Watson Buckle Blog

Basic-rate bailout is botched

In an effort to appease disquiet among basic-rate taxpayers, the Chancellor launched a new super income tax that could see some of the UK's wealthiest individuals forfeit up to 60p in the pound. Essentially, it is a re-hash of the 60 per cent levy.

The new rules state:

  • where an individual's income is below the £100,000 income limit, he/she will continue to be entitled to the full allowance
  • those with incomes between £100,000 and £140,000 will see the value of their personal allowance reduced from April 2010
  • beyond the £140,000 mark, the personal allowance is removed altogether

So if you earn upwards of £100,000, your personal allowance will be reduced by £1 for every £2 of gross income over and above the income limit up to a maximum reduction of half of the personal allowance. Those with income of above £140,000 can expect their allowance to be further reduced by £1 for every £2 above this income limit up to a maximum of the full amount of the personal allowance.

It's as clear as mud.

What people don't realise is that the lowering of the personal allowance at £100,000 gives an effective tax band of 60 per cent. The rules change again at £140,000, yet crucially, we still end up with two small bands with an effective 60 per cent rate of income tax.

I'll explain. Due to the staged loss of the personal allowance on income in the £100,000-150,000 bracket – however well it is disguised – the individual will be subject to tax at a marginal rate (the percentage of extra income received that must be paid in taxes) of 60 per cent as well as National Insurance of between 1 and 1.5 per cent from 2011/12 on.

Margaret Thatcher slashed the 60 per cent tax levy in 1988 yet here we are again waving goodbye to 60p in every £1.

Why doesn't the Chancellor tell it as it is? It may be unpopular but it is his policy, and unless I'm mistaken, the role of Chancellor brings with it a personal responsibility to each and every taxpayer to explain clearly what percentage of our earnings he's pocketing for government use.

John Kinsella
Watson Buckle
www.watsonbuckle.co.uk