#Tax Myth 7 - The Highest Income Tax Rate Is 50%

Posted on in Income Tax

You may be aware that income of £150,000 and above suffers a tax rate of 50%.

What is less well known is that at a lower level of income the tax rate is in fact higher than 50%.

For income of between £100,000 and £116,210, the income tax rate is 60%.

Why is this?

From £100,000 the personal allowance available to all taxpayers is gradually taken away at a rate of £1 for every £2 of income. The change from completely tax free income to that income being taxed at 40% causes that income to pay a marginal tax rate of 60%.

As the tax free personal allowance increases, the band of income which pays a rate higher than 50% (or 45%) will increase. If the tax free personal allowance becomes £10,000, the income level affected will be between £100,000 and £120,000.

For those who can spread income across different tax years, such as owner-directors, this is a valuable tax saving.