Pre-Budget Report: BDO reacts to changes in personal taxation

The Government intend to make permanent the £600 increase in the income tax personal allowance announced in May 2008 with a further increase of £130, meaning basic rate taxpayers pay £145 less tax a year in 2009/10.

Stephen Herring, Senior Tax Partner BDO, comments:

"Not surprisingly the Government has made permanent the increase to the personal tax allowances introduced for those individuals that lost out on the 10 pence rate in the last Budget. In my opinion, making good the full loss to all taxpayers from the removal of the 10 per cent starting rate should have been the very first use of the Chancellor's funds available for his £20 billion fiscal stimulus."

As widely leaked over the weekend, the Chancellor has proposed a new additional higher rate of income tax of 45 per cent (and 37.5 per cent for dividend income) for those individuals with incomes above £150,000 which will take effect from April 2011.  In addition, there will also be a restriction to the amount income tax personal allowances to basic rate for those with incomes of over £100,000 and total removal for those with income over £140,000.

Stephen Herring continued: "Whilst it is claimed that these measures will only affect two per cent of taxpayers, these will represent, alongside the proposed national insurance increases, a significant increase in taxation for those affected.  Although most taxpayers will not be affected and may be relieved that these measures do not impact upon them, there are new principles introduced into UK tax legislation which could well affect many more taxpayers in future years such as the limitation of the benefit of personal allowances."

Herring added: "The increased tax rate on income above £150,000 may well bring less than £2.5 billion into the Exchequer and  the impact upon the attractiveness of the UK to both entrepreneurs and senior executives is not, in my view, worth the tax collected. It is a shame that the cross party consensus on the rate of higher rate tax appears to have broken down.  The Chancellor could have limited the additional revenue raise from this sector to his national insurance proposals without unduly damaging the perception of the UK as a tax friendly location for senior management."

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For more information, please contact Matthew Longbottom at BDO on 020 7893 2717, 0797 619 8786.

Notes to editors:

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