"Cliff edge for those earning over £100kpa" What does this mean? Is it correct?

[ivs]

I've seen a few posts where people have claimed its not worth getting a payrise after 99k, as you will effectively have a pay cut due to taxes.
Is this correct?

I went on a take home salary calculator (with no additions/changes to the basic set up) and this is what came out?

Are the posters who have made the claim correct? is this wrong?

99k
take home
67,223.40 (5,601.95 monthly)

101k
68,183.40 (5,681,95)

110k
71,603.40 (5966,95)

130k
79,932.40 (6,661.03)

150k
90,532.40 (7,544.37)

I’ve not checked the maths, but yes it’s correct.

You are correct.

At 100k you lose entitlement to all childcare support except the 15 hours for 3+. So no tax free childcare or 30 hours (or the new 15hours at 2.

So if you have children in expensive childcare then there is a massive cliff edge

I think I’ve heard some are making that claim in relation to things like tax free childcare, nursery fees and the rest. So for example, someone earning 101k won’t get tax free childcare anymore if they have one or two in nursery. People like that are normally working full time and may be paying up to 2k a month on childcare with the tax free element, getting £400 off.
So based on your calculations above, between earning 99k and 110k, there is an increase of around £370 in their take home pay but that’s already negated as they now have to pay the full nursery fees and no longer get the 400 discount. They then lose another 15 hours of free childcare so already around 800 worse off. They may then have taken additional responsibility at work, not see their children etc so it makes no sense there.

But thats a short term loss that shouldn't affect that many people

Analysis of 2020-21 Survey of Personal Incomes dataperformed for the announcement of the childcare expansion in Spring Budget 2023 also shows that 98% parents of children aged two to four-years-old earned below the upper threshold.

So 2% of people with dc in the age range earn over 100k - and that include those who earn WAAAY more

Is £100k too high? Not high enough?

I think like child benefit the rules must change to be household as well

Also the loss of personal allowance at 100k so an effective 60% tax rate (on top of no free hrs or tax free childcare)

It is a PITA (was in that bracket for a bit).
You lose your personal allowance, pay the highest rate of tax and also have to do self assessment with HMRC which they always mess up. I would now do everything possible to avoid being in that bracket again as the amount of pain it causes isn't worth the extra relatively small amount in the pay packet!

I think the government need to make it all a lot more efficient, e.g. just make a higher bracket rather than losing personal allowance. And I think they need to tax self employed people to the same level at that level of earnings.

Yes it’s a time-limited issue, but if you have two children three years apart, it could be an issue for 7 years which is a fairly long length of time!

It also depends on how much over £100k you are - if you are on £180k obviously still definitely worth it. If you are on £102k, and you can get yourself below £100k by putting more in your pension, it’s worth considering.

But you're still taking more money home at the end of the day even losing the personal tax allowance? (unless those figures are wrong)

As I said in the OP
99k
take home
67,223.40 (5,601.95 monthly)

101k
68,183.40 (5,681,95)

Scotland (we pay higher taxes and have lower personal allowances)

99k monthly take home £5390
101k monthly take home £5459
110k monthly take home £5688
130k monthly take home £6275
150k monthly take home £7108

So from £99k a
2k pay rise = £868 more a year
£11k pay rise = £3,576 more a year

And so on

It's therefore much better to negotiate extra pension or annual leave.

I put all pay rises into my pension.

Yes you are taking home marginally more, but if you are paying an extra £1-2k a month in nursery fees due to earning that £80 an extra a month then you can understand why people talk of a cliff edge.

You technically take home more money, but if you're also losing your free hours then you're (generally) going to be drastically worse off by taking the higher paying job.

For some, it's worth staying in the lower paying role until DC are all in school.

Correct - but when I was on just over 100k I was going to lose my free nursery hours and my tax free childcare so I would have actually been worse off. So I reduced my hours to be under 100k and then I subsequently funded my pension to reduce my salary to under 100k. Now it has got to a level where it's OK...but there's definitely a window where it's not worth it in my view.

55k
41,703.40 *3,475.28

57k
42.863.40 *3,571.96

1,160 better off from 55 to 57

66k (plus 11k)
48,083.40 *4,006.96

6,380 better off from 55 to 66

So you do get more when you get a pay rise when you earn less, but surely thats how it should be?

Just over - I can see how it would be an easy decision to pay in to pension, but when you're at 120k plus, then you should be able to carry the loss ?

If you earn £120k and have two children in full time nursery then you will be worse off than someone earning £99.9k in the same circumstances. You'd be worse off until you earned somewhere around £134.5k where you start to break even again. So it's no wonder high earning parents of young children plan their pension contributions to avoid the £100k cliff edge.

Having to put all that extra money into your pension, oh boo hoo 🙄

Depends how many children you have, how much childcare you're paying for etc.

There comes a point when you'd be better off but without knowing what the funded hours are worth it's difficult to say (but a PP gave a good example). I know I sat down and did the sums when deciding to reduce to 4 days - "cost of losing free hrs, losing tax free childcare, paying one less day at nursery V's what I would gain in take home"

It’s not really that short term, OP. Not for a great many people. Childcare doesn’t stop at nursery if a couple endeavour to continue working full time. Not many well paying jobs cater for a working day of 9:30-2:30, term time only.

Oh stop with the jealousy. Can absolutely guarantee you'd be asking the same questions and trying to maximise the benefit if you were in the same position!!

I think you're also failing to recognise that the incurred childcare costs come out of your net pay.

Tax-free childcare is worth up to £2000 per child
30 hours free is estimated at £6500 per child

If you have 2 kids in full-time childcare that's potentially £17000 per year

Using your example:

£99k
take home:
67,223.40 (5,601.95 monthly)

101k
take home:
68,183.40 (5,681,95)

I now need to pay out £17000 for childcare that I would otherwise not have paid

So I take home £51,183.4 if I earn £101k - an overall reduction of roughly 24% of my 99k take home income...
Not to mention as a PP pointed out I'd now need to also file a personal tax return each year.

Even if you don't have multiple kids in full time childcare, if you have any children in childcare then you're going to get stung. Hence cliff edge.

In the above example a person would need to earn £ 139,000.00, which has a take-home of
£ 85,456.40 before you started actually being better off again after the £100k boundary. Hence why most people either drop hours or put loads into their pension to stay below it, at least until the kids are grown up.

And it’s really bad for the tax take to incentive high earners to reduce their take home by dropping their hours etc, but understanding that is beyond the daily mail reading pensioners who bleat ‘why should I have to pay for someone else’s offspring’ etc, so nothing ever changes.

A small example of why this country is going to the dogs.

Isn't this why GPs cut their hours? To avoid this cliff edge?

@ivs

So you do get more when you get a pay rise when you earn less, but surely thats how it should be?

Pretty sure I never said otherwise 🤷‍♀️