Tax brackets

[Vergus]

AIBU or am I justified in thinking that the earnings difference is grossly unfair for people on the lower end of the 40% tax bracket - so those on £37,701 per annum (which is when you start paying 40% tax - up to £125,140 per annum.) Someone who earns on the lower end of this banding is paying exactly the same amount of tax as someone on £125,140. That's nuts! Surely they should stagger it more effectively, so that you don't have people on essentially a modest, average wage paying the same as higher earners? Or introduce the jump from 20% to 40% at a higher level, so around 60k per annum?

I just think the disparity in this strange standardised approach to two very different income levels must leave those who just earn enough to push them over the threshold very badly off indeed.

They're not paying the "same amount of tax" - the higher earner is paying a lot more, because they have a lot more taxable income. The person at the lower end of the higher tax bracket only pays the higher rate on their earnings above the higher rate threshold.

Sorry - what I meant was they are taxed the same percentage out of their salaries - although I think you know this is what I meant

I think you start paying 40% tax when you earn £50271 not the figure you've quoted.

£12750 is tax free. Approx £37700 20% then anything above is 40%

It is quite a big band but I'm not sure how any other cut off could be justified any differently

Whatever you meant, the higher earner is taxed at 40% on significantly more of his/her salary.

You are not in the 40% tax bracket if you earn £37701 - you pay 20% tax on earnings from your tax free amount of £12570 on the next £37701 of income and 40% over that up to the next threshold- so 40% on approx £50k not £37700 (figures from memory as I'm out and about)

It's a massive banding and the people at the bottom end of that are much more likely to feel the hit - obviously lifestyle choices and all that but still, it does a strange setup. Why not stagger the bandings more consistently so there's more of a relief for those at the lower end?

The tax bands changed the other year. Now income between £50,271 - £125,140 is taxed at 40%.

Well no the people at the bottom of the banding are paying 40% on almost nothing. Are you aware you only pay 40% within the band not on your whole salary?

@Defiantlynot41

You are not in the 40% tax bracket if you earn £37701 - you pay 20% tax on earnings from your tax free amount of £12570 on the next £37701 of income and 40% over that up to the next threshold- so 40% on approx £50k not £37700 (figures from memory as I'm out and about)

Ok - but that's still a massive disparity between someone earning say, 50k and someone earning 125k. It doesn't seem like a proportionate approach.

They're not, as it is relative to earnings!

According to the gov.uk tax calculator on 37701 you would take home 30666.12. On 125140 you would take home 78114.20.

Clearly the sums paid in tax are vastly in different. Also the basic rate applies up to £50,270.

Between 100k and 125k you pay 60% marginal tax rate (due to withdraw of the personal allowance).

People on the lower end are more likely to have all there 40% back as tax relief on their pension contributions.

And I think their NI contributions drop from 8% to 2%.

Its not a terrible place to be

Agree with other posters. Also if you earn over £100k your personal allowance tapers by £1 for every £2 over.

Exactly this!

Are you proposing to reduce the overall tax take by making it (for example) 30% at £50,770 to £75k and then 40% after that, or are you suggesting even higher rates for higher earners? Because as one poster has pointed out it’s already 60% for £100-£125k and that’s created a number of issues with work just not being worth it in that bracket. At the highest rates, with NI, it’s 48% tax. How much of their earned money are people entitled to keep?

It's a percentage, they are not paying the same.

However, there is a genuine conversation about what is the right amount of tax to pay on earned income.

Well no, because those just over the £50k mark are paying 40% tax on a very small amount of their earnings. You pay 20% on everything over the personal limit to the £50k mark, then 40% for anything over that. At £100k you lose the personal allowance so you are actually comparing £50k up to £100k, not £125k.

Well actually you start to lose your personal tax allowance at £100000 also.

You need to look at it as an effective rate overall, I think. So average out the rate of tax paid by an individual on their earnings altogether, across the personal allowance, the 20% band, the 40% band, the tapering of the personal allowance then the 45% band.

Those earning say £55k have a very different overall effective rate of tax than those earning £155k.

It’s not been 37k for ages has it?

And this misses the whole point, if you earn 51k you pay nothing on the first portion, then 20% on the majority and 40% on less than 1k. You barely pay 40%.

Someone on much higher doesn’t get the 0% amount at all and pays 40% or 45% on the majority.

I can't get het up tbh.
I earn just shy of £60k but some planning and paying into pension means that I rarely pay 40% tax. I think the fewer brackets the better.

No one paying 40% tax is badly off except those living in central London. The average wage in the UK is £37k and 40% taxpayers earn at a minimum about 30%+ more than that.

I’m at the lower end of the 40% bracket and I’m happy to pay my taxes, I have more money than most have to get by even after deductions. It would always be nice to have even more but we need schools, housing, care for the vulnerable and sick, etc - that’s only possible if everyone contributes.

Why are you giving incorrect, lower figures?

I think the bigger issue is the cliff edges and bottlenecks that exist throughout the tax system, particularly the way they intersect with other things like nursery hours and UC.