The Institute of Fiscal Studies (IFS) has recently revealed that many professionals are paying an income tax rate of 60 per cent.
The policy which was introduced by the last Labour government is thought to affect approximately 500,000 people earning between £100,000 and £120,000 resulting in them paying 60p of every pound they earn in tax.
The 60p rate kicks in because those earning that band of income lose their tax-free personal allowance, resulting in higher rates of tax being applied to that portion of money.
Simon Howard, consultant at Ludlow Wealth Management said: “Currently there are three widely known and accepted bands of income tax; basic – which is 20 per cent, higher which is 40 per cent and the top rate which is at 45 per cent.
“However, when an individual’s adjusted net income reaches £100,000, the tax free personal allowance is reduced at a rate of £1 for every £2 of income above this amount. Therefore, if your income is large enough, the personal allowance will be reduced to zero which means you will pay an effective marginal rate of tax of 60% on a proportion of your earnings.
“The UK tax system is very complex and this is where people need plans that will help them achieve their financial objectives. The IFS’s findings indicate that thousands of people are being taxed at a ‘super’ rate – potentially without them knowing.”