Tuesday, Nov 25, 2008
High earners face increased National Insurance payments and a new supertax under a raft of measures announced in today’s pre-Budget report.
As widely predicted, Alistair Darling introduced a new top level of tax, which will be imposed on people earning over £150,000 a year. They will pay 45p in the pound, up from 40p, from April 2011.
Less anticipated though was the clawback of the personal allowance for higher earners, which will see some taxpayers effectively paying paying 60p in the £1, according to leading accountants. These changes will not just affect the 1pc of taxpayers earning more than £150,000 a year. It will potentially affect 650,000 people earning more than £100,000 a year. To further rub salt into the wound these higher earners will also pay an additional 1pc in National Insurance costs, giving an effective taxation rate of 61pc – a rate not seen since the late 1980s.
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These changes will not be introduced all at once. The changes to the personal allowance will come into effect in April 2010. This could be before a General Election which would effectively give the Government a mandate to introduce new taxes on higher earners. The new National Insurance rates and supertax will be introduced the following year.
Richard Mannion, the national tax director at Smith & Williamson said the effect on higher earners will be substantial. He said: “An individual earning £140,000 a year today is likely to see their tax bill increase by over £1,200 a year because of the restriction on the personal allowance.
“Any individual currently earning £200,000 a year will suffer a double whammy: the loss of their personal allowance will cost them over £2,400 a year plus it appears the impact of the 45pc new supertax rate will cost them a further £2,500.”
It is estimated that about 400,000 people will have to pay the new supertax, which should raise £2bn for the Treasury.
This article was posted: Tuesday, November 25, 2008 at 5:08 am