Tax brackets

What, therefore, is the incentive for people to be driven to progress their careers into higher pay brackets, given that they reap just over half the financial reward. That seems inordinately skewed from a system perspective.

Well you do still keep most of it. I can see it might affect things like taking extra shifts but I wouldn't ever turn down a pay rise on a salary! I had a child in nursery (although only 2 days a week) at the point my salary ticked over 100k so I just made sure pension kept it below that until I wasn't using nursery anymore. I now earn just over twice that so I am glad I didn't stall my career at 99k just to avoid a higher % of tax on the increase.

Which they have, to the horror of the people who thought they'd beaten the system by shoving all their excess money in their pension.

I am aware of the irony of saying that, but I've only benefited by a few hundred pounds not tens of thousands, or more.

child benefit should be for everyone, birth rates are low as it is. Higher earners should have incentivises too.

Higher and additional rate (yes, there is a 40% tax bracket) do feel disproportionately penalised! They are taxed high, lose their tax free allowance, no tax free childcare, no nursery funded hours. But no one can say this on Mumsnet as it ends up as a massive pile on for daring to earn six figures (even though we need people earning and contributing to pay for the things they are not entitled to).

As for what makes them do it. Well - 50% of something is better than 100% of nothing. Job satisfaction. Career development. Contributing to society.

Fiscal drag and cliff edges like the 100k mean that people change behaviour. I'm in Scotland - the higher bands mean that I maximise my pension contributions - so overall the tax take is probably less for my personal circumstances - whereas if they hadn't played with the tax bands I might have carried on as before.

but if they'd put the allowances up, they'd have needed to raise taxes elsewhere or cut services, which isn't necessarily what people would want.

they could target wealth as opposed to income

No, we'd be hundreds worse off in Scotland (DH a high earner)

For me the problem is the lack of transparency about the process. We've had and are continuing to have real terms tax rises without people being fully informed about this happening.

agree particularly when you account for years of wage stagnation

It is correct that fiscal drag has reduced the value of the salary where people start to pay higher rate tax, but if they'd put the allowances up, they'd have needed to raise taxes elsewhere or cut services, which isn't necessarily what people would want.

For me the problem is the lack of transparency about the process. We've had and are continuing to have real terms tax rises without people being fully informed about this happening.

I’m in Scotland where the tax band for those on between £43,663 and £75,000 pay 42%. Thereafter it’s 45%.

I crept into the 42% band for, I think, the first time this year. Needless to say, I have now opened a private pension (self-employed) to reduce chances of that happening again.

I understood you OP and agree. It would make far more sense to have staggered, more regular bands from 10% up in 5 or 10 point increases.

All the posters faux sneering "I don't think you understand, it's proportional" would presumably not like everyone to be on the same rate just because "it's proportional".

If you have a child or two at nursery you might also lose 10-20k in childcare help.

And… you’re paying 60%+ tax already.

So you earn nothing at all between eg £100-135k.

It has basically put a cap on earnings if you have kids. Even if you earn massively over the threshold, it’s a huge loss.

All the tax thresholds need to move to reflect inflation.

It’s absurd freezing them for so long - the purpose of course to raise more tax, but it means the higher rates kick in lower and lower.

The £100k is the worst:

• in place since 2010, should probably kick in at more like £160k
• means 62% tax £100-125k
• if you have a child in childcare, it can mean rates of 100%+ - and this is getting worse, as the subsidies become more generous

I would rather see this tax bracket scrapped.

They aren’t paying the same amount tax as somebody earning a lot more.

Those earning £100k+ have an awful hit as they start to lose their personal allowance so they are effectively taxed at 60%. It’s all well saying these earners can afford it but it has a massive impact to productivity as many workers (like GPs, dentists, etc) end up going part time as don’t see the point of working and paying 60% to HMRC.

I think someone earning the top.of the 40.percent bracket also...

Loses personal allowance (or used to I'm not sure of current rates for PA reduction)
Loses CB (which someone at the bottom won't although that depends on partners income too)

It's 42% tax on just over £43k in Scotland then 45% over £75k so we pay more tax in Scotland for the same amount of income. Wouldn't mind so much if the Scottish government knew what to do with it and services were better.

I expect so. The tax rate is not over 100% (unless you treat not receiving a benefit as a tax, which is a bit weird) but there is a small band in which you are worse off earning more if you have kids in nursery.

@PartyOFive this article explains the issue with high marginal rates

https://taxpolicy.org.uk/2024/10/17/reform-income-tax-end-the-scandal-of-high-marginal-rates/

problem is it only affects “rich” people so no politician is going to change it

And that's £50,271 after pension contributions, so in reality the 20% band extends quite a bit higher. I'm on around £55/56k and I'm really close because of the amount I'm required to put into my pension. Currently looking at opening a small SIPP to make sure I stay below it so I keep my £1000 allowance for savings interest.

Can you explain how the effeftive tax rate is over 100%? Genuine question, I'm assuming you're factoring loss of child- related benefits or childcare subsidies?

£50,271 is where the 40% tax starts

I don't think she is but a fair number of posters do live in Scotland and income tax rates are not UK wide.

Ah ok - didn't know the poster was in Scotland. I am in England.