100% effective tax on earnings £100-148k

[Childcare47]

I have posted in the past about the impact of loss of 15 'free hours' plus loss of 'tax free childcare', which combined with the 60% tax rate creates a severe cliff edge in earnings.

The situation is in fact even worse - as it has been announced parents earning >£100,000 will not be eligible for any free hours from 9 months.

For two children therefore:

• Loss of £4,000 annual tax free childcare
• Loss of 30 free hours for the under 3 = £800pcm
• Loss of 15 free hours for the over 3 = £400pm

This is £18,400 a year lost if you earn a penny over £100k.

To therefore break even on that £18,400 loss, you need to earn... £148,000? To have exactly the same income as at £99,000?

Why does the government not address this absurd 'quirk' in the system, surely not one can think its right to be taxed at a rate of 100% on a third of your income, what's the point in earning it?

Well with the expansion of the free (funded) hours, there will be a 2- tier service in the childcare sector. It's on its knees! As I said above, nurseries and childminders cannot afford to subsidise this. Those offering to pay privately will get more choice, better selection, variety, flexibility etc. You're very naive if you think it will be equal and like for like.

I’m also a high tax payer at over £100k, and honestly no one should be subsidising my child care. There has to be a cut off, and this is it.

I understand the OPs point but it’s an unfortunate nuance of the system. There will always be winners and losers, time with you benefit and time when you don’t.

Is it frustrating, sure. Is it a temporary problem for the OP, sure. Can she take steps to potentially mitigate, of course.

There are bigger problems I’d like to see the gov tackle than this tbh.

Raise the higher rate of income tax ? to what ? Even without the childcare complications the marginal tax rate between 100-125K is 60%. 45% thereafter with no personal allowance. Just how much do you think it's reasonable to ask people to pay ?

what is it with the recent influx of posts from folks earning 6 figure salaries and pleasing poverty?

The responses here are predictable but frustrating. I have 3 in childcare in the South East and it costs a fortune. More than double the cost of our mortgage. We live in a modest 3 bed semi, have been abroad once in the last 4 years yet get slated on threads like this.

I think the government should incentivise women back into the workplace. I am working PT and avoiding going to promotions to avoid going over the 100k threshold and losing 30 funded hours.

The PPs balling about the £1200 mortgage and £1k nursery bill on £100k is ridiculous. Try the same mortgage and nursery on £50k, cus that's what lots do.

No one is 'pleading poverty'.

The issue is that the loss of childcare benefits + personal allowance removal creates a >100% tax rate for some people.

Pointing out that this is absurd is not 'pleading poverty'.

Agree. We need to allow high earners to keep the tax free band but increase the higher rate accordingly. These cliff edge rates help no one.

The problem isn't so much the individuals who will artificially cap their earning as the societal impacts of potentially high earning, hard working people needing to work less to keep their effective take home the same.

The classic example in this tax bracket is hospital consultants, who already showed that they would prefer not to take overtime shifts for a negative take home pay... Not great for society really...

Just for some context, two children in nursery in London with no free hours etc is going to be more like... £4k a month.

We did exactly this. Also meant we didn't have 2 at university at the same time.

We get it.. We just dont share the incredulity: there are so many inequalities in life that this one is understandably very low on the pecking order for many people. It is the notion that we are all expected to share in the collective outrage that is quite bizarre to me, and which led to my observation that the post is quite tone deaf. It is still a perfectly valid thing to post about, as is my response.

Yes, also GPs and dentists cutting their hours because of the impact of the removal of personal allowance over £100k

they’re not pleading poverty, they’re saying it not worth time away from their family to earn (something like) 30p in each £1. And that’s fair enough

Guys, this person didn't get any help, therefore we don't deserve any either. I hope that's cleared things up for everyone.

This ^^^

These threads always result in a lot of jealousy from those who think any higher earners are overpaid/don't deserve it/shouldn't ever complain about anything.

OP you're pointing out a very justified criticism of a badly set up and unfair system (and I'm neither a higher earner or someone with childcare costs).

It is not obscene. You also conveniently omit to mention the vast levels of tax that higher earners pay. Nursery nurses, cleaners and gardeners are not net contributors and are therefore subsidised by higher earners. The top 1% of workers pay over 1/3rd of all income tax.

I earn well over the figure you refer to. Salaries are by and large related to how easy it is for someone to replicate what you do. Some jobs may be hard in terms of physical effort but anyone could do them if circumstances dictated.

If you have a role with significant barriers to entry such as very specific experience being required, it will remain highly paid as there is no short cut to compete with current incumbents of those roles.

People fall short because their career plans are poor or non-existent. Many of the people I know who earn hundreds of thousands are no different to anyone else aside from being shrewd in knowing where to target their efforts.

There are plenty who are more educated or have "harder" jobs that get paid far, far less.

I had extremely high nursery costs also for my two kids, who are 21 months apart. That is a lifestyle choice though isn't it if you have children close together?

Herecomestreble1 that isn’t my point. I think it unrealistic to accept thousands of pounds of subsidies for childcare to enable you to continue to earn over 100k when that money should be going to those who really need it. Many of us have had to cut our cloth/ make hard decisions. The sense of entitlement is grating.

But surely you care when you can't get a GP appointment or similar service because it only makes sense for such people to work 2 days a week? This group of people contribute the most significant proportion of tax take (much higher than the super wealthy for example) therefore encouraging them not to work or to emigrate directly hurts you because they fund your schools and NHS. Yes, maybe it's an obscene salary, but they pay a significant amount back. Would you rather pay 40% on the whole of your 30k salary?

I agree the cliff edge scenarios are ludicrous. However I also expect higher earners are capable of informing themselves around the costs of bearing children and consider how policy changes may affect them when they are doin Family Planning. I waited until my eldest was in school so I avoided paying childcare for 2 kids at the same time - as this seemed financially the safest and wisest a approach. I didn’t get any free hours until age 3 and coped on a much lower salary than £100k. So sure, it’s a disincentive, to work, but you have to go in with your eyes open: tax and benefits are not fair.

I struggle to see this Government correcting this ludicrous cliff edge when they have created so many other ludicrous problems they need to solve.

The current tax arrangements for high earners are ludicrous; basically disincentives to work.

We have got into an extremely stupid position where something like only the top 10 per cent of earners make a net contribution given spending elsewhere. That isn't sustainable and I'm not surprised at the resentment on tax.

@SiousieSoo

Why should someone earning £130k a year have less money than someone earning £99k a year, when both have made the 'lifestyle choice' to have two children?

What's the logic for the higher earner having less money per month after taxes and benefits, than a lower earner?

https://www.prospects.ac.uk/job-profiles/general-practice-doctor#salary

Because you are expecting the tax payer to pay for your high income. You have been told how to mitigate this by putting money into pension- which you will still have further down the line. 🙄