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And your using out of date information. The upper tax bracket has been lowered to 125K and you also lose your personal allowance of 12.5K which is tax free, so

And your using out of date information. The upper tax bracket has been lowered to 125K and you also lose your personal allowance of 12.5K which is tax free, so you start paying tax on earning you didn't have to before.

tharkun__ 4y ago
Fair enough, that is possible. Maybe that calculator was outdated. Do you have a pointer? Until then, I googled again and using this now, which should of course be up-to-date, shouldn't it (tax year 2022): https://www.tax.service.gov.uk/estimate-paye-take-home-pay https://www.tax.service.gov.uk/estimate-paye-take-home-pay Entering 150k, the result is Your estimated take-home pay for 2022 is £96,053 a year or in other words a 35.9% average tax rate. It even specifically says on the bottom: Your tax-free allowance is £12,570
- timthorn 4y ago
  Mmarq is correct: https://www.gov.uk/income-tax-rates/income-over-100000 https://www.gov.uk/income-tax-rates/income-over-100000
- jlokier 4y ago
  That gov.uk calculator is incorrect, which is unusual for gov.uk. It hasn't reduced the tax-free allowance to zero as it should for £150k. Most other online tax calculators do, so they show a lower take home amount. The 60% that is discussed is the marginal rate in the band from £100k to £125k, not the average tax rate on all the income. It means: for each increase of £1000 in your earnings when your income is in that band, you pay £600 more tax.
  - tharkun__ 4y ago
    I understand how tax brackets work and what a marginal rate is ;) The original post I replied to first however does not seem to be aware of it. To quote the relevant part again: their ass to break 100k when they're getting a 60% tax bill. No, you do not get taxed 60% once you reach 100k in income, not even in the UK, not even under the new rules that even the government's own calculator does not take into account ;) That is specifically why I quoted the average tax rate too and not just the marginal rate. Now of course, w/ the reduction of the tax free amount at those incomes coming into effect, yes, in comparison to some other countries (and apparently previous rules), you do get taxed quite high. Now let's compare. 100k GBP ~= 166k CAD Canada, cheapest province - Alberta. Average tax rate ~31%, marginal tax rate ~42% Canada, expensive province - Quebec. Average tax rate ~38.5%, marginal tax rate ~50% 150k GBP ~= 250k CAD Canada, cheapest province - Alberta. Average tax rate 35.4%, marginal tax rate 47% Canada, expensive province - Quebec. Average tax rate 42.8%, marginal tax rate 53.3% The only rate that really matters for what you have in your pocket in the end is the average tax rate. You could have a country with a 99% marginal tax rate in the highest bracket but a bracketing system in which 99% of the population never reach that bracket, so quoting the marginal rate is not very helpful except if you want to complain about taxes - or you make the 150 million at which that marginal rate might apply in this fictitious country ;) While we're at comparing, Germany, a country with high taxes that 150k GBP is about 170k EUR and results in an effective tax of 43%. Since apparently the government calculator is wrong for the UK and I only find broken ones myself, can you calculate the above w/ one that does things correctly and post for comparison?
    - mmarq 4y ago
