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Over a million British taxpayers will face being caught in a tax “trap” in 2018-19, as their income exceeds £100,000 and they lose the benefit of their tax-free allowances.


Once an individual has taxable income above £100,000, they lose their tax-free personal allowance, which pushes their marginal tax rate to 60%. The number of individuals who are caught in the “tax trap” has

increased by a third since the coalition government came into power. The figures have risen from 588,000 people in 2010-11 to an estimated 791,000 in 2014-15, according to official figures. If the current pattern continues, the numbers will rise to over a million by 2018-19.

According to experts, the situation occurs as the amount of personal allowance received is reduced when income exceeds £100,000. It is reduced by £1 for every £2 of income above the threshold, which means that an extra 20% tax is charged. Income above £42,385 is charged at the higher rate of 40%, while the lost personal allowance of £10,000 results in an extra 20% being charged on the portion of income between £100,000 and £120,000.

According to a tax director from Deloitte, Patricia Mock, the amount of income that is liable to the 60% marginal rate has increased along with the personal allowances. In 2017-18, the personal allowance will increase to £11,000, which will increase the 60% band to £122,000. Experts advise that those who are facing the 60% marginal rate to consider tax planning to minimise the effects on their income.

Tax planning

There are a number of strategies that allow you to minimise tax in a legitimate manner. For those individuals with income just below the threshold of £100,000, making investments to attract capital growth, which is taxed at 28% if an individual is a higher rate taxpayer, is an attractive option. However, risks should be considered carefully before investing capital.


Individual Savings Accounts let you invest up to £15,240 per annum during 2015-16 without paying tax on the interest earned.

Pension schemes

The annual allowance has been reduced to £40,000 for 2014-15 onwards. However, tax relief on pension savings is given at the marginal rate of tax, which for those with income above £100,000, is 60%. This results in £1,000 being invested into the pension pot at a net cost of just £400.

For more advice about tax planning and bookkeeping, contact us at The Accountancy Partnership.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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