Standard Life Budget comment:

salary sacrifice increasingly attractive for people earning above ?100,000

The budget confirmed that people earning above ?100,000 will see their personal allowance reduced or removed entirely.

From April 2010, if an individual's gross income is above ?100,000, the amount of their allowance will be reduced by ?1 for every ?2 of income above ?100,000.

Those earning above around ?112,950 will receive no personal allowance at all.

This means there is a band of income where the marginal tax rate is 60%.

For example someone earning ?112,590 would pay tax of ?38,240, while a ?100,000 earner will pay tax of ?30,470.

Sacrificing ?12,950 of salary will save tax of ?7,770.

Andrew Tully, Senior Pensions Policy Manager, at Standard Life said: "Putting in place a salary or bonus sacrifice arrangement to fund a pension is likely to prove a popular option for those earning above ?100,000.

Sacrificing salary or bonus to keep earnings under ?100,000, could be part of an effective tax planning strategy, although obviously these changes need to be considered in light of the wider financial planning needs of the individual.

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