The new higher income tax rate

The tax system often features in early discussions with new economics students. In anticipation of questions and wanting to get my answer right, I have been double-checking on the new income system with effect from 6th April 2010.

The personal income tax allowance will be £6,475 The basic rate of income tax is 20% The marginal rate of tax between the top of the basic rate band and £150,000 is 40% From 2010 there is a new higher income tax rate of 50% for taxable income above £150,000 The other change is the gradual withdrawal of the personal tax free allowance for people with a net income in excess of £100,000 Above £100,000 the tax allowance is reduced by £1 for every £2 extra of net income Thus people with an income of more than £113,000 will no longer receive a tax free allowance National insurance contributions rise in 2011.

The costs and benefits of having a higher 50% marginal rate and the choice of £150,000 as the taxable income level at which this kicks in will prompt plenty of interesting discussion.