Taxing times

New tax rate for wealthy individuals

Alistair Darling, the Chancellor introduced a new income tax regime for highly-paid individuals. The government had previously planned to introduce a new income tax rate of 45 per cent on income over £150,000 from April 2011.

However, it has brought this increase forward by a year and raised the rate to 50 per cent. It also removed the personal allowance, the first £6,475 (2009/10) of earnings that are currently tax-free, for high earners and reduced tax breaks for wealthy pension savers.

From April 2011, anyone earning more than £150,000 will see their ability to claim income tax relief on pension contributions restricted. Those earning £180,000 will only be able to claim back 20 per cent on pension contributions, even though they will have paid income tax of up to 50 per cent.

The Chancellor announced a number of measures to help savers including a £3,000 increase to the annual individual savings account (ISA) allowance. The ISA allowance has been extended from £7,200 to £10,200. Investors over the age of 50 can make use of the increased allowance from October 6 this year.

All other savers will be able to utilise this additional new allowance from the start of the next tax year on April 6, 2010. Up to half, £5,100 of the enhanced ISA allowance can be used for cash savings, with the remainder open to other investments such as equities and bonds.

Investors in an enterprise investment scheme (EIS) will be allowed to “carry back” their entire investment to the previous tax year. Previously, investors could only carry back the 20 per cent tax relief allowed on EIS investments up to £50,000. Relief can now be claimed up to £500,000.