Monday, 5 March 2012

50p Tax rate

There is a debate underway about the 50p tax rate. People in the UK on high incomes are meant to pay income tax at 50p for even £1 of income above £150,000.    In theory that is, as in practice, very few people do pay income tax at 50%.    Partly that is due to tax avoidance and tax evasion - but partly it is because there are a myriad of tax allowances that people on high incomes can exploit to reduce their tax bill.   Perhaps the most enormous of these is pension tax relief - so anyone on the 'higher rate' of income tax - 40%, can effectively claim back that money if they pay their income into a pension.  

This si very expensive for the tax collector.  It is also a very bizarre system - the people who have the most money to save for pension get the biggets tax breaks ! The people with the smallest amount of money to save towards a pension get the smallest tax breaks.

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