High earners take a bruising

High earners have been badly bruised by today’s Budget, as Alistair Darling raised the highest rate of income tax to 50 per cent for those with salaries over £150,000 and restricted the tax-free allowance for people earning more than £100,000.

The chancellor also limited the amount of income tax relief available on pension contributions for wealthy investors. He said tax relief for anyone earning more than £150,000 would be reduced, with some investors seeing the rebate on contributions capped at the basic rate of 20 per cent from 2011. Previously relief was available at the full 40 per cent rate on contributions made by higher-rate payers.

Better news came for savers and lower-earning pensioners. The chancellor extended the amount that can be paid into tax-free individual savings accounts from £7,200 to £10,200. Investors over the age of 50 will be able to make use of the larger annual allowance immediately and all other savers from the next tax year. Up to half – £5,100 – of the enhanced allowance will be able to be saved as cash, with the remainder in other investments such as equities.

Some pensioners on modest incomes will also receive additional tax credits. Meanwhile, the over-80s will benefit from a higher winter fuel allowance of £100, for the second year running, while the over-60s will receive £50.

First-time buyers were handed some benefit as the stamp duty holiday for properties worth £175,000 or less was extended until the end of this year, and more money was allocated to stimulate new housebuilding and support shared-equity schemes.

Fuel duty will increase by 2p per litre, while tax on alcohol and tobacco will increase by 2 per cent.