High-earners warned about tax changes
Commercial insurance
29th January 2010
Those earning salaries above £150,000 a year have been advised that they face an increase in income tax from April this year. Individuals seeking high-end UK insurance policies are being warned that now is the time to prepare for the changes ahead of their implementation.
As of April 6th 2010, all those with earnings topping £150,000 per annum will be subject to a 50 per cent levy on any wealth generated above this threshold. While the move will not affect most people in the UK, those on higher salaries will feel the effects of the fee as it raises the current top band of 40p applied to salaries of over £37,400 a year.
In a recent interview with the Telegraph, business secretary Lord Mandelson stated that he is keen to get rid of the new top rate as soon as financial circumstances make it feasible. It has been introduced to address some of the impact of the global financial crisis on tax receipts.
During his pre-budget report speech to the House of Commons during December, chancellor Alistair Darling announced a 0.5 per cent rise in National Insurance in 2011, in addition to a half a per cent rise published last year. "No one with income below £43,000 will be affected by this change," Mr Darling explained, meaning that high earners will bear the brunt of rises aimed at addressing public funding shortfalls. However, he stated that the level at which the 40 per cent income tax begins will be frozen for a year.
Last month, Deloitte head of tax policy Bill Dodwell suggested that raising income tax for those on high salaries could prove "counter-productive" as it may encourage wealthy individuals to emigrate or adopt additional tax planning revenues, potentially reducing rather than increasing tax receipts. As a result, wealth management experts are advising high earners to look into ways of protecting their income now, before the changes come into effect.
One solution could be to invest more in a pension fund during 2010-11. However, those earning over £150,000 are advised that the chancellor has placed a restriction tax relief on pensions for those in the highest income band from 2011 and introduced complex measures to prevent top-ups of over £30,000 a year from being placed in funds.
Howard Pearson, retail managing director of Giles Insurance, noted: "It is important that high earners do all they can to protect their income in the current climate, as jobs markets remain uncertain and tax rates rise. A specialist insurer can provide invaluable advice on ways to do this and should be consulted in addition to a financial advisor when changes to income are taking place."
High net-worth individuals may be interested to learn that the UK economy has now emerged from recession, with gross domestic product expanding by 0.1 per cent during the fourth quarter of 2009. The rise follows six consecutive three-month periods of contraction and was caused in part by 0.1 per cent increases in both production and services output over the period in question.
