number of people paying income tax at 40% now three million up from 1.7 million in 1993
The number of people paying the top rate of income tax has grown 76% in the last 10 years.
The latest guide from the David Aaron Partnership on the independent taxation of married couples, said that compared to 10 years ago where some 1.7 million people were in the top tax band, it is estimated in 2003/04 that three million people will pay higher rate tax.
David Aaron, managing director of the David Aaron Partnership, said there are two main reasons for the rise. First is the Government's budget announcement last year that the standard personal allowance was to be frozen for one year and secondly the figure at which the top rate of tax is payable is closer than it used to be to average earnings.
The £30,501 starting level of paying the top rate of tax is now about 55% higher than average earnings, compared to 10 years ago where an individual would have needed to have taxable income of 76% more than the average to hit the top tax band.
It is not only the high earners who are being hit by higher rates of tax. Aaron said despite the fact the personal allowances of the elderly have increased this year, they may still be subject to higher marginal rates of tax.
He added: 'Anybody aged 65 or over is entitled to a higher personal allowance but this allowance is reduced if that person's income exceeds £18,300. This can mean that the income that causes this reduction is effectively being taxed at a rate of up to 33%.'
Faced with these potential liabilities, Aaron believes it is vital that people plan to maximise the use of all their tax exemptions and allowances to help reduce tax liabilities at the higher rates.
To help couples optimise their tax planning, the Partnership has updated its guide to the independent taxation of married couples.
Examples of recent disguised ways in which the tax take has been increased for married couples, without it being directly apparent, is the phasing out of mortgage interest relief, the removal of the married couple's allowance for younger couples and the removal of the ability of a non-taxpayer to reclaim the tax credit on UK dividends.
Indeed, a survey by IFA Promotion showed that around £4bn would be lost in 2003 through individuals not using up all of their individual tax allowances.
IFA Promotion estimated that the Inland Revenue will collect an unnecessary £114 more tax per person in 2003 than is necessary, however it concluded that using up Isa allowances alone would save £110m of tax and that just filling in a self-assessment tax return correctly could save £404m.
A free copy of the guide is available on the David Aaron Partnership's website, www.aaron.co.uk.
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