Tax anomaly on £100k salaries

[daffodilbrain]

Can any clever person please explain simply why there is a tax anomaly of salaries between 100k and £125k

From daily mail...

However, the Chancellor failed to tackle an anomaly in the tax system that sees those earning more than £100,000 annually pay an effective tax rate of 60 per cent for the next £25,000 chunk of their earnings.
This happens because their personal allowance is removed at a rate of £1 for every £2 extra that they earn, until it hits zero.
When the personal allowance rises to £12,500 this will apply up to £125,000.

Does it mean that if you earn between 100k and 125k you'll get tAxed at 60% on that bit only? And after £150k it's 45% so what happens between 125k and £150k.?

The actual rate isn’t 60%, it’s just that once you add in the effect of losing the personal allowance at the same time then it may as well be - the effective marginal rate is 60%. Does that make sense?

It's always "on that bit only" for income tax.

The actual taxation rate is 40% for 34.5k-150k, the "effective 60%" is after including effects of other changes. Not seeing how a 10% reduction from the personal allowance adds up to 60%, but lots of sites are parrotting it as if it makes sense.

So if you earn 99k you aren’t taxed on the first 12,500 you earn. Whereas if you earn 120K you are earning 20K more than 100k, so if you lose £1 for every £2 extra earned of the personal allowance, your personal allowance has reduced by 10K. So then you are paying tax on everything above £2,500. At the correct rate for that band, so not all at the top rate.

It’s 60% because as well as the 40% you’d be paying anyway on income at the level, you’re also suddenly paying the 20% basic rate on the lost element of the personal allowance.

Between 125 and 150 the marginal rate is 40% because there is no more personal allowance left to lose.

Ah! Of course, thanks witch

daffodil if it doesn’t make sense then shout and I’ll explain with some examples!

It’s an anomaly that matters to very few people but it is a bit uneven they could have achieved the same thing in a ‘fairer’ way by lowering the threshold for the higher rate, but that would be easier to understand and so generate more negative headlines, at least in certain sections of the press.

Thanks I think I've got it. It's all in the spin isn't it. Thanks witch and everyone.

The marginal rate is actually even higher if you’ve got kids as that is the point you lose access to tax free childcare and 30 hours childcare. There are strong incentives to put anything over the 100k into a pension.

There are strong incentives to put anything over the 100k into a pension.

Or work fewer hours if your pension pot is already at the lifetime limit (hence GPs and dentists trend to reduce to part time hours).