Childcare & 100%+ tax rate over £100k

[Childcare47]

I currently have one child in nursery. It’s expensive - £100 a day.

I earn over £100k. Between £100-125k I pay 60% tax (ie £10k take home), but I also lose tax-free childcare (ie £8k take home).

This is a 68% tax rate.

When my child turns two, under the proposed new ‘free hours’ system, I will be eligible for only 15 hours. The cost of losing the other 15 hours is £100 a week - £5,200 a year.

This will make my take home pay between £100-125k go down to £2,800.

This is an 89% tax rate.

I had hoped to have a second child. I suppose then I will be losing this £7,200 per child per year in childcare support - for two children at a time.

This will then leave me with a 117% tax rate between £100-125k. It will cost me £4,400 more in tax than I earn.

What behaviour is the government trying to incentivise among higher earners with this cliff edge?

I’d presumably be better off going down to four days a week, and reducing my salary by 20%?

It is perplexing to me how individuals who earn significantly higher incomes can still express dissatisfaction with their circumstances.

Firstly, you will not have the large expenses of raising a child. You stated you own a house outright, most people with young children do not. They also require a larger property than a single person so have larger mortgages. They also - to earn these kinds of salaries - predominantly have to live in expensive areas.

Finally in some cases like mine, as a lone parent, my higher income on paper does not equate to a high net pay in comparison to other families because the UK tax system penalises single people, including you, by not levelling tax and giving allowances on a household basis.

A couple with the same earnings as you will have higher net income than you do because of this. It is one reason why so much poverty in the UK is in single adult households/ single parent households. For me, the effect of this is that even though earn a six figure salary my net income is about the same as a household where a couple both earn average salaries (because they will be taxed far less, also receive child benefit etc). Despite them being able to share working and childcare between them and me doing everything myself.

The complaint is about basic fairness, and is completely valid.

Exactly. And thank you: lone parents like me are so often ignored in this discussion.

No advice but people like u pay more tax than I earn pumping much needed funds into to public purse
and this is the thanks u get it must be difficult to not think why do I bother

No. The fair way to do it is that childcare provision is universal like in almost all comparable European countries, the same as school is. Because it is a public good, because it makes no sense to deny it to the very people funding it for themselves and everyone else, and because it has been demonstrated to have better overall outcomes for everyone for it to be universal, including increased public support for the system, raising of standards as everyone has a vested interest, higher productivity, higher tax revenue and reducing inequality for women in the workplace, reducing welfar dependency later in life for women, etc.

The UK's problem is that so much policy is motivated by the green-eyed monster rather than evidence. The data exists, other countries have been doing this for a very long time. And not because they are hugely altruistic, but because it works.

The same as not penalising single parents through the tax system. The UK is an outlier and the reasons other countries don't do this is because in the long run it is more expensive and counterproductive.

That's exactly it. Thank you.

“No. The fair way to do it is that childcare provision is universal like in almost all comparable European countries, the same as school is.”

Well exactly, stop penalising high earning talented women who at the same time are told they have to breed.

Everyone should earn a higher wage, everyone should pay tax from 0 upwards, every hour worked should pay properly at the bottom and top level.

Haha no I was joking.

My point was that children for a family’s finance are a choice just like anything else. Just like me choosing to fly a private jet to work.

i could say my effective tax rate is 150% on above £100k.

Childcare shouldn’t be free. Or if it is, those that choose not to have children should not be penalised.

@fruitbrewhaha I agree a tapering system would be an improvement.

Cheaper childcare doesn’t exist - nannies are even more expensive, and there’s no childminders within a sensible radius (I suspect due to the high cost of housing).

@Bells3032 yes it’s frustrating on a site so dominated by women, that so many think women should just quit their jobs.

@DropTheBall i hadn’t thought about that productivity issue / people going part time in relation to this - but you are of course correct. I’m amazed how many users seem to think it’s fine to be taxed at 100% on a large chunk of your income, as if that’s not going to bother you.

I sympathise with you OP. I’m not a high earner, my OH is and so we don’t get any of the tax free childcare etc. I want to work but I’m a nurse and the childcare is just too hard and expensive to sort.

It just seems so ridiculous, they had this big announcement to get women with young children back to work plus they need nurses but I feel it’s all against me. Add on the ulez coming in august and I despair. And I know I’m not struggling to put food on the table but I will not go to work just to pay childcare it’s not worth my effort and time away from my children and our family life with all the long, unsociable and non family friendly hours nursing brings.

My house was not gifted or inherited. I paid my mortgage for 23 years so do know what it is like to have mortgage payments.

I didn't have children because I chose not to and yes, having children is a choice. I chose to rescue animals and dedicate my life to that. I spend £100's each month feeding and caring for them and go without luxuries - my choice and one I am content with.

The point I am trying to make is there will never be a system that everyone thinks is fair. But everyone has a choice. Reduce your hours, pay more into your pension etc, etc.

it's fairly simple.

Say I am a teacher and earn £30k, my husband is an accountant earning £105k . Our monthly take home pay is now £7500. Two kids in full time nursery costs about £3500 a month leaving us with £4000 a month. A mortgage for a family of 4 is probably a minimum of £1500-2000 these days so let's go with £1500 and so what's left?

