News : 50% Tax Planning
The 50%, additional rate of income tax, will be scrapped from April 2013, George Osborne announced in the Budget. The additional rate will be reduced to 45%.
HM Revenue & Customs calculates that the cost of the extra 5p on tax on the highest earners only brings in £100 million a year, but that the loss of other tax revenues may even cancel that out.
In addition, Osborne highlighted that the increase of higher-rate tax from 40% to 50% raised only a third of the £3 billion it was supposed to.
Osborne added: It raises at most a fraction of what we were told and may raise nothing at all. No chancellor can justify a tax rate that damages our economy and raises next to nothing.
If you are affected by the additional rate of income tax, there are essentially two aspects of your tax planning that you need to consider.
Defer part of your income until April 2013 by deferring part of your income until the new lower rate is effective you can save a considerable sum of tax. Up to 5th April 2013 any dividend taken that takes your income above £150,000 will incur additional tax of 36.1%, ie £361 per £1,000 dividend.
By waiting until at least 6th April 2013 the additional tax will be 30.56% ie £305.60 per £1,000 of dividends a saving worth banking.
Take advantage of tax reliefs before April 2013
A 50% taxpayer contributing £50,000 to a pension scheme will receive £2,500 more in tax relief if they make their contribution before 6th April 2013.
In addition, investments in Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) will reduce your tax liability due to the generous tax reliefs available.
Please contact Nixon Williams if you wish to discuss your options, or click here to read our Budget 2012 Report.