Answer. Yes and no.
While the top rate is 45% (payable on income above £150,00) you may end up paying 60% well before you earn that much. There is the mystery zone of income from £100,000 to £150,000 and it is easy to get caught out when simple HMRC allowable actions can help you.
Income | Tax | Tax Rate on Increase in Income | Effective Rate |
£100,000 | £27,432 | 0% | 27% |
£105,000 | £30,432 | 60% | 29% |
£110,000 | £33,432 | 60% | 30% |
£120,000 | £39,432 | 60% | 33% |
£125,140 | £42,516 | 60% | 34% |
£130,000 | £44,460 | 40% | 34% |
This is due to the gradual loss of personal allowances once your income reaches £100,000. Not only are you paying tax at 40%. You lose £1 of allowances for every £2 you earn over £100,000, so you effectively pay 40% on every £1 of allowance you lose!
Example
A person earning £110,000 pa would pay £33,432 in tax. By using a legally available investment, they would pay £28,932 in tax. A saving of £4,500 in tax and a change of effective reduction of the tax rate from 30% to 26.3%.
This can be managed with effective planning & strategies – If you would like to discuss your particular circumstances you can arrange an initial FREE consultation by simply clicking here.
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