Following on from last week’s NewsBite and the keen interest shown by many, I thought we’d take the discussion one step further……!

It’s not uncommon for us to see client incomes north of £100,000. Not all the time, and not everyone, but certainly not uncommon. Once you hit the £100,000 level, several things start to happen. One of those things is that you enter the top 1% of incomes in the UK, no mean feat in itself, but did you know that you also start to lose your personal income tax allowance? For each £2 you earn over this level, you lose £1 of your personal allowance. Translating that into English means that by the time you have reached an income level of £121,200, you have lost your personal allowance entirely. The effective tax rate in this income range is 60%, and that’s before you add in National Insurance contributions…….. shall I go on? On the £21,200 of earnings immediately over £100,000, £12,700 goes in tax, with the remaining £8,480 being paid to you.

This is a horrible income area to be in, granted, it could be looked upon as fortunate that you are earning sufficient to be in this position, but if you’re in it, it’s not a pleasant feeling – more of what you earn is going in tax, than into your bank account – not the most motivational speech I’ve ever heard.

However, not to be the bearer of doom and gloom, there may be something that can be done to help you. We look after many clients in this position and have been able to advise them on a course of action which can re-instate their personal allowance, in part or in full, and sometimes go even further that, and save even more tax. Linking directly into last week’s NewsBite, there is quite possibly one last opportunity that you can affect this predicament fully. Next tax year you may be able to mitigate the position partially, but, we believe that this will be the last year where you may be able to work to reinstate the whole of your allowance and regain the full impact it once had upon your bank account.

It goes without saying that each individual has different circumstances, and that careful planning and work with a suitably qualified financial adviser is required. The weeks to 16^th March (the day The Chancellor will deliver his Budget Statement) are rolling along, and so, perhaps as you read this with your cup of tea, you will pick up the phone to your planner and make the time to see them and start your conversation. Please, please do not leave it too much longer, this planning takes time, and your adviser will be grateful that you have given them the opportunity to help you as best they can.

Have a great first week of February!

Carrie Devonshire BSc(Hons) FPFS

Director & Chartered Financial Planner

This article is considered to be general market or informational commentary and does not constitute any type of investment or other professional advice. It is not a recommendation, nor does it take into account the investment objectives, financial situations or needs (including tax) of individual clients. This document is not intended for, and should not be construed as an offer, solicitation or recommendation to buy or sell any specific financial product or instruments, or to participate in any investment or (other) strategy. You are recommended to seek advice concerning the suitability of any investment from your independent financial adviser. Investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the original amount you invested.