Pension pot fightback

FIVE-MINUTE GUIDE TO... AVOID 60 PER CENT STEALTH TAX TRAP

- By Harvey Jones

ANYONE who thought the highest rate of income tax was 45% needs to think again, because in practice it's actually a staggering 60%.

This has been described as the "ultimate stealth tax trap", as it takes punitive amounts of money, but many don't realise they're even paying it.

The UK has three income tax bands. Basic rate income tax kicks in at earnings above £12,570 and is charged at 20%.

Any earnings above £50,270 are taxed at the higher rate of 40%, while an additional rate tax kicks in at 45% on earnings above £125,140 a year.

As if all that wasn't enough, National Insurance is charged on top.

So where does that 60% tax rate come from? That's a special levy, reserved for those earning between £100,000 and £125,140 a year.

It was introduced by former Labour Chancellor Alistair Darling in April 2010, and reduces the personal allowance by £1 for every £2 earned over £100,000.