In this Tax Year you can earn £6,475.00 before you pay any tax. You can earn a further £37,400 and pay only 20% tax. So you would need to earn in excess of £43,875 before you start being charged the 40% tax. In the new tax year the £6,475.00 threshold is being increased to £7,475.00. However, the amount you can earn above that before you pay 40% tax is being reduced to £35,000. So in the new tax year, those earning over £42,475.00 will be paying 40% tax.
Grey issues – Those who are 65 and older are given a higher personal tax allowance. For those 65 and over in the current tax year it is £9,490. And for those 75 and over it is £9,640. Now that is good but there is a bit of a trap, which it is easy to fall into. If your taxable income is over £22,900 they start taking away this extra allowance on a 2 for 1 basis, so if your income is £28,930, you get none of that extra relief. Here, too, a husband and wife can often balance out their incomes so that they do not get caught in that trap. It is a very important feature of tax planning for those over 65, as these age allowances are likely to increase. In the next tax year they are expected to go up to £9,940 for those over 65 and £10,090 for those over 75.
High earners – Once you are in the higher rate tax bracket the importance of tax planning becomes greater and greater, the more you earn. The use of pension contributions, or “pension sacrifice” can often save you paying quite a bit less tax. Those earning £100,00 and more have the greatest challenges and opportunities. If you are in this category, do contact us for some advice about your options.
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