What is the impact of increasing the higher rate income tax threshold from £50,000 to £80,000?
Boris Johnson has promised to cut taxes by increasing the higher rate income tax threshold from £50,000 to £80,000. What does this mean for us? Chartered Accountant and Business Adviser Nadia Hossen Mamode explains the impact on the weekly #TaxTuesday blog.
How much do you have to earn to see any tax savings?
The proposed income tax threshold increase is from £50,000 so this means those earning in excess of £50,000 will see some tax saving.
How much tax will be saved?
We looked at the income tax rates, thresholds and allowances in a previous blog.
Increasing the higher rate income tax threshold from £50,000 to £80,000 means that this portion of income, tax will be at 20p (per £1) instead of the current 40p. The tax saving would be 20p per £1.
|Proposed thresholds||2019/20 thresholds|
|Basic rate 20% on earnings between||£12,501 and £80,000||£12,501 and £50,000|
|Higher rate 40% on earnings between||£80,001 and £150,000||£50,001 and £150,000|
|Additional rate 45% on earnings from||£150,001||£150,001|
The amount of tax saved will be as follows.
The maximum tax that can be saved is £6,000. (20p between £50,000 and £80,000)
What if a portion of income is from dividends?
The income tax treatment of dividends is as the top slice of income. This means that the basic rate tax band is first allocated against other income.
If the dividends income falls between £50,000 and £80,000 this portion of income, tax will be at 7.5p (per £1) instead of the current 32.5p. The tax saving would be 25p per £1.
The maximum tax that can be saved if it was all dividends income between £50,000 and £80,000 is £7,500. (25p between £50,000 and £80,000).