Personal tax changes

The Chancellor has not only brought forward proposals which were to take place in 2011, he has also made changes to his original announcements. From 6 April 2010 the personal allowance, currently £6,475, will be subject to an income limit of £100,000. An individual’s personal allowance will be reduced by £1 for every £2 of adjusted net income above the income limit. The personal allowance will be potentially reduced to nil from this income limit instead of the proposed two stage reduction announced last year. Adjusted net income for these purposes is broadly all income after adjustment for pension payments, charitable giving and relief for losses. Instead of the proposed 45% top rate of tax in 2011, a new rate of income tax will be introduced of 50% from 6 April 2010. This will apply to taxable income above £150,000. Dividend income is currently taxed at 10% where it falls within the basic rate band and 32.5% where liable at the higher rate of tax. A new rate of 42.5% will be introduced for dividends which fall into the income band above £150,000. Source: HMRC budget note 1