The tax rates and allowances for 2009/10 were as announced in November. The allowances generally have been increased at above the rate of inflation, and the rates of tax remain 20% and 40% (10% and 32.5% for dividend income). The effect on the income tax liability of a person with total income of £50,000 is a reduction of about £696 when compared with 2008/09. However, if this is all salary, increases in NIC amounting to £353 would reduce this saving.
In November, increases in the top rate of tax for very high earners were announced to take effect in 2011/12. They have now been brought forward to 2010/11, and the top rate will become 50% rather than 45%. The dividend rate will be 42.5%, up from the present 32.5%. These top rates will apply to people with incomes over £150,000 a year.
At the same time, for those with incomes over £100,000 a year, the personal allowance will be restricted. At present the personal allowance is relieved at the marginal rate, so it is worth 40% of £6,475, i.e. £2,590. The amount of the allowance will be reduced by £1 for every £2 of income above £100,000 until it falls to zero. The effect of this will be a marginal rate of income tax of 60% in the band of approximately £100,000 - £113,000 within which the allowance is being withdrawn.
The rates of income tax on discretionary trusts will also rise in 2010/11 to
match the top rates of income tax.
Consider advancing income into 2009/10 to pay less tax, even if it is due earlier.
Furnished holiday lettings
For many years, losses arising on UK furnished holiday lettings have been eligible for tax relief against other income. This will stop after 2010/11. In the meantime, losses on letting of furnished accommodation in the European Economic Area which satisfies the conditions for FHL will be eligible for relief against other income.