Budget 2009 - Tax rates
Income tax increase
Currently income is taxable at either the basic rate of 20% on taxable income up to £37,400 and the higher rate of 40% applies to taxable income over that level.
Today’s budget has announced an additional higher rate of income tax of 50%, effective from 2010/11 for individuals with taxable income above £150,000.
Not only is this higher than the 45% tax rate initially announced in the 2008 pre Budget report but it will come into effect one tax year earlier than was expected.
The increase affects all income and therefore dividends otherwise taxable at the new 50% will be taxable at the new rate of 42.5%. The rate increases apply also to income of trusts and therefore the trust tax rate will increase to 50% and trust dividend rate will be 42.5%.
Loss of personal allowance
The basic personal allowance which provides an amount of tax free income will be gradually eliminated where a person’s total ‘adjusted net income’ is more than £100,000 by reducing the allowance by £1 for every £2 that the income limit is exceeded. Therefore, if the adjusted net income is £105,000, this exceeds the £100,000 limit by £5,000 and £2,500 of personal allowance would be lost.
Comment on this blog in the space provided below. Barry Hallam is a Senior Tax Manager at Mercer & Hole.