£2500 a month
£250 Council tax (i live in a 4 bed semi btw)
£200 in new clothing/shoes etc for two kids
£300 in gas and electric
£50 water bill
£50 internet bill
£500 on food ( i don't know about anyone else but my kid is fickle and goes through more food than i do).
£200 on travel to work (assuming you both do some form of hybrid)
£60 car insurance
£50 petrol and car tax
£200 car payments

So that leaves £390 a month and out of that has to come all your activities (a day out to a zoo or activities with kids will run you into at least £100 not inc food), your holidays, your clothes, your hair, your make up, netflix.

And that's on a joint salary of £140,000!! ok so at that salary you don't neccessaryily need to be watching every penny but your not exactly livin the life of riley either

@DropTheBall i hadn’t thought about that productivity issue / people going part time in relation to this - but you are of course correct. I’m amazed how many users seem to think it’s fine to be taxed at 100% on a large chunk of your income, as if that’s not going to bother you.

Anybody claiming they'd work more for free is not being honest with themselves. Especially not taking promotions with more stress etc, to give all of their additional earnings and some more of their current takehome pay to the Government? Nobody would and miss out on even more time with their own children for nothing? Nobody would.

https://amp.theguardian.com/business/2023/feb/13/full-time-part-time-work-no-longer-pays-uk-economy

https://www.thetimes.co.uk/article/its-the-silent-killer-of-your-finances-and-no-its-not-inflation-gmqxcmwg2

https://www.thetimes.co.uk/article/the-tax-penalty-that-will-come-with-your-pay-rise-qgrqg2hx3

https://www.cityam.com/more-than-six-million-extra-brits-to-be-caught-by-higher-income-tax-rate-net-in-just-a-few-years/?utmsource=newsletter&utmmmedium=email&utmcampaign=Midday+newsletter+Nov+2020

https://www.thetimes.co.uk/article/income-tax-rise-uk-rishi-sunak-2023-hmrc-h9f0v0tqg

www.thetimes.co.uk/article/200k-a-year-and-struggling-affluence-isnt-what-it-was-6sdmx3ml8

Thats a ridiculously high mortgage

“Anybody claiming they'd work more for free is not being honest with themselves.”

Is this claim being made on the thread? For the large part, advice has been to drop to part time or make more pension contributions, so that the problem can be avoided.

It isn’t. I’ve just stuck a £600k house with 10% deposit into rightmove and the estimated payment on a 25 year term is £3.2k per month.

The point I am trying to make is there will never be a system that everyone thinks is fair. But everyone has a choice. Reduce your hours, pay more into your pension etc, etc.

Fairness aside (and nobody sane could argue that a marginal tax rate of over 100% is fair!!) it is a question of what actually works, what is effective. Tax systems incentivise some behaviours and disincentivise others. Sensible countries want it to be worthwhile for their most productive workers to work more, so do not penalise them so heavily that they cut their hours or decline promotions. Universal childcare provision has been proved over many years in many other countries to more than pay for itself because of the benefits for everyone in society that I outlined in an earlier post. The means-testing of child benefit costs more than not means testing so the question becomes would we rather that money is spent on children or on more HMRC staff to administer it?

It's about making rational choices based on evidence. And that is not what happens in the UK, hence our economy and services being such a mess.

Most sensible people were yes, but a few nutters were trying to argue that it's just one of those things and people should just pay it and be grateful. 😆

Ok, I skimmed back and didn’t see any of those posts, but I’ll take your word for it.

At current interest rates that's less than 300k mortgage. Most people earning over 100k (or living in London) is likely to have a mortgage much higher than that. I was earning 40k and had a 200k mortgage so not unreasonable amount

£390 really isn't that small an amount but it would be considerably more if you weren't so profligate with your water/gas/electric etc. Those calculations are pretty high (I too live in a 4-bed semi btw). And £200 a month on clothing 2 kids who are of pre-school age? Every month? And £60 a month on car insurance? A car insurance bill of over £700 a month for a car which, given your petrol cost calculations, you drive maybe 10-20 miles a week? Perhaps a little more careful driving wouldn't go amiss!

Oh and by the way those calculations would leave you with £640 a month for your make-up and netflix. Not £390. 😂😂😂

And £105K + £30K is £135K not £140K.

Please tell us you don't teach maths!

I said £60 a month so £700 a YEAR not a month for car insurance (please tell me you don't teach maths either). yes that's what my car insurance costs for one car not even 2 cars. That's for a car big enough to fit two car seats, buggies etc.

Obviously all those costs can be brought down if you're very careful and have a smaller car etc. I could also move to a 2 bed flat rather than a 4 bed house.

My water is a set price and my gas and electric literally just went up to that price. With working from home etc its driven it up significantly.

And yes don't think that price for clothes is unreasonable. Literally just bought a pair of shoes for my daughter (she's hypermobile so needs boots) and they cost £70 and only last about 6 weeks. Obviously i could get more clothes second hand but i can't get shoes etc second hand

PS it's also 690 a month. so your maths is wrong too. I think i counted the gas bill twice.

I said £60 a month so £700 a YEAR not a month for car insurance (please tell me you don't teach maths either).

Yeah very clever. It's clearly a typo. But £700 a year is a ridiculously high insurance cost unless you are a poor driver.

The point is that you can spend your money on whatever expensive clothes you like, and however much gas you like but it's pretty short-sighted to then moan there isn't much left for makeup.

It is madness. I am also wondering what is the point. The UK will drive higher earns out leaving a smaller and smaller pool to draw from.