Tax changes Financial Planning for Lawyers and High Earners

Reports Mark Hoskin, 21st July 2009

The new legislation introduced by Alistair Darling for higher rate tax payers earning in excess of £150,000 will have a significant impact on financial planning for lawyers and high earners and see a change in the types of investment that these individuals look for. There are three key changes for higher earners to consider in their financial planning from 6^th April 2010. Firstly, after the personal allowance will cease to exist for those earning over £100,000, increasing an individual’s taxable income by £6,035; secondly, those earning over £150,000 will pay tax at a new top rate of tax of 50%; And thirdly, tax relief on pensions for those earning over £150,000 will be restricted to the basic rate, which restricts pension relief to just 20%.

Steven Pyne of Holden & Partners, the Wealth Manager says, “The glory days for pensions have gone for big earners. There will be a much greater need for the aspiring wealthy and wealthy to strategically plan their savings strategy. In the last ten years young lawyers have taken on big mortgages early in their careers and deferred pension planning to their higher earning later years. This strategy may need to change”. In the future individuals will need to make use of the 40% tax relief while they earn under £150k, sparking a sea change in financial planning. For a lawyer earning £149,000 a £100,000 pension contribution comes with a £40,000 tax saving, but for the same lawyer earning £151,000 the tax relief will only be £20,000.

“Proper planning will generate significant wealth and it may even be worth taking on loans in pension planning to achieve this,” Pyne adds.

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