Coming soon – a tax rate of 2,265%?

On the 6 April 2012 some UK tax payers could face a marginal rate of tax that makes the highest 50% tax rate look generous.

Under current proposals a household in which one earner is a higher rate tax payer will lose any entitlement to child allowance. In practice this would mean that £10 of earnings per annum in the higher tax band would attract income tax of £4 and cause £2,261 of benefits to be lost (for a family with 3 children). This adds up to an effective tax rate of 2,265%.

The Budget on 21 March 2012 will hopefully make the policy clearer but there seems to be little indication that the Chancellor has any plans to pull the proposal. Watch this space.

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