4 ms·

That's pretty high though. In Australia, the top tax bracket is $180k+ (£100k or so) at 45%, which I always thought was absurdly high. Earning 40c on the dollar

That's pretty high though. In Australia, the top tax bracket is $180k+ (£100k or so) at 45%, which I always thought was absurdly high. Earning 40c on the dollar (or 40p on the pound, I suppose) must surely set a ceiling.

alias_neo 4y ago
It's a bit of a mess in our tax system that causes this. The highest official tax bracket is 45%[0], which comes into effect once you earn over £150,000. The "higher" rate bracket is from ~£50,000 to £150,000, HOWEVER: Once you reach £100,000, your tax-free personal allowance is reduced by £1 for every £2 you earn, so that bottom section of your earnings enter into the 20% bracket when they were 0% previously, so effectively you're marginally taxed 60% (40% + 20%) on your earnings between £100,000 and £125,140. Between £125,140 and £150,000 you're back at 40%! Anything over £150,000 is taxed at 45%. Also, if you're (un)fortunate enough to be a parent with young children and you benefit from tax-free child care[1] (to which pretty much everyone is entitled), the second you earn a penny over £100,000 (after pension deductions, but before tax etc) you lose the ~£2000 per child annual benefit. Effectively this means that if any one parent in a household gets a pay rise from £100,000 to £100,000.01 (ignoring the pensions contributions for a moment), they are actually ~£2000 per child worse off. These people are therefore better off earning £100,000 than £100,000 + (£2000*N) where N is the number of children at tax-free childcare age, until their children age out of the benefit. In case that's not enough; the moment you earned that extra 1p over £100,000, you're now obligated to start filing tax returns, even if you're a PAYE employee never having done so before [2]. [0] https://www.gov.uk/income-tax-rates https://www.gov.uk/income-tax-rates [1] https://www.gov.uk/tax-free-childcare https://www.gov.uk/tax-free-childcare [2] https://www.gov.uk/income-tax-rates/income-over-100000 https://www.gov.uk/income-tax-rates/income-over-100000
- Popcorn3865 4y ago
  Thank you for this comment. I moved into the 100k bracket 3 years ago, and have just hit 125k this Jan. I am the sole earner in our house, wife can't work and have a 12 year old boy. And I've been trying (and failing) to work out why it seems like more than 40% of my earnings are taken as tax. And why I need to do tax returns as I've always been PAYE with no other income sources.
  - alias_neo 4y ago
    The bad news for you, is that in 4 days[0], the 45% threshold will lower to the ~£125k mark, so your next pay rise will be particularly hit hard. [0] https://archive.vn/TJyWe https://archive.vn/TJyWe
    - Popcorn3865 4y ago
      Ha. I joined the workforce the year after final salary pensions were shutdown. My slightly older peers are all on track for early retirement. I will never be able to retire. I considered contracting just as IR35 was introduced. My slightly older peers who - literally - got rich and paid no taxes enjoy much better lifestyle than me. So this makes sense, that as I claw my way to higher income, it's taken away by the system. All the while having record house prices, plummeted pension performance and now cost of living/inflation. What a horrible game.

alias_neo 4y ago

It's a bit of a mess in our tax system that causes this. The highest official tax bracket is 45%[0], which comes into effect once you earn over £150,000. The "higher" rate bracket is from ~£50,000 to £150,000, HOWEVER: Once you reach £100,000, your tax-free personal allowance is reduced by £1 for every £2 you earn, so that bottom section of your earnings enter into the 20% bracket when they were 0% previously, so effectively you're marginally taxed 60% (40% + 20%) on your earnings between £100,000 and £125,140. Between £125,140 and £150,000 you're back at 40%! Anything over £150,000 is taxed at 45%. Also, if you're (un)fortunate enough to be a parent with young children and you benefit from tax-free child care[1] (to which pretty much everyone is entitled), the second you earn a penny over £100,000 (after pension deductions, but before tax etc) you lose the ~£2000 per child annual benefit. Effectively this means that if any one parent in a household gets a pay rise from £100,000 to £100,000.01 (ignoring the pensions contributions for a moment), they are actually ~£2000 per child worse off. These people are therefore better off earning £100,000 than £100,000 + (£2000*N) where N is the number of children at tax-free childcare age, until their children age out of the benefit. In case that's not enough; the moment you earned that extra 1p over £100,000, you're now obligated to start filing tax returns, even if you're a PAYE employee never having done so before [2]. [0] https://www.gov.uk/income-tax-rates https://www.gov.uk/income-tax-rates [1] https://www.gov.uk/tax-free-childcare https://www.gov.uk/tax-free-childcare [2] https://www.gov.uk/income-tax-rates/income-over-100000 https://www.gov.uk/income-tax-rates/income-over-100000

Popcorn3865 4y ago
Thank you for this comment. I moved into the 100k bracket 3 years ago, and have just hit 125k this Jan. I am the sole earner in our house, wife can't work and have a 12 year old boy. And I've been trying (and failing) to work out why it seems like more than 40% of my earnings are taken as tax. And why I need to do tax returns as I've always been PAYE with no other income sources.
- alias_neo 4y ago
  The bad news for you, is that in 4 days[0], the 45% threshold will lower to the ~£125k mark, so your next pay rise will be particularly hit hard. [0] https://archive.vn/TJyWe https://archive.vn/TJyWe
  - Popcorn3865 4y ago
    Ha. I joined the workforce the year after final salary pensions were shutdown. My slightly older peers are all on track for early retirement. I will never be able to retire. I considered contracting just as IR35 was introduced. My slightly older peers who - literally - got rich and paid no taxes enjoy much better lifestyle than me. So this makes sense, that as I claw my way to higher income, it's taken away by the system. All the while having record house prices, plummeted pension performance and now cost of living/inflation. What a horrible game.