2nd April 2010

More Higher rate tax payers

In what was the government’s last Budget before the general election, Alistair Darling announced that all income tax bands and personal allowances (the amount you can earn before tax kicks in) will be frozen for the next financial year.

The 2010 Budget will create tens of thousands of new higher-rate taxpayers, experts have warned. David Kilshaw, head of private client advisory at KPMG, warns the move will “hurt everybody” as pay inflation will push more people into high tax bands.

The Chancellor expects inflation to be 3% in the coming year but the personal allowance and basic rate band remain frozen, something that was conspicuously absent from the speech.

The freezing of allowances and the higher rate threshold was not mentioned, but instead wary of alienating the electorate, the chancellor focused on the areas that affect the relatively few higher earners, such as the 50 percent tax rate.

Darling also confirmed in the Budget that the new 50% rate of income tax on people earning more than £150,000 a year – the top 1% of earners – will come into place in April. For people with incomes over £100,000 a year - the top 2% - the government will gradually remove the value of their personal allowances.

Experts say freezing personal allowances for all taxpayers is a “stealth tax”. Personal allowances were last frozen over a decade ago. This ‘stealth tax’ follows the new 50% higher rate of income tax, which is set to come into force next month for those earning more than £150,000. It is clear that consumers are going to be hard hit by these moves.

Source: Moneywise