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

Yup, nail on the head. It's the inevitable consequences of ill-thought-through policies with no regard to human behavioural aspects. It's common sense that people will reduce their working hours/not take extra shifts or not take promotions etc., if they're going to be worse off, or not better off enough to make it worthwhile losing their valuable time. Trouble is that far too many people are still in denial about human behaviour and seem to think that people should continue to work more, even if there is no benefit, for societal good - utterly deluded!

I've had clients who've worked for the NHS, i.e. dentists, locum doctors, locum radiologists/speciality nurses, etc., and all have basically done exactly the same, i.e. not take extra shifts, not take job offers, reduce working hours/days, etc., to avoid these tax traps and tax cliff edges. It just makes the waiting lists worse.

Of course it makes no sense. They should make it much more gradual or at least increase the £100k by inflation each year. It’s been stuck at £100k for ages. I just hit this threshold this year and have to pay for childcare so I increased my pension contributions. I will have to always put my cost of living rise in my pension every year to avoid it which means I will effectively be earning less and less each year now because of inflation.

I doubt the policy will ever change though. It wouldn’t be popular amongst the majority of voters who genuinely believe that anyone earning £100k is rich.

It's not though. There's a lot of people taking active steps to avoid it, such as dropping a day at work or diverting pay into pensions to reduce their taxable income. As a result, those people have a lower disposable income and are spending less in the service & retail industries, hitting anyone who works in that sector. It also reduces the overall amount of tax collected because people are deliberately earning less, so it affects all of us.

I saw this thread title and thought I'd revisit.

It is about how it really feels unfair.
For me is because:

• It is a huge step in tax take. 40 to 60%.
• 60% is over half of what you earn going to the government. That's a huge psychological barrier.
• as well as taxing, personal allowances are also stopped. Double whammy.
• for those with young kids the childcare loss is even more net negative. Triple whammy!
• the fact that if you earn more than £125 k the marginal rate of tax above that drops again. That feels really unfair that richer people aren't penalised as much.

i think the biggest issue is that it doesn't take into account circumstances, my DH earns over £100k with me as a SAHM and loses the benefits, but you can have a couple both earning £50k with all the benefits, it really should take into account the household incomes rather than individuals.

I mean it is quite rubbish but 100k is a very high salary in the UK. Salaries and tax here are dreadful, so you can always look for a job in the US or just throw a load in your pension and either decide to push through til you safely earn out the other side or see if you can go 4 days. I work 4 days now, I don’t need any more money and it isn’t worth it to be taxed through the nose. If family situation allows me to go back to the US in future I might, but I could also skate along until retirement here with less to pass on to the kids. These aren’t real problems are they.

i feel like it’s an own goal all around. Everyone I know with young children earning above this amount is trying to do something to mitigate the tax they pay, a combination of pension, cars or bikes on salary sacrifice, buying holiday or extra leave, or attempting to go part time. Studies are showing up to £430m extra tax over three years to scrap it, even after accounting for paying extra childcare to higher earners. To me it’s a no brainer - more tax revenue, more productivity, more people remaining in full time work (and so more tax over their lifetimes)

I agree it makes no logical sense at all. Governments (not just one!) loudly talk of cutting spend but not increasing revenue. Not just individual taxation but lost tax take for tax relief etc. Bit of a tangent but as an example the government loses sizeable tax revenue giving oil companies tax relief of decommissioning costs. The mind boggles how much revenue is lost through legal methods like paying into pensions, reducing work days, buying cars and whatever on salary sacrifice schemes, etc.
There are always choices in politics.

They should definitely start with removing cliff edges and focus hugely on credibly and efficiently persuading the argument to avoid the “rich get tax cut”. And increase please to the personal allowances along with reintroducing the 10% rate which I always thought was a good idea.

Increase to the PA is incredibly expensive as it’s an increase to every tax payer under £100k.

but yes the Government has to stop being so scared of the electorate (and their own backbenchers), learn how to speak to the public so they understand why we’re doing what we’re doing, grow some balls and crack on.

