"Double whammy" for high earners

The Chancellor announced a "double whammy" of a 50 per cent top income tax rate and scrapped higher rate relief on pension contributions for those earning over £150,000 each year.  These changes will see certain high earners facing their total income tax bills rising by as much as 50 per cent according to calculations from BDO LLP.

In acknowledgement of the need to raise additional taxes, the proposed new top income tax rate of 45 per cent, which was only set out in the November 2008 Pre-Budget Report has already (before it was even implemented!) been replaced by a 50 per cent rate to apply from 6 April 2010 onwards.  At the same time, these high earners will no longer benefit from the tax free personal allowance, currently £6,475 each year.

Furthermore, from the following tax year, 2011/12, higher rate tax relief for pension contributions will be abolished with the relief "capped" at the basic rate on incomes above the same threshold of £150,000 per annum. 

A senior hospital consultant earning £250,000 and contributing to his personal pension, currently gets full tax relief for a £75,000 pension payment and pays around £60,000 in income tax.  From 2011/12, his income tax bill will leap to almost £90,000 as he would suffer income tax at 50 per cent on his top £100,000 of income with tax relief for the pension contribution restricted to the basic rate of 20 per cent.

Stephen Herring, Senior Tax Partner, BDO comments "The announcements in last year's Pre-Budget Report can now properly be seen to be the thin end of the wedge and no one will doubt that the higher rate taxpayer will provide a tempting target for Mr Darling and his successors if the fiscal deficit targets again are to be reined in. Disappointingly, this has shattered the long term cross party consensus on a 40 per cent top income tax rate and personal pension reliefs."

-Ends-

For more information or to talk to one of our tax experts, please call the
Budget Hotline:
020 7893 2717
Or contact Matthew Longbottom at BDO on 07976 198 786 or email matthew.longbottom@bdo.co.uk

http://www.bdo.uk.com/services/tax-services/budget-2009.html

Budget opinions and comments are also streaming in real time on Twitter:
Look up BDOACCOUNTANT and follow us.

Notes to editors:

BDO LLP operates across the UK with over 3,000 partners and staff. BDO LLP is a UK limited liability partnership and the UK Member Firm of BDO International. BDO international is a world-wide network of public accounting firms, called BDO Member Firms. Each BDO Member Firm is an independent legal entity in its own country. The network is coordinated by BDO Global Coordination B.V., incorporated in The Netherlands, with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels, Belgium, where the International Executive Office is located. In the UK the Belfast Firm is operated by a separate Partnership known as BDO - Belfast.

BDO LLP and BDO - Belfast are both authorised and regulated by the Financial Services Authority to conduct investment business.

BDO is an award winning firm.  Recent achievements include:

Best Workplace UK - Financial Times 2008
Audit Team of the Year – Accountancy Age Awards 2008
Tax Team of the Year – Accountancy Age Awards 2008
Corporate Finance Deal of the Year – Accountancy Age Awards 2008
100 Best Companies to Work For - The Sunday Times 2008
The Women of Achievement Award –  Women in the City 2008
Business Superbrand - Business Superbrands 2008