2010/11 and extending basic rate band

2010/11 and extending basic rate band

Didn't find your answer?

I am doing a 2010/11 tax estimate and wonder how the basic rate band extension works.

Say someone has £200,000 of partnership profits and £20,000 gross pension contributions, obviously no personal allowance, and the basic rate tax band will be extended to £57,400 like in the past.

But, do we keep the 40% tax band at £112,600 or do we reduce it so that 50% still kicks in at £150,000?

eg. (if we keep 40% band at £112,600)

57,400 x 20% = £11,480

112,600 x 40% = £45,040

30,000 x 50% = £15,000

Total = £71,520

OR

eg. (if we reduce 40% band so that 50% still kicks in at £150,000)

57,400 x 20% = £11,480

92,600 x 40% = £37,040

50,000 x 50% = £25,000

Total = £73,520

If we do it the 2nd way, it would be possible for someone to have no 40% tax band at all, which surely cant be correct?

Many thanks for help in advance

Replies (2)

Please login or register to join the discussion.

avatar
By andymeeson
04th Mar 2010 12:04

Simples

The answer is that the 40% band stays at £112,600.

The legislation is FA 2009 Sch 2 para 11: "on the making of a claim the basic rate limit and the higher rate limit for the tax year in the individual’s case are increased by the amount of the contribution" - so the first threshold becomes £57,400 and the second threshold becomes £170,000 - the gap between the two remains at £112,600.

 

Andrew Meeson CTA ATT

Thanks (0)
avatar
By Simon K
04th Mar 2010 12:35

Thanks Andrew

Many thanks, exactly what i wanted confirmed

Thanks (0)