With tax bands and other thresholds frozen, taxpayers should be aware of the implications of their income increasing. Increased income can mean more than facing a higher tax bill.
Higher rate taxpayers need to look at which allowances, reliefs or benefits are no longer claimable and those which are now worth claiming.
Pension contributions are more attractive once relief is at a higher rate than just the 20% basic rate. Contributions make even more sense if entitlement to marriage allowance, child benefit or childcare is preserved. Given that the personal allowance starts to be tapered away at the same point that tax-free childcare is lost, the overall cost of pension contributions where income just exceeds £100,000 can be negligible.
Aside from the increased rate of tax when income crosses a threshold, the savings allowance is cut in half to £500 for higher rate taxpayers. This is lost altogether once income reaches £125,140. Tax on savings can therefore increase despite the amount of savings income not changing. Investing in Individual Savings Accounts (ISAs) can mitigate the problem, as can pension contributions particularly if income is above the £50,270 threshold.
There are different childcare schemes in Scotland, Wales and Northern Ireland, and Scottish tax rates and thresholds differ.
For information on tax relief for private pension contributions visit the government website.