50% Tax Threshold in the UK

*Note that the top rate of tax in the UK has been changed to 45%, but still many of the principles below apply*

The increase of the upper tax bracket to 50% commenced in April 2010. How long this will remain at this level is unknown. The Tories have suggested that if/when they win the upcoming election they will reduce it back to 40% ,whether this actually comes to fruition in the short term is debatable. At any rate, for at least the next financial year, everything that you earn over £150K will be taxable at 50%.

This is a 10% hike in one tax year. A bankrupt government seeing this as one strategy to overcome their massive deficit. They figure that taxing those that the public perceive as responsible for the current economic crisis is a sound political and economic policy. Not sure that punishing all high earners for the mistakes of a few is exactly a rational policy, it might drive a number of them out of the country thus negating the benefits of the hike. In any event, the case for and against the hike is largely moot, personal income tax rates will increase to 50% irrespective.

An article in the Times (21-02-10) http://www.timesonline.co.uk/tol/sport/article6395778.ece suggests that premiership footballers, well to be honest their business managers/agents, are looking at ways to get around this increase. Footballers bring headlines, in fact the strategy they are looking at using (essentially having their employers pay them their salaries as 'interest free loans') is a strategy that those that have had any control over whom and where their income is paid have been utilising for some time. 

Bankers/Hedge Funders etc might find it hard to convince their employers to offer the same solution, I would imagine they will simply forgoe their bonuses in the short term. Anyone else working for a large corporate and earning over £150K might also find that their employers are reluctant to offer this solution. However, for those working in smaller organisations with the ability to negotiate or influence their payment options it would be well worth looking into. For the self employed or contractors a similar option is also available. Try: http://contractortaxation.com/uk/high-income-tax-management