Higher rate earners urged to take advantage of tax breaks as tax burden grows

Higher rate UK earners facing a tax burden of almost 70% and should try to take full advantage of tax breaks this year, according to experts.

Fidelity International has calculated that with the increase in VAT and proposed national insurance increases this year, a basic rate tax payer could be paying out over 43% in taxes on each new pound they earn and spend.

Higher rate and additional rate taxpayers face an even stiffer burden. Higher rate tax payers face a burden of 52% and additional rate tax payers some 60%. Those earning over £100,000 a year face a burden of 68%.

With UK taxes at such high levels, as savers and investors we owe it to ourselves now more than ever to get the full benefit from available tax breaks this year, says the investment specialist.

The figures are based on marginal rates of tax burden rather than the average rate paid on all earnings and are based on spending at the standard rate of VAT.  The personal allowance, National Insurance thresholds and tax credits all serve to reduce the actual average rate paid on total income. There is no global average as it depends on individual earnings and allowances.

‘These figures will prove quite shocking to many. The amount we are now paying in taxes is really significant and people must ensure they take advantage of every tax break available to them,’ said Rob Fisher, head of UK Personal Investments at Fidelity International.

‘In particular, if you haven’t already done so, look to open an Individual Savings Account (ISA) now.  The ISA is really a form of tax avoidance approved by the taxman. You can invest up to £10,200 each tax year in a stocks and shares ISA, for example, and all future returns are free of income or capital gains tax. I urge people to protect more of their hard earned cash from the heavy weight of the taxman in 2011,’ he added.