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  • Stephen Kelly

60% Tax Trap aka Tax Corridor of uncertainty

  • For the 2023/2024 Tax year if your earnings are between £100,000 and £125,140, the loss of the personal allowance could mean you end up paying an effective rate of 60% tax on a proportion of your income.

  • This is due to the tapering of the 2023/2024 personal tax allowance of £12,570, by £1 for every £2 that your income exceeds £100,000.

  • If you an employee and your income exceeds £100,000 and your PAYE tax code has not been adjusted to reflect the partial or full restriction of the personal tax allowance, an unexpected tax bill of up £5,000 from HMRC can be arise. When you may have been working on the assumption that HMRC had your PAYE tax code in order and all income tax due had been deducted at source by your employer.

  • If you do find yourself in the position of having income above £100,000 it may be possible to make a lump pension contribution, to effectively reduce your taxable down and reclaim some or all of your 2023/2024 personal tax allowance.

  • The ability be make a lump sum pension contribution is of course dependant on your personal circumstances including annual caps into what can be paid into a pension, but as this course of action can move you from paying a very high rate of income tax to benefiting from a "super rate" of tax relief it is something that should strongly be considered.

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