How far will you go to reduce a 60% tax bill?

It is less than three years since the lowest tax rate paid by most people was 10%, with the basic rate at 20% and the highest rate at 40%. In 2010/11 very few people get any advantage from the 10% rate (it now applies only to the savings income of those with the smallest taxable incomes) and the highest rate charged on income is now 50%. But there is an effective 60% rate for those with incomes between £100,000 and £112,950.

There are two key routes to steer clear of the 60% rate – reduce income or increase allowances. Reducing your income might not appeal, but if your income fluctuates anyway you might defer income from one year until the next. There is limited scope for increasing allowances but pension premiums and gift aid donations – which score for 20% immediate relief on payments and the balance through self-assessment – would be effective.

If you expect your income this year to fall into the critical band, we can help you to estimate the “right” result - £100 invested in your pension for £40 net cost to you, or £103 to your chosen charity for a net £40 cost to you.