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Original poster

Tax brackets

110 replies

Vergus · 06/02/2025 11:22

AIBU or am I justified in thinking that the earnings difference is grossly unfair for people on the lower end of the 40% tax bracket - so those on £37,701 per annum (which is when you start paying 40% tax - up to £125,140 per annum.) Someone who earns on the lower end of this banding is paying exactly the same amount of tax as someone on £125,140. That's nuts! Surely they should stagger it more effectively, so that you don't have people on essentially a modest, average wage paying the same as higher earners? Or introduce the jump from 20% to 40% at a higher level, so around 60k per annum?

I just think the disparity in this strange standardised approach to two very different income levels must leave those who just earn enough to push them over the threshold very badly off indeed.

OP posts:
Bjorkdidit · 06/02/2025 12:50

Vergus · 06/02/2025 12:19

@Spirallingdownwards

I was trying to work out the tax letter I'd received this morning - it says on there that if your total income is more than your tax-free amount then you will pay tax as follows:

at 20% on the first 37,700
at 40% on income between £37,701 and £125,140
at 45% on anything over £125,40

So I am now assuming, reading the replies on this thread that they mean you are taxed at 20% on the first 37,700 ABOVE your initial tax free personal allowance which for me seems to be £11,334. I think??! Wish they would make it clearer so people with very basic knowledge of the tax system (like me) could work it out. Reading the letter, I instantly assumed that I am taxed 40% on anything above 37,701 which seems very low indeed

It's clear enough on the HMRC website and it's probably the same information on your letter:

https://www.gov.uk/income-tax-rates

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.

And when you read up about it, answers your question in the negative for higher earners in Scotland, who pay higher rate taxes from an even lower salary (42% above about £43k)

https://www.gov.uk/scottish-income-tax

(the numbers in link include the standard personal allowance)

Income Tax rates and Personal Allowances

Personal Allowance, Income Tax rates, bands and thresholds.

https://www.gov.uk/income-tax-rates

AnotherForumUser · 06/02/2025 12:49

Amisillyornot · 06/02/2025 12:46

I think what you have to understand is that the following📧

  • You pay 20% tax on earnings up to £50,27
  • You pay 40% tax on earnings over £50,270
So if you earn 55k - pay pay 40% only on £4730, not on your whole salary. Therefore, it is not that huge amount as in if you think it is 40% of 55k. As previous PP have said if you want to stay under the bracket make a salary sacrifice to your pension.
Show quote history

That's correct - if you live in England or Wales. Scotland has more tiers and different rates.

MotionIntheOcean · 06/02/2025 12:47

Ohshutupcolinyoutwat · 06/02/2025 12:33

I am just over the 40% tax banding and it is why I will never ever work overtime (nurse), with NI, tax & pension I don't see 50% of it and so for me it is not worth doing - I am effectively earning the same amount as a much lower banding for a hell of a lot more responsibility.

Which is worrying. It's fine, perhaps even better overall, if people work in the same way as they otherwise would and bung the extra into their pensions. But not if it puts people off working and we miss out on skilled labour we really need as a consequence.

Amisillyornot · 06/02/2025 12:46

Vergus · 06/02/2025 11:22

AIBU or am I justified in thinking that the earnings difference is grossly unfair for people on the lower end of the 40% tax bracket - so those on £37,701 per annum (which is when you start paying 40% tax - up to £125,140 per annum.) Someone who earns on the lower end of this banding is paying exactly the same amount of tax as someone on £125,140. That's nuts! Surely they should stagger it more effectively, so that you don't have people on essentially a modest, average wage paying the same as higher earners? Or introduce the jump from 20% to 40% at a higher level, so around 60k per annum?

I just think the disparity in this strange standardised approach to two very different income levels must leave those who just earn enough to push them over the threshold very badly off indeed.

I think what you have to understand is that the following📧

  • You pay 20% tax on earnings up to £50,27
  • You pay 40% tax on earnings over £50,270
So if you earn 55k - pay pay 40% only on £4730, not on your whole salary. Therefore, it is not that huge amount as in if you think it is 40% of 55k. As previous PP have said if you want to stay under the bracket make a salary sacrifice to your pension.
Crazybaby123 · 06/02/2025 12:43

Vergus · 06/02/2025 12:42

@Crazybaby123

Do you think Scotland's system (with more tiers) is more beneficial for higher earners?

