The new 50% tax rate and the remittance basis
This was the headline grabbing change in the Budget Report. The Chancellor proposes to introduce a new 50% income tax rate on anyone earning over £150,000. It was originally announced as a 45% tax rate in the 2008 Pre-Budget Report but the Chancellor increased it to 50% in the April 2009 Budget.
He has also brought the tax increase forward as the 45% tax rate was not due to be implemented until 6 April 2011, whereas the new 50% tax rate will apply from 6 April 2010.
So as from 6 April 2010 we will end up with:
Dividends
From April 2010 there will be three tax rates for dividends:
This means that the effective income tax rates on dividends will be 0%, 25% and 36.1% respectively.
The 36.1% rate is calculated as follows:
Net dividend £90
Grossed up to £100
Income tax at 42.5% £42.5
Less tax credit £10
Income tax payable £32.5
Effective income tax rate = £32.5/£90 = 36.1%
How Will these New Tax Rates Affect Non-Doms?
The above rules apply to non-doms in the same way as other UK residents.
Therefore non-doms who have taxable income above £100,000 will see their personal allowance restricted/withdrawn and anyone earning over £150,000 will need to pay the new income tax rate of 50% or 36.1%.
Non-doms with overseas unremitted income should take these new rules into account when deciding whether to claim the remittance basis or the arising basis.
If for instance you will be subject to the 50% income tax rate because you have a high UK income and you have substantial overseas investment (non dividend) income you would have a choice of either:
The fact that you would now be paying UK tax at a much higher rate and that filing a claim for the remittance basis would not cause you to lose your personal allowance would certainly affect your decision.
We've already seen in other articles that for 2009/2010 if you are a higher rate taxpayer you should claim the remittance basis if your overseas unremitted income is above £81,475. This is because at this point the loss of the personal allowance and the saving of tax at 40% would cover the £30,000 remittance tax charge.
However for 2010/2011 if you're paying tax at 50% there would be no loss of personal allowance to take into account. In this case if you had overseas unremitted income of £60,000 or more this may make claiming the remittance basis more attractive due to the higher rate of tax. (ie 50% * £60,000 = £30,000).
About the Author
The Author of this article is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
In this book we look at a variety of tax planning strategies that arise from the terms of the UK's double tax treaties. This book is updated for the 2022 changes....keep reading
For many people the family home is the most valuable asset they have. As such protecting its value will be of key importance. In this tax guide we look at the key tax planning opportunities for the family home and private residences....keep reading
This brand new (December 2022) edition of our best selling offshore tax planning book tells you what you need to know to take advantage of offshore opportunities and slash your UK tax bill. It's a pretty comprehensive look at plenty of UK and offshore tax planning techniques including residence, domicile, emigration, using offshore companies and trusts, buying property overseas and much more....keep reading
Inheritance tax is a particularly nasty tax as it's a tax on your capital that you've accumulated from your after tax earnings. In this book we look at some of the top ways you can legally reduce your inheritance tax liability....keep reading
This book looks at a number of tax planning issues for company owners and considers both corporate and personal tax planning opportunities available. It is updated for the latest changes for 2022/2023....keep reading
Buy-To-Let ("BTL") landlords have to consider Income Tax, Capital Gains Tax, Inheritance Tax and Stamp Duty Land Tax on their property holdings. In this book we look at tax planning techniques that all BTL landlords can consider to reduce the amount of these taxes they pay....keep reading
This guide is essential reading for anyone providing digital or online supplies of goods and services. It looks at the international tax treatment from both an income tax/corporate perspective as well as VAT/GST....keep reading
The aim of this guide is to give context to the considerations for 99% of international tax planning scenarios. Without understanding the information contained here, you will find it very difficult to apply or structure any kind of tax planning to your international transactions/assets....keep reading
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
=============================================================
Disclaimer
=============================================================i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.
ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.
These Notes (and Disclaimer) do not affect your statutory rights in the United Kingdom.