Despite anticipation that the 50% tax rate was to be abolished, it has been announced that it will not be removed but will be replaced by a 45% rate instead. The change will take place in the 2013/14 tax year.
The 50% tax rate is currently the top rate of income tax paid and is applicable to individuals with an annual income of over £150,000. This top rate is now to be cut to 45%. In line with this drop, the top dividend tax rate will also be reduced from 42.5% to 37.5%. Trust rates are also expected to mirror the changes.
Any individuals with income over £150,000 per annum will be affected by these cuts.
The new rate became effective on 6 April 2013 therefore will be applicable on income falling into the 2013/14 tax year.
Those who will be affected by the changes can take action now to benefit themselves further. Since it is known that a rate reduction is coming, wherever possible top rate tax payers can defer income (for example, dividends and bonuses) into 2013/14 to enable them to benefit from the reduced rates that will be in action then.
