The headline income tax rates for England 
and Wales are 20%, 40% and 45%, and this gets more complex when dividends are taxed, with headline rates of 0%, 8.75%, 33.75% and 39.35%.
If you think that is bad enough, pity those in Scotland who have rates of 19%, 20%, 21%, 42%, 45% and 48% to contend with.
We will find out shortly what changes will likely be made to the tax rates from April 2024 in the forthcoming Budget on 6 March.
Tax planning can clearly help alleviate these rates, and indeed, it may be possible to obtain “effective tax relief” in excess of the rates above.
An example:
Someone in England/Wales earns between £100,000 and £125,140. For every £2 of income over £100,000, the tax-free personal allowance goes down by £1.
An extra £1,000 income means £500 less personal allowance, so there is tax to pay on effectively £1,500 more @ 40% and therefore £600 tax is payable on the £1,000 extra income – an effective tax rate of 60%.
Pensions are one way of reducing taxable income. Keeping a record of payments made under Gift Aid and claiming for these also helps reduce the tax.
