There was a nationwide outpouring of sadness over the news of Jimmy Greaves passing recently.
The obituaries inevitably included the story of Jimmy’s brief sojourn in Italy and his subsequent transfer back to England. Jimmy couldn’t settle in Italy after his transfer from Chelsea to Milan in 1961. One might have thought that La Dolce Vita might have been ideal for Jimmy. Maybe, but unfortunately the disciplined Italian approach to football was not. It is, however, forgotten that Jimmy actually scored nine goals in his 10 appearances for the Rossoneri and helped them on their march to the Scudetto (which was followed next year by a triumph at Wembley in the European Cup). No doubt if Jimmy had stayed the course for the whole of the Serie A season he would have been the top scorer. As it was, Milan sold him to Spurs for £100k, having purchased him to £80k, a very good return on investment.
Well actually it was not £100k, it was £99,999. Rumour has it that, to avoid Jimmy having the burden of being the first £100,000 footballer, Billy Nicholson, the legendary Spurs manager, produced a pound note for the Italians to avoid breaking the £100k barrier.
It was this incident which provided me with the name for the modern equivalent in taxation.
The Government introduced legislation in 2010/11 whereby the personal allowance is reduced, where adjusted net income exceeds £100,000, by £1 for every £2 of income above the £100,000 limit.
This appalling piece of legislation has now been in place for over 10 years. One notes, without any real surprise that the threshold has never been increased. Indeed, it is difficult to see it increasing any time soon. What it means is that a punitive marginal rate of tax is visited upon anyone with adjusted total income about this figure. That marginal rate of tax is likely to be somewhere between 50% and 60%, depending on how the income is comprised.
Of course, most of the population would have limited sympathy with a tax payer falling foul of this provision.
Not surprisingly, we have immediately devoted much energy to ensuring that our clients’ total income is below the £100k threshold, wherever possible. Other accountants do the same. Hence, there are a lot of people around the country earning £99k. If this threshold did not exist, then people would simply earn more and pay more income tax as a consequence.
Since the inception of this legislation, further fiscal actions have exacerbated the situation.
Firstly, the restriction in mortgage interest relief to basic rate has now been effected but the basic rate relief is given as a tax credit after establishing taxable income and not before. It does not therefore preserve any personal allowance.
Similarly, the dividend allowance is also after establishing total income and not before.
The same is true of the property income allowance and the trading income allowance.
Fortunately we have a range of measures to mitigate this high marginal rate of tax and they will, no doubt be to the fore in the coming years. We will deploy them just as Mr Nicholson did all those years ago.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.