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%?

Nope, it's definitely £640

My point wasn't that people are poor. My point is once all the expenses for having two kids are taken into account people on those salaries are not exactly living the high life either.

My other point is don't be pretentious and make fun of people's mistakes and then get defensive when they point out your flaws.

Hahaha!

I am sick of it to be honest. This society milks me like a cash cow and we get nothing decent in return. Healthcare is shit, schools are shit. And on top of that I have to put up with the bullshit prejudice against me for being a single mother rather than people being bloody grateful for the contribution I make, paying more tax into the system than some couples do between them, being expected as a lone parent to subsidise the living costs of some couples claiming UC and choosing to have one parent work part time or not at all. It's a joke.

As long as you are never paid the salary (salary sacrifice/contributions at source) then it doesn’t hit your p60 and your taxable pay is below £100k

It's taxable earnings so no pension contributions don't count.

If you contribute to a separate pension after you have been paid, it doesn’t help you with the high marginal tax rate between 100k and 125k

it's adjusted net income. Tax-Free Childcare - GOV.UK (www.gov.uk) which is post any pension. I am not sure about salary sacrifice

Salary sacrifice is excluded and deductions from payslips into an employer scheme before tax is applied. Private pension contributions made from net earnings with tax relief claimed back later would be counted.

If you look down on couples like that, then it’s okay for childless couples to look down on you?

What? I am not expecting anybody else to fund me. I pay far more in tax than I receive in services.

This is a really good article about it.

www.taxpolicy.org.uk/2022/10/04/marginal/

Although it didn't even factor in losing the "30 hours" nursery funding so when you add that in as well... 😆

Just goes to show how thick politicians are that they apparently "didn't realise" that people won't work for free.

And sadly Rachel Reeves is no better than Hunt: she was asked these questions in her recent interview with Mumsnet and said she had no plan of how to fix it. 🙄

It's stupid - DH has turned down additional work this year as the amount he would get from it wasn't worth him giving up his evenings/ weekends to do it purely because of the marginal rates on £100 - 125k salary. Yes, we could have put it into his pension, but that wasn't what he wanted to do the extra work for - we wanted to do some work to the house and go on a slightly nicer holiday.

@DropTheBall in that article, it talks about CB for six children - but child benefit is only available for the first two children, isn’t it?

Or
did that not actually come in in the end?

No, child benefit is for however many children people have, as long as they do not earn £50k or more then it is withdrawn.

I think you may be thinking about tax credits/ universal credit which are only for the first two children now, I believe?

No, that's UC. You can have child benefit for a dozen kids provided your income is low enough.

Its outrageous tbh. I'm in this bracket and earn around £120-130K (the bit above £100k being mainly bonus and shares) and whilst I am happy to pay tax and have never grumbled about it, being faced with 90-odd% marginal rate tax on my bonus and shares is grating to say the least.

I understand the need for benefits (30hrs funded childcare, tax free childcare) to have a cut-off somewhere, but I disagree entirely with it coinciding with removal of personal allowance at exactly the same point as this is what is causing the dramatic cliff edge. Government policy should have picked up on this and could have considered spacing things out more evenly to avoid the £100-£125k trap of such a monumental marginal tax for working families.

Thanks both!

The problem with the child benefit withdrawal is that a couple earning £99k between them can claim it in full, but a single parent earning £50k gets the taper withdrawal and at £60k receive nothing. Same issue with the £100k threshold for nursery funding/ tax free childcare: a couple can earn £199k before they lose this. The whole system is set up so that resident single parents are massively disadvantaged, when surprise surprise 90% of them are women. Couples also get double the tax free allowance, can earn double before that is withdrawn also.

Cliff edges are fucking stupid. People adjusting their behaviour accordingly is really not what you want in a society without enough workers. My household is currently facing a couple of these, not the 100k one lol, and our work hours and pension contributions got adjusted accordingly.

Get your accountant to work out the maths and see if there's any tax efficient tips. Taxes in this country are way too high for what you get back in return in services.

This - with the crap services. Generally schools are not good enough to avoid need for private school/grammar school, health care is also appalling, public transport is so bad you need to drive. The tax money is just being corrupted away by politicians (in all parties) and their cronies.