Two satisfying tax breaks for high earners

If you earn over £100,000 you'll find your personal allowance disappears. But there is a way of clawing it back, says Merryn Somerset Webb.

Let's say you earn over £100,000 a year. You probably feel mildly irritated by the removal of your personal income tax allowance. It used to be that everyone had a universal right to earn seven grand or so without paying tax. No more. Today the allowance currently £7,475 is no longer a right granted to those the state considers to be high earners. Make more than £100,000 and it is progressively withdrawn for every £2 you earn you lose £1 of the allowance until, at £114,950, it is all gone, giving you a marginal tax rate of 60% and making you wonder if getting up so early is really worthwhile after all.

You will be pleased to hear then that there is a way to claw something back. How? Via the pension system. Richard Evans, writing in The Daily Telegraph and using figures from Vince Smith-Hughes of Prudential, uses the example of someone earning £114,950 a year. He makes a pension contribution of £14,950. This brings his taxable income down to £100,000. So he gets his personal allowance back, saving him £2,990 in tax. Then he gets his 40% tax back on the contribution, adding another £5,980. That means he has bumped up his pension by nearly £15,000 for a total cost of less than £6,000.

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