      If one wants to be precise, depending on your circumstances, earning an additional £ when you are making 99’999£ per annum has disastrous consequences. As we said your marginal income tax rate goes to 60% until you start making £125K, when it drops to 45%. If you consider NI and student loans, your tax marginal tax rate could approach 70% in that bracket. At 100K you lose some means tested benefits, for instance free childcare, that in London may be worth in excess of £1500 per month. It means that somebody with a child making £100K is poorer than somebody with a child earning £75K (1500*12=18000 after tax, so 30K before tax at a 40% marginal tax rate). In a place where the most miserable 2-bedroom flat cost in excess of 500K and where the average rent is £2400 per month, 100K a year, which is 5.5K a month after tax, doesn’t make you rich by any stretch of the imagination. You spend 70+% of your income on rent and childcare. Let us not get carried away with silly comparisons with millionaires. In Germany your tax expenditure changes depending on you tax class. A married couple with children may end up paying much less taxes than in the UK (I for instance would pay ~£500-800 less a month).
      - tharkun__ 4y ago
        That's great information. Thank you. Why no link to a calculator that does all of this like I've asked for a few times now if the government's own doesn't do it correctly? Like I mentioned, marginal tax rate comparisons are often flawed and not helpful. If you are correct about your marginal tax rate changing to 60%, it still only means 25k have 60% taken. It still sucks of course but your "tax bill" isn't going to be 60%. Let's take your "disastrous" example of making one extra pound on top of 99,999 GBP. Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. So if I make 100k exactly nothing changes at all. But let's call that an "off by one error". Let's say I earn 100,002. If I calculate this correctly - and I might not - then my allowance of 12,570 goes down to 12,569. So 1£ is now no longer tax free and I need to pay taxes on it. My additional 2£ of earnings are also subject to 40% tax. So I only get 1.2£ net from those. So let's assume this does things correctly (unlike the government's own) https://www.uktaxcalculators.co.uk/ https://www.uktaxcalculators.co.uk/ and input the numbers. Ah yes, it seems to do it: Gross Income: £100,000 Allowance: £12,570.00 Net income: £66,322.92 Average tax rate: ~33.6770% Gross Income: £100,002 Allowance: £12,569.00 Net income: £66,323.67 Average tax rate: ~33.6776% Difference in net income for 2£ extra gross: 0.75£ or slightly above 60% effective marginal tax so to speak. Looking at the average tax rate, there's hardly any difference at all. Let's look at the other end: Gross Income: £125,000 Allowance: £70.00 Net income: £75,640.66 Average tax rate: ~39.487% I'd like to compare this to CAD again. Most expensive province of Quebec again. It's about 208,000 CAD. Gross Income: 208,000 Net income: 122,953 Average tax rate: 40.89% Marginal tax rate: 49.96% So about 123k or about 73.8k£. Do keep in mind of course that all of this is without taking into account various family or work situations in either case. Especially in said expensive province of Quebec, child care services are available in various ways like you describe for the UK. E.g. the 9$ per day day-care spots where the price also goes up with your income level, so the same kind of calculation you made for the UK could be made there. The more you earn, the more of your own money you have to use. In a province like Alberta, where your average tax for the above 208k is only around 33% you don't have day-care spots like that and will pay a lot more money for said services. Things like pension payments reduce your income before being input into this calculation. I.e. you could earn 250k CAD but put 42k into an RRSP and you'd end up back at the exact same calculation as above with 208k of taxable income.
  - mmarq 4y ago
    It isn’t incorrect, he likely forgot to provide the correct tax code, so the calculator used the whole income tax allowance.

