Higher tax net could be spread more widely

The new tax rate, which is due to take effect in April, will be levied on all taxable income above 150,000 and applies to all "relevant income"; a phrase Yorkshire Bank believes may cause confusion.

Richard Norrington, Yorkshire Bank regional director for integrated financial solutions in Yorkshire and the North East, said: "The 50 per cent tax rate does not apply only to earned income but to all taxable income, meaning that those who earn below the threshold may still be brought into the 150,000 bracket.

"For instance, even if an individual's salary is 90,000, but other taxable benefits such as a company car or employee loan are factored in, the individual could be taxed at the highest rate."

Relevant income can come from various sources such as salary, taxable profit from a trade; state and private pensions, bank interest, share dividends, rental profit and redundancy payments.

The 50 per cent tax rate, announced in the last Budget, comes into effect alongside other tax changes including a reduction of personal allowance on net income of more than 100,000 and the introduction of anti-forestalling rules. Income of 150,000 is currently liable to the 40 per cent tax.

In 2011, further changes to the tax system are to be brought in, including limits on an individual's tax relief on pension contributions.

Mr Norrington added: "There is no one-size-fits-all in terms of financial planning to accommodate the new tax rules. Everybody needs to examine their own financial situation to understand how they could be affected and identify ways of planning their finances more effectively in order to reduce, or mitigate, the impact of the changes."