Tax rates and allowances (Table A)

Personal allowances and higher rate thresholds normally increase in line with inflation in the year to the previous September. As the retail prices index fell in the year to September 2009, the allowances and basic rate band for 2010/11 are frozen at their 2009/10 levels. This will represent a tax rise for those who enjoy an increase in their income over the previous year.

As previously announced, in 2010/11 personal allowances will be withdrawn for those with total income over £100,000. The basic allowance of £6,475 will be reduced by £1 for every £2 of the excess, until it is reduced to zero at £112,950. For someone with income above this level, the loss of 40% tax relief is a tax increase of £2,590 for the year. The effective marginal rate of tax in the band from £100,000 to £112,950 is typically 60%.

For 2010/11, a new "additional" income tax rate of 50% will apply to income above £150,000. The last time the top rate was above 40% was in 1987/88, when high earners paid tax at 60%. The additional rate on dividend income will be 42.5% - after deduction of the 10% tax credit, an investor with this level of income will have to pay additional tax amounting to 36.1% of the net amount.