Personal allowances will be increased as follows:
The income tax personal allowance will be restricted for those with incomes over £100,000. From that level of income, the personal allowance will be reduced at a rate of £1 of allowance lost for every £2 of income until the allowance is halved. At this level, the personal allowance will be worth the same as for a basic rate taxpayer.
From £140,000 income, the remaining allowance will be reduced at the same rate until those on the highest incomes have no personal allowance.
This is being introduced from April 2010, so actual figures will depend on personal allowance at that time, but if this were being applied to the standard personal allowance for 2008/09, it would mean:
As these measures increase the tax burden for those earning over £100,000, this makes investment in tax-advantaged arrangements such as pension schemes even more attractive.
6 April 2009
6 April 2010
Rate of income tax
|A new additional higher rate of income tax of 45% will be introduced for those earning over £150,000. Along with the loss of personal allowance for those in this category, this would further increase the attraction of investment in pension schemes.||6 April 2011|
|National insurance contributions||All national insurance contribution rates will be increased by 0.5%. The primary threshold at which individuals start to pay NICs will also be increased so that it is aligned with the personal allowance.||6 April 2011|
The lifetime allowance will be maintained at the 2010/11 level of £1.8 million for tax years beyond 2010/11 until 2015/16 when it will be reviewed again.
This will increase the lifetime allowance charge for funds above £1.8 million but it will also have some less obvious repercussions.
Scheme specific protection of PCLS will also be affected. The calculations can be complex and the results depend upon the rate at which the fund value increases between 2010/11 and 2015/16 but in summary:
|6 April 2010|
|Annual allowance||The annual allowance is also being maintained at its 2010/11 level of £255,000. This will restrict the amount of contribution to a pension scheme that can be paid without being liable for the annual allowance charge.||6 April 2010|
All these measures are expected to be included in the Finance Bill 2009.
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
1 December 2008