AIBU to think the £100k tax trap is unfair?

Cliff edges are bad and should be got rid of. DH went down to 4 days a week for a while, partly because of it. That’s not good for tax receipts. We didn’t even have children in childcare - it’s much more incentivised for those who do. Raising the higher rate tax rate slightly would be fine, but cliff edges are stupid

Link to back up: x.com/DanNeidle/status/2097967021279371341

It’s bonkers. A family / single parent with one £100k earner and a student loan takes home £4,500/ month ish. Assuming South East where most of these salaries are, one child in nursery likely to be around £2,000/ month. Mortgage on a small 3 bed home also likely to be £2,000ish.
leaving £500 so obviously unworkable.
yes it sounds like a lot of money, but being unable to afford a mortgage on a small 3 bed home and 1 kid in nursery isn’t exactly the life of Riley

There are two tax cuts that research shows would pay for themselves. This is one of them. If you give everyone a personal allowance again, tax take would expand to pay for it and then some.

The other one is if they removed stamp duty on share sales.

We cannot do these tax cuts and enjoy the extra taxes that these cuts would raise as the general public (and a lot of Labour MPs) are simply too thick to realise that making these changes would raise more tax. They think tax cuts for ‘the wealthy’ and ‘finance’ are always a bad thing.

In a time where the PM governs by vibes and not intellect we’re stuck.

A third issue is the impact on productivity if people reduce their working hours to avoid the tax trap (as there may not be much difference in income working 5 rather than 4 days a week, especially if the worker has young children).

I don’t think in the current circumstances that the country is in that people earning over £100k is or should be a priority

No it's not unfair. These moany threads get started approximately once a week and it's not a good look. It's like people sitting snug on a boat insisting they have a right to keep their life jacket on because it makes them more comfortable when there are people in the water who have no boat and no jacket.

The "trap" you are referring to is simply the action of help being withdrawn that you simply don't need and only think you need because you think you are entitled to a more comfortable lifestyle than you can quite reach.

Yes there is a bit of a plateau in the rate at which your lifestyle comforts can increase when you are at that level. That is ok because you are at a level far above the level at which people are struggling. Metaphorically, it's like a platform that is located above the danger zone and all the help and rescue efforts are about helping people to reach that platform or get closer to it, and there's minimal help available for climbing up further. You are only struggling if you have managed your resources badly and taken on financial commitments that are too much for your income.

If your income is just above the "trap" level you can make extra pension contributions to keep below the trigger points.

If the amount by which your income exceeds the trigger points by too much for that to be viable then you are a wealthy person on every objective measure and are merely suffering from a mismatch between the even higher level of wealth you think you shoukd be entitled to vs actual reality.

I’m in this position - with existing pension contributions I am a few k under it and basically will now just put any salary increases to my pension. I want to increase them anyway as I am mid fifties so makes sense - I don’t have a real desire to step further up the ladder so I’m never going to exceed it massively where the lack of income would impact me more.

There's two issues at play here. One is it 'fair' on the individuals it affects and two is it fiscally sensible for the government. Personally I don't think it's fair or sensible as I've got a few friends in that bracket and they all work 4 days/put tonnes in their pension/don't go for promos to stay under the 100k. Ultimately earning 100-120k is completely pointless, you are better off earning 99k. Which for the vast majority of people is plenty to live on. Some people chose to take the hit as their career trajectory will take them way past £120k.

So if they tapered it, I think the government would end up with more money on the long run as people wouldn't stop trying before they hit 100k.

I agree. It's the same for the higher tax rate too.

Our whole tax system is unfair. IMO everyone should pay the same percentage of their earnings on tax.

Govenments do a lot of tinkering that undermines principles. The Cameron/Osborne/Clegg changes were a low point.

Tax should be progressive without cliff edges.
Benefits can be universal or targeted. Important to recognise there is a lot of unnecessary cost in means testing - it costs a lot to administer.

I actually think some benefits, like free childcare, should be universal. It reduces the resentment of middle to high earners feeling like they’re contributing loads in tax but not seeing much back. Isn’t that what the Scandi model - high taxes but high and universal support?

It also stops the perverse incentive to reduce earnings that you get with the current system.

At a tangent but yes - example is the winter fuel allowance is paid based on household.

Of course it's unfair. But it isn't supposed to be fair.
We have a real attitude problem in this country about doing well - we are not aspirational.

Basic rate taxpayer here without a hope in hell of ever being trapped at £100k but I think it’s grossly unfair and wrong.

I believe everyone should have a personal allowance no matter what. I strongly want the tax system generally to be more equal - make all forms of income taxable as tax from work should not be higher than passive income or from gains (including those benefits that are currently tax free). Absolutely get rid of cliff edges, they will always lead to avoidance. Just think also of the lost tax revenue of all those who go part time to avoid the 100k thing! We all lose because of this,

A fairer system should also reduce people legally reducing or avoiding tax through things like pension contributions or salary sacrifice schemes. On a separate note I would review these schemes and many other tax exempt or similar schemes as lost potential revenue is also a cost, and is a political choice.

I don't disagree. I think all benefits relating to children should be universal, they're the future of society. The ethical debate though is around whether ALL benefits should be universal - childcare, FSM, child benefit, benefits that aren't linked to children, people make the argument to their circumstances - but what about wider society benefit/ impact. What do you think?

I was going to write a reply about how it can be really tricky, but let's be honest £100K is still an awful lot of money for many people even after you take into consideration mortgages etc in the SE.

So what I will say instead is that the tax trap drives adverse behaviours and I know a number of people who either reduce their hours, change their jobs for a lower salary or pop more in their pension to avoid paying the additional tax. Means less to the tax man, less in the way of consumer spending. You have to be earning considerably more to off set the cliff edge and most career progression scales don't make it worth it - particularly for women who are often juggling caring responsibilities too. Increasingly it is a perverse incentive to earn/have higher take home pay.

Child benefit and childcare subsidy should be universal.

ETA: stare pension should remain universal, not become means tested.

Tbh I am in this boat and while it is particularly crap if you get a bonus and lose most of it.... I can afford it.

At the end of the day a hell of a lot of money hits my bank account every month. More than I need. I can pay my way.

Yes, I do think there needs to be some sort of household calculation.

Yes, I don't feel that makes a difference to my thoughts on that. It's only very recently that it became a thing.

It should be gradual decline, not a cliff edge. Any cliff edge is unfair.

FSM is another one... you either qualify ir you dont, but qualifying and not qualifying is the difference of a few pounds. And thats directly food for children.

With that logic people working and earning £1M and paying taxes should be entitled to free childcare? It's interesting that there's an argument here for universal free childcare irrespective of income, do you think other state benefits should be means tested or universal? I agree personal allowance shouldn't be removed at any threshold so tax tapers rather than creates a cliffe edge. You can contribute to a pension though to bring your gross under £100k and avoid the cliff edge.

As far away as I am from this salary, it’s really unfair. A two parent family with 50K each is way better off financially than one where one parent earns just over 100K.