More people pay top rate tax
The kerfuffle over the 10p tax rate led Gordon Brown and Alistair Darling to pretty much make tax and fiscal policy on the fly. As evidenced by the £2bn borrowing to repay the lowest earners in the land, things are something of a mess. But there’s also been an unwelcome knock-on effect for higher rate taxpayers – more people pay top rate tax. Picking through Alistair Darling’s speech, a number of accountants have realised that, in short, higher rate income tax (40 per cent) will now start at £34,800 rather than £36,000.
Put bluntly it means more people pay top rate tax – an extra 150,000 of us now paying top rate tax, up to 4m in total in the UK. We can all allow ourselves a quick moan and grumble about this, and then accept the inevitably … and work out how not to pay it. The obvious thing is to make the most use of tax efficient allowances. Chief among these is the much-eroded but still useful ISA (cash or shares). You should maximise your pension contributions, thus gaining tax relief at the top rate. A basic rate taxpayer (22%) has to put £78 into a pension to have it made up by the Government to £100, while higher rate taxpayers (40%) need put just £60 in to get their £100.
For more on tax and paying less of it, see Tax Rebate Advice.