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.

Well yes but this is due to decades of fiscal drag which we’re not going to be able to change any time soon apparently

also over 100 you lose annual allowance so effective tax rate is 60%, more if you have kids when it’s over 100%

@AnotherForumUser

Scotland has more income tax bands than England and Wales. The rates are also different.

That's interesting. A better system perhaps?

Correct, the system is flawed and is why so many higher earners are relocating overseas to low tax economies and our senior positions are being filled by workers from emerging economies and countries where pay is a lot lower.

But then your money is tied up in a pension, which as we are seeing is also being raided by the government tax office.

@Crazybaby123

Do you think Scotland's system (with more tiers) is more beneficial for higher earners?

I actually don't know too much about Scotland but I will take a look :)

I think what you have to understand is that the following📧

• You pay 20% tax on earnings up to £50,27
• You pay 40% tax on earnings over £50,270

So if you earn 55k - pay pay 40% only on £4730, not on your whole salary. Therefore, it is not that huge amount as in if you think it is 40% of 55k. As previous PP have said if you want to stay under the bracket make a salary sacrifice to your pension.

Which is worrying. It's fine, perhaps even better overall, if people work in the same way as they otherwise would and bung the extra into their pensions. But not if it puts people off working and we miss out on skilled labour we really need as a consequence.

That's correct - if you live in England or Wales. Scotland has more tiers and different rates.

It's clear enough on the HMRC website and it's probably the same information on your letter:

https://www.gov.uk/income-tax-rates

It is correct that fiscal drag has reduced the value of the salary where people start to pay higher rate tax, but if they'd put the allowances up, they'd have needed to raise taxes elsewhere or cut services, which isn't necessarily what people would want.

And when you read up about it, answers your question in the negative for higher earners in Scotland, who pay higher rate taxes from an even lower salary (42% above about £43k)

https://www.gov.uk/scottish-income-tax

(the numbers in link include the standard personal allowance)

Ah ok - didn't know the poster was in Scotland. I am in England.

I don't think she is but a fair number of posters do live in Scotland and income tax rates are not UK wide.

£50,271 is where the 40% tax starts

Can you explain how the effeftive tax rate is over 100%? Genuine question, I'm assuming you're factoring loss of child- related benefits or childcare subsidies?

And that's £50,271 after pension contributions, so in reality the 20% band extends quite a bit higher. I'm on around £55/56k and I'm really close because of the amount I'm required to put into my pension. Currently looking at opening a small SIPP to make sure I stay below it so I keep my £1000 allowance for savings interest.

@PartyOFive this article explains the issue with high marginal rates

https://taxpolicy.org.uk/2024/10/17/reform-income-tax-end-the-scandal-of-high-marginal-rates/

problem is it only affects “rich” people so no politician is going to change it

I expect so. The tax rate is not over 100% (unless you treat not receiving a benefit as a tax, which is a bit weird) but there is a small band in which you are worse off earning more if you have kids in nursery.

It's 42% tax on just over £43k in Scotland then 45% over £75k so we pay more tax in Scotland for the same amount of income. Wouldn't mind so much if the Scottish government knew what to do with it and services were better.

I think someone earning the top.of the 40.percent bracket also...

Loses personal allowance (or used to I'm not sure of current rates for PA reduction)
Loses CB (which someone at the bottom won't although that depends on partners income too)

Those earning £100k+ have an awful hit as they start to lose their personal allowance so they are effectively taxed at 60%. It’s all well saying these earners can afford it but it has a massive impact to productivity as many workers (like GPs, dentists, etc) end up going part time as don’t see the point of working and paying 60% to HMRC.

They aren’t paying the same amount tax as somebody earning a lot more.

I would rather see this tax bracket scrapped.

All the tax thresholds need to move to reflect inflation.

It’s absurd freezing them for so long - the purpose of course to raise more tax, but it means the higher rates kick in lower and lower.

The £100k is the worst:

• in place since 2010, should probably kick in at more like £160k
• means 62% tax £100-125k
• if you have a child in childcare, it can mean rates of 100%+ - and this is getting worse, as the subsidies become more generous

If you have a child or two at nursery you might also lose 10-20k in childcare help.

And… you’re paying 60%+ tax already.

So you earn nothing at all between eg £100-135k.

It has basically put a cap on earnings if you have kids. Even if you earn massively over the threshold, it’s a huge loss.

I understood you OP and agree. It would make far more sense to have staggered, more regular bands from 10% up in 5 or 10 point increases.

All the posters faux sneering "I don't think you understand, it's proportional" would presumably not like everyone to be on the same rate just because "it's proportional".