hons) Dip PFS IFA
Income
On April 6th 2010 the tax burden of high earners will increase significantly. Anyone earning over £112950 will lose their personal allowance for a start, resulting in a significant increase in their personal tax burden.
In simple terms, for those earning more than £100,000 they will lose £1 of personal allowance for every £2 of earnings. In addition to this anyone earning above £150,000 per year will pay 50% tax instead of the previous 40%. A lot more people will be affected than you might think, it won’t be just the fat cats in the city but many local GP’s, consultants, company bosses, some solicitors and accountants etc.
Pensions
For as long as I can remember it has always been the case that tax relief on pension contributions is given to individuals at their highest marginal rate. The budget and pre-budget reports of 2009 plan to end this cornerstone of pension tax policy from 6th April 2011.
The good news is that anyone who currently earns £130,000 or less will still get tax relief at their highest marginal rate. The bad news is that there is to be a new wider definition of income which will include any employer contributions made to pension.
For example if an individual has their own limited company and currently receives £10,000 salary, £50,000 dividend and the individual makes an employer pension contribution of £100,000 it will result in a complex tax calculation and ultimately a bigger bill for the individual.
The government has also introduced a range of complicated anti-avoidance rules to stop people making super large pension contributions before the new rules kick in.
The moral of the story
A good independent financial adviser (IFA) working closely with your accountant can guide you through the likely impact on your personal circumstances and recommend the best course of action for your income and pension strategy.
Private Limited Company directors or those running Limited Liability Partnerships, who are in a position to control the way they are remunerated, are best placed to control how much they are affected by the above. Our company, Bentley Brear Ltd, was established in 2002 and is family run. We serve the local business community and private individuals alike, specialising in bespoke investment portfolio’s and pension and retirement advice.