There has been some speculation recently as to the future of the top 50% income tax rate.

This has been fuelled by reports by economists that a 50% top income rate does not help the prospects for economic growth and a comment by the Institute of Fiscal Studies that a tax rate of 50% actually has the effect of reducing inflows to the Treasury.

The Government has not made a positive statement either way about the future of the 50% tax rate. But, despite this, it is unlikely to be with us for the long term.

This means that the 300,000 or so people who are affected by this tax rate should make “hay while the sun shines” in an attempt to make tax-efficient investments or take planning action. The following springs readily to mind:-

• Pay the maximum you can to registered pension plans. In particular, maximise unused relief for the last 3 years. Contributions attract tax relief at the marginal rate(s).
• Invest in investments that restrict taxable income – such as single premium investment bonds (non-income producing yet with a 5% tax-deferred annual withdrawal facility available) and capital growth orientated unit trusts/OEICs.
• Invest in tax-relievable investments – VCT (30% relief) and EIS (30%) subject to the usual limits. Obviously consider any investment risk first.
• If you are married and your spouse has allowances available or pays a lower rate of tax, consider transferring investments to him/her. But make sure the most appropriate investments are transferred.
• If you own a small company, retain profits in the company and pay the lower rates of corporation tax rather than income tax. Consider pension contributions by the company.

If you have any questions about tax planning strategies for 50% income tax payers please contact us on 020 3865 2379