Proposed personal tax changes
The government has announced significant changes to the system of personal allowances and tax rates for the next few years. These mainly impact on those with higher levels of income.
Allowances and rates
The 2009/10 personal allowance will be £6,475. The basic rate limit will be £37,400. Therefore an individual will pay 40% tax rather than the basic rate of 20% when their total income exceeds £43,875.
The 10% starting rate for savings income band (increased to £2,440) is only available where an individual’s non savings income (broadly earnings, pensions, trading profits and property income) does not exceed the starting rate limit.
Personal allowance changes for 2010/11
From 2010/11 the personal allowance will be subject to an income limit of £100,000. An individual’s personal allowance will be reduced by £1 for every £2 of gross income they have above the income limit up to a maximum reduction of half of the personal allowance.
For those with income of above a second income limit of £140,000, the amount of their allowance will be further reduced by £1 for every £2 above this income limit up to a maximum of the full amount of the personal allowance.
New tax rates for 2011/12
A new rate of income tax will be introduced of 45%. This will apply to taxable non savings income and savings income above £150,000.
Dividend income is currently taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. A new rate of 37.5% will be introduced for dividends which fall into the income band of above £150,000.
Internet link: HMRC personal tax changes