Personal allowance restriction from 2010/2011 onwards

dori2o

I'm quite suprised that this has not been picked up by others following the PBR

from April 2010 the personal allowance will be restricted to half its value for those with incomes over £100,000, so that it is worth the same as to a basic rate taxpayer, and to zero for those with incomes over £140,000;

http://www.hm-treasury.gov.uk/prebud_pbr08_press01.htm

jimmo

Sorry!
Are you boasting that you are going to be personally hit or asking for sympathy?
I heard it, read it and ignored it because it will definitely not be a problem for me.

trevormax

To someone earning amounts such as £100,000 / year, the PA is worth twice as much to them in terms of tax as it is to someone earning say £30,000 / year.

If it were in use this year for example, the higher earner would save 6035 at 40% which is £2,414, this is then restricted to half which is 1207, the same as someone in the BR band who will save 6035 at 20% which is 1,207. The government need to find a way to pay for all these tax cuts they are proposing and they have decided to pick on people who earn a lot, the people who are better able to take such a hit.

Im not saying i agree entirely with the zero amount for people over £140,000 as they are being penalized, but in all honesty, a thousand pound to someone earning £140,000 will hardly bother them, plus they will probably have a slick accountant and tax consultant who will save find a way to get it back.

scottons

Does anyone know whether pension contributions will be included in the definition of total income when this new restriction is introduced?
I understand that the age related allowances which are currently subject to an income limit/clawback in a similar way are calculated according to income after pension contributions have been removed.
So if the new limits work the same, then presumably someone who earned, say, £120K and was already paying £10K of that into a pension, could just up their pension contribution to £20K and keep under the limit.
And if everyone did that then there wouldn't be much benefit to the taxman.
So why bother?

LizzieS_2

dori2o wrote: »

I'm quite suprised that this has not been picked up by others following the PBR



http://www.hm-treasury.gov.uk/prebud_pbr08_press01.htm

It was immediately reported on BBC2 and did keep coming up in the BBC breakdowns of changes.

LizzieS_2

scottons wrote: »

Does anyone know whether pension contributions will be included in the definition of total income when this new restriction is introduced?
I understand that the age related allowances which are currently subject to an income limit/clawback in a similar way are calculated according to income after pension contributions have been removed.
So if the new limits work the same, then presumably someone who earned, say, £120K and was already paying £10K of that into a pension, could just up their pension contribution to £20K and keep under the limit.
And if everyone did that then there wouldn't be much benefit to the taxman.
So why bother?

The restriction applies to taxable income - pension contributions are deducted from gross pay and the balance is then taxable income*

* other deductions free of tax have been ignored for simplicity.

Yes those lucky enough to earn such amounts can indeed reduce their taxable income by putting more in their pension pot. One thing to be aware of though is that all pensions are assessed against a life-time allowance rate. The life time allowance has remained static at 1.8 million since 2005. Any value above the life-time allowance is taxed at more than 40%.

scottons

Thanks for reply.

you say "lucky enough" but of course my expectation is that, like the 40% "supertax", the limits will not keep pace with wage inflation and it won't be that many years before most people with a decent but not outrageously high paying job are creeping up into the danger zone.