Thursday, 6 May 2010

Nifty bit of tax advice for high earners.

Simonne says:
High earners can avoid a 60% tax rate

There was a change in the Budget which some may not have noticed. Anyone earning more than £100,000 may effectively pay as much as 60% in tax because the personal allowance (the amount you can earn without paying any tax) is now gradually being snatched away for earnings in excess of that sum. Those earning £112,950 or more will lose their personal allowance completely, otherwise £1 is knocked off for every £2 earned between £100,000 and £112,950.

But the good news is that this can be avoided by making additional pension contributions. For example, if your taxable income is £105,000, by making a £5,000 pension contribution your taxable income would fall to the £100,000 threshold. At £100,000, your take home pay would be around £65,000 after tax and national insurance, compared to £67,000 with a £105,000 income. This  means that the £5,000 pension contribution would only have ended up costing you £2,000 -  in other words, worth 2.5 times more than the amount you invested. Pretty cool way to avoid extra tax!

Anyone who can work that out deserves to be paid at least £100k to my mind - Karen :o)

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