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.

Ah fair enough - I’m too old to have paid under the new system.

I agree that the 40% band is huge and the £100K cliff edge is a killer, especially if you have children. £100K is a good salary ofc, but it won’t go far in many cities.

Personally, I’d like to see the 40% band reduced to 30%, then a “super tax” or (say) 60% on those earning £1m+. I don’t think there will ever be much political will for that though.

You’re only (“only”) paying 40% over the portion over £50,271(?) though, so if you earn £55,000 you’re paying 40% of £5k not 40% of the entire wage. I do agree though that 20% to 40% is a big jump, why is there not a 30% band 🤷🏼‍♀️

What scenario are you talking about whereby you’d be looking at maxing out your pension contributions? To stay below £100k net adjusted income?

People at the top and bottom of the higher rate bracket don't pay anything like the same percentage of their salaries in tax.

At the bottom of the bracket, an employee earning £50271 per annum with no pre-tax deductions pays £7450 tax and £3016 national insurance (which is just a tax), which totals 20.8% of their gross pay.

At the top of the bracket, an employee earning £125140 per annum with no pre-tax deductions pays £42516 tax and £4513 national insurance, which totals 37.6% of their gross pay.

At the top of the bracket the total tax rate is much higher, 16.8 percentage points or 81% higher than it is at the bottom.

@Didimum Yes, I know its net adjusted, which I why I mentioned that to try and mitigate some of these issues I contribute more to my pension (i.e., to reduce my net adjusted income to under £100K). But it's very easy to say, and a lot harder to do in practice given I kind of need that money now whilst life is the most expensive it will ever be for me (again, as I said big mortgage, cost of young kids and childcare etc.),

Does your pension provider give you tax relief at the basic rate? If so you can also add on the grossed up amount.

Since someone can make extra salary sacrifice and still take home a good £5,700 a month and receive tax free childcare, I’m not sure there will be much sympathy around these parts.

Yes.... I'm aware of how tax relief works. It is also capped though, don't forget.

And this attitude is why the cliff edge is still in place. Because people tend to simply adopt the "you earn loads, no sympathy from us" mentality. I appreciate its a lot of money, and I'm extremely fortunate to receive that pay... but countless economists have provided research and reports to explain how this cliff edge is (i) reducing growth and incentive to work; (ii) actually reducing the tax take for the government. If they removed the cliff edge and sudden loss of childcare (which is the real kicker, and worth more than the personal allowance for a lot of folks) £100k+ earners wouldn't be shoveling great sums into a pension, they'd just be taking the usual 40% hit on it - hence, the public purse starts collecting 40% of £100k+ instead of the big fat £0 it usually gets at the moment. It's a total own goal, but is politically hard to change because of the "my heart bleeds" mentality.

You’re just getting hostile now. Pointlessly really.

I am simply bringing up the net adjusted scenarios in case you’re not aware – I’d say more than half of people entering this salary do not know any of the above and aren’t claiming their hours and tax off like they are entitled to.

We are also in this cliff edge so I’m aware of the stupidities. I am just saying it’s Mumsnet, so that’s the response you will get unfortunately.

P.S Isn’t the cap £50k or something??

Another person who doesn't understand marginal taxation, we need better financial education!