tharkun__ 4y ago

Fair enough, that is possible. Maybe that calculator was outdated. Do you have a pointer? Until then, I googled again and using this now, which should of course be up-to-date, shouldn't it (tax year 2022): https://www.tax.service.gov.uk/estimate-paye-take-home-pay https://www.tax.service.gov.uk/estimate-paye-take-home-pay Entering 150k, the result is Your estimated take-home pay for 2022 is £96,053 a year or in other words a 35.9% average tax rate. It even specifically says on the bottom: Your tax-free allowance is £12,570

timthorn 4y ago
Mmarq is correct: https://www.gov.uk/income-tax-rates/income-over-100000 https://www.gov.uk/income-tax-rates/income-over-100000
jlokier 4y ago
That gov.uk calculator is incorrect, which is unusual for gov.uk. It hasn't reduced the tax-free allowance to zero as it should for £150k. Most other online tax calculators do, so they show a lower take home amount. The 60% that is discussed is the marginal rate in the band from £100k to £125k, not the average tax rate on all the income. It means: for each increase of £1000 in your earnings when your income is in that band, you pay £600 more tax.
- tharkun__ 4y ago
  I understand how tax brackets work and what a marginal rate is ;) The original post I replied to first however does not seem to be aware of it. To quote the relevant part again: their ass to break 100k when they're getting a 60% tax bill. No, you do not get taxed 60% once you reach 100k in income, not even in the UK, not even under the new rules that even the government's own calculator does not take into account ;) That is specifically why I quoted the average tax rate too and not just the marginal rate. Now of course, w/ the reduction of the tax free amount at those incomes coming into effect, yes, in comparison to some other countries (and apparently previous rules), you do get taxed quite high. Now let's compare. 100k GBP ~= 166k CAD Canada, cheapest province - Alberta. Average tax rate ~31%, marginal tax rate ~42% Canada, expensive province - Quebec. Average tax rate ~38.5%, marginal tax rate ~50% 150k GBP ~= 250k CAD Canada, cheapest province - Alberta. Average tax rate 35.4%, marginal tax rate 47% Canada, expensive province - Quebec. Average tax rate 42.8%, marginal tax rate 53.3% The only rate that really matters for what you have in your pocket in the end is the average tax rate. You could have a country with a 99% marginal tax rate in the highest bracket but a bracketing system in which 99% of the population never reach that bracket, so quoting the marginal rate is not very helpful except if you want to complain about taxes - or you make the 150 million at which that marginal rate might apply in this fictitious country ;) While we're at comparing, Germany, a country with high taxes that 150k GBP is about 170k EUR and results in an effective tax of 43%. Since apparently the government calculator is wrong for the UK and I only find broken ones myself, can you calculate the above w/ one that does things correctly and post for comparison?
  - mmarq 4y ago
    If one wants to be precise, depending on your circumstances, earning an additional £ when you are making 99’999£ per annum has disastrous consequences. As we said your marginal income tax rate goes to 60% until you start making £125K, when it drops to 45%. If you consider NI and student loans, your tax marginal tax rate could approach 70% in that bracket. At 100K you lose some means tested benefits, for instance free childcare, that in London may be worth in excess of £1500 per month. It means that somebody with a child making £100K is poorer than somebody with a child earning £75K (1500*12=18000 after tax, so 30K before tax at a 40% marginal tax rate). In a place where the most miserable 2-bedroom flat cost in excess of 500K and where the average rent is £2400 per month, 100K a year, which is 5.5K a month after tax, doesn’t make you rich by any stretch of the imagination. You spend 70+% of your income on rent and childcare. Let us not get carried away with silly comparisons with millionaires. In Germany your tax expenditure changes depending on you tax class. A married couple with children may end up paying much less taxes than in the UK (I for instance would pay ~£500-800 less a month).
    - tharkun__ 4y ago
      That's great information. Thank you. Why no link to a calculator that does all of this like I've asked for a few times now if the government's own doesn't do it correctly? Like I mentioned, marginal tax rate comparisons are often flawed and not helpful. If you are correct about your marginal tax rate changing to 60%, it still only means 25k have 60% taken. It still sucks of course but your "tax bill" isn't going to be 60%. Let's take your "disastrous" example of making one extra pound on top of 99,999 GBP. Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. So if I make 100k exactly nothing changes at all. But let's call that an "off by one error". Let's say I earn 100,002. If I calculate this correctly - and I might not - then my allowance of 12,570 goes down to 12,569. So 1£ is now no longer tax free and I need to pay taxes on it. My additional 2£ of earnings are also subject to 40% tax. So I only get 1.2£ net from those. So let's assume this does things correctly (unlike the government's own) https://www.uktaxcalculators.co.uk/ https://www.uktaxcalculators.co.uk/ and input the numbers. Ah yes, it seems to do it: Gross Income: £100,000 Allowance: £12,570.00 Net income: £66,322.92 Average tax rate: ~33.6770% Gross Income: £100,002 Allowance: £12,569.00 Net income: £66,323.67 Average tax rate: ~33.6776% Difference in net income for 2£ extra gross: 0.75£ or slightly above 60% effective marginal tax so to speak. Looking at the average tax rate, there's hardly any difference at all. Let's look at the other end: Gross Income: £125,000 Allowance: £70.00 Net income: £75,640.66 Average tax rate: ~39.487% I'd like to compare this to CAD again. Most expensive province of Quebec again. It's about 208,000 CAD. Gross Income: 208,000 Net income: 122,953 Average tax rate: 40.89% Marginal tax rate: 49.96% So about 123k or about 73.8k£. Do keep in mind of course that all of this is without taking into account various family or work situations in either case. Especially in said expensive province of Quebec, child care services are available in various ways like you describe for the UK. E.g. the 9$ per day day-care spots where the price also goes up with your income level, so the same kind of calculation you made for the UK could be made there. The more you earn, the more of your own money you have to use. In a province like Alberta, where your average tax for the above 208k is only around 33% you don't have day-care spots like that and will pay a lot more money for said services. Things like pension payments reduce your income before being input into this calculation. I.e. you could earn 250k CAD but put 42k into an RRSP and you'd end up back at the exact same calculation as above with 208k of taxable income.
- mmarq 4y ago
  It isn’t incorrect, he likely forgot to provide the correct tax code, so the calculator used the whole income tax allowance.