It’s unfair and it also leads to unproductive behaviours.

We were both NHS consultants to stay under 100K we salary sacrificed cars, that we didn’t really need and reduced our NHS hours to keep the pay down.
We could however do as much private work as we want and kept it within a ltd company.

It seemed bizarre that as waiting lists were increasing we were being incentivised to work less.

I completely see it’s ridiculous as though these cliff edges don’t affect me (basic rate taxpayer), not having the public service personnel we need eg health service because they’re all going part time does affect everyone.

The salary sacrifice stuff for cars seems mad too, unless I’m missing something. I’m wondering what else those who could afford to buy stuff like cars are also being helped to buy and reduce tax.

Just put anything above it into a pension, you can top up up to 60k and can backfill up to 3 years.

Of course the taxes in the UK are far too high. You have some of the highest tax rates in Europe with none of the benefits. It's like they said, let's create a country as shit as America with the taxes of Europe. No wonder people are leaving in droves.

@AbraCaStabYaI think the problem is that a lot of us need the money now, I know for me that’s stopped me filling a pension. Two small kids in nursery is over £5k a month (a whole £100k salary). A mortgage for a house commutable to London is expensive. The commute itself is almost £40 a day for half an hour on the train.

Even if I went below £100k and got the free hours, it’s still not actually free, so you’re still paying about half of the nursery fees. So right now fits not possible to backfill my pension

When civil service lawyer husband's salary reached £100k he retired. No National Insurance, no pension levy and no travel costs mean his take home pension is almost as much as his take home salary was.

I do believe it to be unfair. I heavily input to my pension and took bonus as stock options vs cash to help buffer for this. Only once passed the £125K did I start actually taking the payrise. Was fairly depressing- working all hours, getting the payrise and not seeing the benefit in terms of my disposable income. That said, my pension has however hugely benefited so I can’t really complain. Would suggest you get a good IFA and work out what is best for your family

Everyone should get the same tax free allowance! It’s appalling that this was removed from high earners.

When I earned £132k a year, I used to put £33k into my pension each year to drop to £99k.

Now I earn a lot more, I’m caught by the pension tapering trap, so any pay rise I get reduces the amount I can put tax free into my pension. So I’m dropping to part time. I might as well enjoy more free time. I’m not willing to pay more tax 🤷🏼‍♀️

This country’s approach to taxation is ridiculous. I can’t believe we actively disincentivise people earning!

Especially when you do more work for said pay rise and see none of it reflected in your pay stub. Nobody would want that and it's why there isn't much drive to climb the ladder in the UK.

My husband went down from 5 days a week to 3 and his take home salary has only changed by a couple hundred a month bc the rest was all just tax. It's ridiculous.

@PoolDepth

This country’s approach to taxation is ridiculous. I can’t believe we actively disincentivise people earning!

It's the "left's" policies of hate, envy and spite that cause it. They want everyone to be equal, even if that means everyone is dragged down to a low level, whether it's income, assets, education, health, or whatever. They absolutely hate aspiration and people trying to better themselves.

The tories had 13 years to change the threshold at which / end the removal of the personal allowance at £100k. they didn’t.

They also introduced 30 free hours form 9 months and opted to exclude earners above this threshold.

It’s not a left / right thing. I’m not sure what exactly I think it is driving it.

It was Tory policy, yes. It was done because it was a stealth way to raise taxes, and tax increases are unpopular and officially Tories are against them.

No the withdrawal of personal allowance over £100k was introduced by Labours alistair darling!

Yet somehow successive Tory governments failed to reverse it despite having 14 years to do it and started means testing child benefit.

Means testing child benefit was a Libdem demand as part of the coalition.

Labour had 13 years to reverse privatisations, reverse the council house sell off, etc.

All the major parties are as bad as each other. We're doomed!

The Coalition ended in 2015, why wasn’t it reversed in the succeeding nine years? The triple lock was also a Tory idea which they had nine years to reverse.