I actually don't know too much about Scotland but I will take a look :)

Original poster
Vergus · 06/02/2025 12:42

@Crazybaby123

Do you think Scotland's system (with more tiers) is more beneficial for higher earners?

OP posts:
Crazybaby123 · 06/02/2025 12:42

Vergus · 06/02/2025 12:07

@whatapalarva

but a simple salary sacrifice to your pension can reduce that taxable amount to below that threshold..

This is very good advice.

But then your money is tied up in a pension, which as we are seeing is also being raided by the government tax office.

Crazybaby123 · 06/02/2025 12:40

Vergus · 06/02/2025 12:32

@Billydavey

you get 12k (ish) tax free then pay 20% on the next 37k. So that’s earning about 50k before you pop into the 40% band.

That makes sense. But - on the point of unfairness if I were a higher earner (which I'm not,) I would feel the system penalises me disproportionately as @Crazybaby123 says:

The worst place to be from a tax perspective is between 100 and 125k, you end up losing all the above and also paying higher rate tax. Which is extremely annoying. Basically you end up with about 45 percent of any money you earn after 100k.

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.

Correct, the system is flawed and is why so many higher earners are relocating overseas to low tax economies and our senior positions are being filled by workers from emerging economies and countries where pay is a lot lower.

Original poster
Vergus · 06/02/2025 12:40

@AnotherForumUser

Scotland has more income tax bands than England and Wales. The rates are also different.

That's interesting. A better system perhaps?

OP posts:
nightmarepickle2025 · 06/02/2025 12:40

Well yes but this is due to decades of fiscal drag which we’re not going to be able to change any time soon apparently

also over 100 you lose annual allowance so effective tax rate is 60%, more if you have kids when it’s over 100%

Original poster
Vergus · 06/02/2025 12:39

@Pogpog21

The fact you dont understand the basic mathematical tax points people have made above demonstrates the problem this country has in not understanding how little tax most people pay vs those who do.

How very rude. But I'm sure you know everything and there's not a single area where you have any gap in learning. Sending happy vibes your way

OP posts:
Pogpog21 · 06/02/2025 12:37

The fact you dont understand the basic mathematical tax points people have made above demonstrates the problem this country has in not understanding how little tax most people pay vs those who do.

AnotherForumUser · 06/02/2025 12:37

The higher tax rates do depend on where you live. Scotland has more income tax bands than England and Wales. The rates are also different. You can see these in the links below
Scotland - https://www.mygov.scot/scottish-income-tax/current-income-tax-rates
England and Wales - https://www.gov.uk/income-tax-rates

Current rates - 6 April 2024 to 5 April 2025

Scottish Income Tax rates and bands from 6 April 2024 to 5 April 2025.

https://www.mygov.scot/scottish-income-tax/current-income-tax-rates

MotionIntheOcean · 06/02/2025 12:37

Overthebow · 06/02/2025 12:15

The tax brackets have been frozen until 2027/2028. The labor government chose to continue the freeze when they came into government.

Show quote history

Yes, this is a multi party fuck up.

Ohshutupcolinyoutwat · 06/02/2025 12:33

I am just over the 40% tax banding and it is why I will never ever work overtime (nurse), with NI, tax & pension I don't see 50% of it and so for me it is not worth doing - I am effectively earning the same amount as a much lower banding for a hell of a lot more responsibility.

Original poster
Vergus · 06/02/2025 12:32

@Billydavey

you get 12k (ish) tax free then pay 20% on the next 37k. So that’s earning about 50k before you pop into the 40% band.

That makes sense. But - on the point of unfairness if I were a higher earner (which I'm not,) I would feel the system penalises me disproportionately as @Crazybaby123 says:

The worst place to be from a tax perspective is between 100 and 125k, you end up losing all the above and also paying higher rate tax. Which is extremely annoying. Basically you end up with about 45 percent of any money you earn after 100k.

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.

