Are you paying tax at 60%?
For high earning taxpayers, their Income Tax personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This creates an effective marginal rate of tax of around 60% for tax payers as the £11,500 tax-free personal allowance is gradually withdrawn.Taxpayers whose income sits within this band should consider what planning opportunities are available to them in order to avoid this personal allowance tax ‘trap’. This can include giving gifts to charity, increasing pension contributions and participating in certain investment schemes. These strategies also apply to higher rate and additional rate taxpayers looking to reduce their tax bills.Planning noteFor example, a higher rate or additional rate taxpayer who wanted to reduce their tax bill for the last tax year could decide to make a gift to charity in the current tax year and then elect to carry back the contribution to 2016-17. A request to carry back the donation must be made before or at the same time as the 2016-17 self-assessment return is completed. The deadline for filing a paper tax return has now passed but the online deadline of 31 January 2018 means that for most taxpayers there is still some time to act.