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Tax Tips:
• For
individuals with net income in excess of £100,000 the
personal allowance will be reduced from 6th April 2010 by £1
for every £2 of income until the allowance is removed
completely.The abatement makes the payment of pension
contributions and Gift Aid payments particularly tax
efficient for those affected.
• From 6th April 2010, a new
50% higher rate tax will apply to those with taxable income
above £150,000.As a consequence of the change, a new rate of
42.5% will apply to dividend income above £150,000 thus
introducing a third tax rate to be applied to
dividends.These changes will also apply to trusts where the
trust rate and dividend trust rate will increase to 50% and
42.5% respectively from 2010/11.
• From 6th April 2011, pension
contribution relief for the higher paid will be restricted
so that they receive tax relief only at the basic rate of
tax.The restriction commences at £150,000, the point at
which the new 50% rate of tax is charged, and will gradually
taper tax relief on pension contributions so that at
£180,000 of income the tax relief obtained is only at
20%.The type of restriction has yet to be determined.
• There are 'forestalling'
provisions to prevent taxpayers from accelerating payments
of pension contributions between now and 6th April 2011 that
imposes a tax charge on additional payments, however where
the established level of contributions (made at least
quarterly) is not increased then no tax charge will
arise.Also, persons who do not contribute more than £20,000
to their pension in either 2009/10 or 2010/11 will not be
affected.
• The level of contributions
includes both member and employer contributions and
therefore consideration needs to be given to drawing
dividends rather than salary' if possible, in order to
reduce the level of earnings below £150,000.
• Phase two of the new penalty
and compliance regime is effective from 6th April 2010 with
higher penalties for late payment of tax and late submission
of returns. Paying an estimated tax liability on time in
order to avoid a late submission penalty will no longer be
effective.
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