OP posts:
SlipperyLizard · 06/02/2025 12:31

A person earning £30k takes home around £25k. Someone earning £60k takes home around £45.3k (so after tax they do not have twice what a person on £30k earns).

A person earning £120k takes home c £71.6k (about 58% more than the person earning 60k, and less than 3x what the 30k earner takes home, despite earning 4 x the gross salary). So higher earners pay much more tax.

I don’t mind paying more tax as I earn more, but I do mind people complaining that the system is in some way unfair to people who earn less!

Billydavey · 06/02/2025 12:28

Op you’re correct now but as you say, it can be a bit hard to understand.

you get 12k (ish) tax free then pay 20% on the next 37k. So that’s earning about 50k before you pop into the 40% band.

but remember because you only pay 40% on anything above 50k, those just in that band pay a tiny bit more.

and as others have said, above 100k it’s actually around 60% as you moose your allowance.

it can be fiddly to understand but I’d say it’s always better to be factually right before deciding something is unfair

Crazybaby123 · 06/02/2025 12:26

Vergus · 06/02/2025 12:19

@Spirallingdownwards

I was trying to work out the tax letter I'd received this morning - it says on there that if your total income is more than your tax-free amount then you will pay tax as follows:

at 20% on the first 37,700
at 40% on income between £37,701 and £125,140
at 45% on anything over £125,40

So I am now assuming, reading the replies on this thread that they mean you are taxed at 20% on the first 37,700 ABOVE your initial tax free personal allowance which for me seems to be £11,334. I think??! Wish they would make it clearer so people with very basic knowledge of the tax system (like me) could work it out. Reading the letter, I instantly assumed that I am taxed 40% on anything above 37,701 which seems very low indeed

Yes so you only pay the tax on the part of the bracket it applies to.
So higher rate tax only applies to any money you earn over the threshold.
The money you earn up to the threshold is taxed at the lower rate regardless of how mucb you earn over the rate.
Also, if you earn over certain amojnts you lose child benefit, tax free childcare and lose your personal allowance.
The worst place to be from a tax perspective is between 100 and 125k, you end up losing all the above and also paying higher rate tax. Which is extremely annoying. Basically you end up with about 45 percent of any money you earn after 100k.

wipeywipe · 06/02/2025 12:24

The rate you pay 40% should be much higher

Original poster
Vergus · 06/02/2025 12:21

@Completelyjo

You’re very badly informed. Maybe get up to date before being outraged.

You sound helpful and friendly. I am not "outraged," just confused. But thanks. A really useful post!

OP posts:
Isitisit · 06/02/2025 12:21

As other people have pointed out, you lose your personal allowance between 100-125k so you are taxed a bigger percentage.

Also, you lose child benefit fully by £80k and access to tax free childcare at £100k so there are lots of things a £50k earner can access financially that are not available for higher earners.

Original poster
Vergus · 06/02/2025 12:19

@Spirallingdownwards

I was trying to work out the tax letter I'd received this morning - it says on there that if your total income is more than your tax-free amount then you will pay tax as follows:

at 20% on the first 37,700
at 40% on income between £37,701 and £125,140
at 45% on anything over £125,40

So I am now assuming, reading the replies on this thread that they mean you are taxed at 20% on the first 37,700 ABOVE your initial tax free personal allowance which for me seems to be £11,334. I think??! Wish they would make it clearer so people with very basic knowledge of the tax system (like me) could work it out. Reading the letter, I instantly assumed that I am taxed 40% on anything above 37,701 which seems very low indeed

OP posts:
Overthebow · 06/02/2025 12:15

Vergus · 06/02/2025 12:14

@MotionIntheOcean

A lot of the issue is fiscal drag. It's not kept up with inflation over the last few years, so a salary of 50k now buys what 33k did in 2010, but back then the 40% rate kicked in at 37.4k.

This was in my mind too although you have put it a lot more eloquently than I could. 50k doesn't go far nowadays

The tax brackets have been frozen until 2027/2028. The labor government chose to continue the freeze when they came into government.

Completelyjo · 06/02/2025 12:14

You’re very badly informed. Maybe get up to date before being outraged.