The Government’s decision to lower the 40 percent tax rate threshold will lead to around five million workers falling into the 40 percent tax bracket over the next five years.
It’s thought that when the new threshold begins, next April, 700,000 people will instantly go up a tax bracket. However that will be only the beginning as wage growth will lead to around four million more people being swept into the bracket over the duration of the Coalition Government’s first tenure. This is due to the predicted wage growth that will take place over the next five years. This year wages are expected to increase by 3.5 percent, and 5.4 percent by 2015.
However accountants have been quick to offer tips to help people who face rising tax bills. Those who are self-employed could consider becoming registered as a limited company, as they could then benefit via new rates of corporation tax, explains accountant Mike Warburton: “Take your personal allowance as salary first, and then pay yourself in dividends.”
Another option is transferring assets that give you an income over to a spouse who either earns less than you or doesn’t work at all. This would mean that your earnings will be minus the assets and thus you will fall back into the basic tax rate bracket.
Caroline Bevan tax specialist said; “Gift assets to your family members such as property or an investment portfolio to reduce the income tax burden and also for wider inheritance tax planning."
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