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The Personal Allowance (PA) represents the amount of income that an individual can earn free of income tax. The standard PA for those under 65 years old is £12,000 per annum (2019/20).
In April 2010 the Treasury introduced legislation that seeks to remove the personal allowance of those people earning over £100,000.
Since April 2010, people with ‘net adjusted annual income’ of over £100,000 will have their personal allowance reduced or even removed. The reduction is at a rate of £1 for every £2 of income over £100,000.
Based on the current standard personal allowance, this means that anyone with income over £120,000 will lose their personal allowance completely. This means that an additional £10,000 of income for such high earners is now being taxed at 40% or even 45%, whereas before this date it was not taxed at all. 45% on this £10,000 could mean additional income tax of £4,500.
The effective marginal tax rate on earnings between £100,000 and £120,000 is 60%.
There are various means by which those earning over £100k can consider to avoid some or all of the 60% tax.
To find out more about our tax planning services get in touch with our team.
Pete has been visiting me (and my husband when he was alive) for something like 10 years now. I have always been glad of his advice and am confident it is correct for me and suits my situation.