50% Tax Rate – Is it on the Way Out?

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There is speculation that the 50% tax rate for those earning over £150,000 could be abolished by 2013. Both the Chancellor George Osborne and the Business Secretary Vince Cable have recently confirmed that the rate is considered to be temporary as mentioned in an article in The Guardian here.

Advice for those over the £150,000 threshold to avoid paying more tax than necessary in the interim:

Investment income can be sheltered using tax-free investments. The annual investment limit for cash individual savings accounts (ISAs) is quite low at £5,340, but there are ones paying 3% which for employees is equivalent to 6%. Rates are higher if the investment is for a fixed period.

NS&I recently reintroduced its five-year savings certificates. The interest rate is only 2.25% (equivalent to 4.5%), but the investment limit is £15,000 per issue – so a total of £30,000 if you invest in indexed-linked certificates as well. It could be worthwhile postponing investment income by rolling it up within an offshore single premium bond

Additional pension contributions will benefit from 50% tax relief, so the cost of adding £10,000 to a pension fund is just £5,000. The yearly maximum qualifying for tax relief is £50,000, but any contributions already made by the employee or their employer into a company scheme will reduce this.

Charitable gift aid donations also benefit from 50% relief.

Those running their own companies are in the best position to avoid 50% tax since they can control their own levels of income. Profits can simply be retained within the company until the 50% rate is abolished.

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