Stuck in frozen tax thresholds?

The value of key tax thresholds is being eroded as elements of the income tax system lag behind inflation.

Three key thresholds relating to income tax have been subject to this treatment:

  • High income child benefit tax charge This tax charge, introduced in January 2013, claws back child benefit at the rate of 1% for each £100 of income over £50,000 (based on the higher of the two parental incomes). That £50,000 threshold has not changed since its introduction.
  • Personal allowance tapering The personal allowance is reduced by £1 for every £2 you earn over £100,000, and has not been revised since it was introduced in 2010. 
  • Additional/Top rate tax starting point The additional tax rate started in 2010/11 with a threshold of £150,000. Whilst it has since been reduced from 50% to 45% (46% in Scotland), the threshold has not increased.

You can limit the effect of these income-driven thresholds by reducing the income being measured. For example, you may be able to transfer investments to your spouse or civil partner, or use personal pension contributions to reduce your income for tax purposes.

ISAs and some other investment products can also shelter your income and prevent it counting towards thresholds.

As it is early in the tax year, there is more scope for reducing the effect of these freezes in 2018/19, with professional advice.

Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.

The Financial Conduct Authority does not regulate tax advice.

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